Woodhouse Michael: Debate on Crown Entities Public Organisations and State Enterprises — In Committee 
Woodhouse Michael: Debate on Crown Entities Public Organisations and State Enterprises — In Committee 
[Volume:654;Page:3786] 
MICHAEL WOODHOUSE (National) 
: 
 I will start by talking about the one thing that I agree with in relation to what we have heard from our friends on the other side of the Chamber. The Hon David Parker said this has been a sad year for the Accident Compensation Corporation (ACC). But there sadly any agreement ends. To suggest that the situation ACC finds itself in is somehow manufactured by the new Minister absolutely beggars belief. 
ACC really is an organisation that is simply too important to have that sort of politicking done to it. Last year 1.7 million New Zealanders made a claim with ACC. That is 1.7 million people who had an expectation of a fast and lasting return to work or to independence to the maximum degree possible. 
ACC is one of this country’s largest public institutional investors. It has more than $10 billion invested. It has built up those funds over the last 10 years or so out of a plan that was put in place to achieve what is known as “fully funding the scheme”. Full funding and the solvency of the scheme—we have got into some definitional questions here—are such that the assets of the scheme will meet or exceed the net present value of the future costs of the claims that are currently on the books. We have a situation where a residual claims levy was put in place that was intended to have those claims fully funded by 2014 and new claims coming through should have their costs fully funded by the levies that were collected in each year. 
I have been doing a bit of an analysis of the scheme’s drive towards solvency and I have been plotting the corporation’s performance on this graph. The black line is the goal year on year towards achieving that solvency by means of fully funding accident compensation in the year 2014. As members can see the red line which represents progress towards that target has shown that the corporation was performing extremely well until about 2005-06 when things did not just change but took a veritable U-turn. Suddenly the solvency ratio of the scheme went down. This is very important because we have heard for the last 6 months that this has somehow been caused by an economic downturn— 
Hon Shane Jones 
: Market volatility. 
MICHAEL WOODHOUSE 
: —and by market conditions changing. Well let me tell members—and everybody knows this—the corporation was outperforming the market in 2005-06 and in 2006-07. Its rates of return were considerably more than the average that was expected of it and more than what had been budgeted for. The fact is that the downturn in the scheme’s solvency had very little to do in those years with the financial performance in the market. 
If that is the case then what was happening? Well I think that about three things were happening. Firstly there were very poor estimates of the cost of new cover in the scheme. We can think of treatment injury. In 2004 it was expected to cost $8.9 million a year; now it costs something like 10 times that amount. The cost of the endorsed provider network for physiotherapists was meant to be around $50 million. Now it exceeds a quarter of a billion dollars and it is climbing. There is a plethora of such examples. 
There has also been some levy decision-making that I do not think has been very good. Officials went to the previous Labour administration and said they thought the levies should be set at a certain level. What has happened? That level has not been set. Why? Probably because of political expediency. It is sad for the corporation but the chickens are now coming home to roost. 
Thirdly rehabilitation performance has gone south. Claims rates are increasing year on year by 4 or 5 percent despite the efforts at injury prevention and claims duration is increasing. Three-month rehabilitation rates are down by 5 percent. Six-month rehabilitation rates are down by 4 percent. Twelve-month rehabilitation rates are also down. Those rates are a really important indicator of the long-term costs of the scheme and they have gone down. 
What has been most disappointing is the fact that the previous Labour administration knew all that and failed to disclose it despite having had successive opportunities to do so. Labour has used as a smokescreen a report that despite having a finding that Labour was in breach of the Public Finance Act puts some of the blame on to Treasury. I do not think that is acceptable. I will continue to explain what Labour members said. They said that insufficient detailed scrutiny was given to the $305.5 million of new money that Vote ACC needed just in order to sustain the non-earners account alone. Frankly whether it was $285 million $295 million or $305 million really did not matter. The previous Minister for ACC and the previous Minister of Finance knew they had a duty to disclose that situation in the Pre-election Economic and Fiscal Update and at other opportunities and they did not take those opportunities. That is a shame on that administration. It is the reason that the accident compensation scheme is in a sad state.  
Accident compensation is too important for New Zealanders to be treated in the manner that they were under the previous administration. New Zealanders deserve to be given greater clarity about what they can expect from the scheme and about the costs of entitlements to the scheme so that we do not have these lurches in levies year on year. Frankly in the last couple of years the lurches have been upwards only. I look forward to working with and for a Government that understands those things and will bring some rigour and discipline back to the accident compensation scheme in future years. 
Report noted.