Parker David: Debate on Crown Entities Public Organisations and State Enterprises — In Committee 
Text is incorporated into the Bound Volume 
Parker David: Debate on Crown Entities Public Organisations and State Enterprises — In Committee 
[Sitting date: 29 June 2010. Volume:664;Page:12254. Text is incorporated into the Bound Volume.] 
Hon DAVID PARKER (Labour) 
: 
 At the time of this debate last year the Government was trying to convince New Zealanders that the accident compensation scheme was fundamentally broken. It was exaggerating the problems that the scheme had so as to try to justify the very fundamental and negative changes the Government wants to make to the structure of accident compensation including privatising some of its public functions. How did the Government go about it? A year ago it was saying that the scheme’s liabilities were out of control. It had had some bad luck I have to admit occasioned by the international financial crisis decreasing the rate of return on investments. If we have a lower rate of return on investments and we are reliant on a pool of investments to fund the long-term costs of claims—for example someone who is a tetraplegic and might be on the scheme for decades—then of course we need a bigger pool of investments in order to meet that future cost. 
The increase in the scheme’s liabilities which is the way that number is expressed was used as an excuse by the Government to claim that the scheme was fundamentally broken. The Government revalued the long-term cost of care by making some very negative assumptions about the rate at which claims on the scheme would be made and refused to do what everyone in this House knew needed to be done which was to extend the date for fully funding old claims. By that I mean that progressively over time the scheme is moving towards having enough money in its accounts to fund the “whole of life” costs of existing claims rather than paying it on a “pay as you go” basis every year. The Labour Party had campaigned on putting out that date for full funding from 2014 to 2018 I think it was although it might have been 2019. The National Government knew that needed to be done but refused to do it until finally doing so under the cover of its legislation at the start of this year I think it was when it should have done that earlier. 
Here we are a year later and the Government through the Minister for ACC Nick Smith came to the select committee and said a few things. He said huge progress had been made over the last year—those were his words “huge progress”—so much so that the scheme is now in a stable financial position and is expected to make a $2 billion surplus this year some of which comes from increases in rates of return on investments but some of which is an operating profit—that is the scheme is collecting more in levies than the “whole of life” costs of the claims in this year. What a remarkable change we are being asked to believe! The truth is that the Government had been exaggerating the problems with the scheme in the first place and it has been caught out. 
The problem for the Government is how having been caught out it can justify the substantial changes it wants to make to the scheme. It wants to privatise what is currently a public scheme. Why? We have to ask ourselves in this Committee why the Government wants to do that. It is not because the scheme costs too much. Even the Treasury report to the Minister of Finance last year stated it was “Not clear that levies are excessive”. Now we would all like levies to be lower and maybe they were pushed up too much last year; the scheme has certainly had a surplus this year so it did not need all of that levy increase. But Treasury is right in stating that it is not clear that levies are excessive. We know that because at the select committee last year because of the Labour Party inquiries we had some cost comparisons with Australia and there is nowhere cheaper in terms of total levies than New Zealand. 
In addition we know that with the State-run monopoly which does not have to make a profit on capital—it just has to cover its costs; it does not have to return a profit to its shareholders—the administration costs of the scheme are the lowest of any in the world. There are none lower. That has been proven by the study that was done by PricewaterhouseCoopers in Australia a couple of years ago. Our scheme is already cheaper. We know it is comprehensive. We know that the no-fault principles that underlie the scheme mean that we do not waste money on insurance company margins and on lawyers’ bills fighting over liability issues. The money goes into rehabilitation care and income-related compensation so where is the case for privatisation? It is not there. But this is ideology that is driving the Government; it is not reason. 
The latest thing we have heard in the last week comes from the Government’s appointee as chair of the Accident Compensation Corporation (ACC) John Judge. What has he said in the last week? He said we should have financial penalties for doctors who have been involved in treatment that has led to accident compensation payments because the treatment did not go properly. Does that not sound remarkably like moving in the direction of the American system? Not only is it litigious and wastes all this money on litigation which the scheme avoids in the New Zealand system—which is one of its real attributes—but more important perhaps we know what happens in the United States. The United States spends twice as much as a percentage of GDP on health care in America as we do in New Zealand but its people live shorter lives. That is because money is wasted in the health system because there is such a defensive method of medical practice that people do not take any risks. They do not take any risks for fear of being sued and for fear of the personal consequences to them as doctors and nurses and as a consequence a lot of money is wasted. What does that mean? It means that instead of two people getting a hip operation the system can afford only to give it to one person. That is why in simplistic terms despite spending the US medical system spending twice as much as New Zealand does people have a lower life expectancy than we have here. 
In addition they do not do things like spend money on prevention. That is another thing that has gone wrong in the last year. The ACC board cut ACC’s accident prevention plans. It cut the Otago medical school - designed falls prevention programme which delivers services to people who are over 80 years of age who have already had a fall. We know that statistically those people are at risk of having another one. We can reduce that risk and therefore reduce the risk that they will break a hip and have to get that fixed with the attendant cost. What happened? ACC cut it. Do members know how much it was saving? 
Michael Woodhouse 
: Nothing; not a thing. 
Hon DAVID PARKER 
: Mr Woodhouse says it was not saving anything but I tell him that a peer review study showed that for every dollar that was spent $2 was saved in the first year following the intervention. Do members know why ACC cut it? It was cut because only 70 percent of that $2 cost was on its books and the rest was a cost to the health system. So this Government which cannot have one person talking to another cut a programme that saved taxpayers $2 for every $1 that was spent because only 70c of it was saved in the accident compensations system. 
This area of policy is being grossly mismanaged. I have a real fear that the Government will not just still push ahead with privatising some of the management functions and some of the operational functions when it comes to managing claims but have a tilt at privatising levy setting and underwriting and there is no justification for it. It is not evidence-based. Minister Nick Smith was caught out at the select committee. Last year he said that his justification was that some of the self-employed and the big employers have better rates of rehabilitation. He said that so we went to ACC under the Official Information Act and said we were very interested in this; please show us the information. The ACC flicked it to the Minister’s office because there was none. The Minister did not have any either. All he could produce was a press release from one of the private providers saying that it does it well. There is absolutely no evidence that the self-insured pool which does contract out the management of claims to private providers does it any cheaper or at any higher rates of rehabilitation— 
Michael Woodhouse 
: Yes there is. They stay in the programme. 
Hon DAVID PARKER 
: They stay in the programme because they actually contract out of the averaging of levies. That is why they stay in it. It is not because they have better rates of rehabilitation; it is because— 
Michael Woodhouse 
: Yes there is. 
Hon DAVID PARKER 
: There is no evidence for that and we have made inquiries on that. That is a mere assertion by that member and his Government should be ashamed that it is willing to act on assertion rather than evidence when we know that we already have a good scheme. 
It is a pleasure that accident compensation is in far better shape than the pretence of where it was last year. It is notable that the improvement in the scheme’s financial stability and liabilities and its $2 billion surplus have been achieved as a publicly owned entity that is operating publicly. There is no need to change the model.