Feature
There's a catch
by Ruth Laugesen
As well as backing off the partial privatisation of ACC, its minister, Nick Smith, has several surprises – including the suggestion that car registration fees reflect the safety rating of the vehicle and driver.
Nick Smith is coughing, sniffling, and under siege from
squealing children. Instead of the planned interview
in his Beehive office, he is quarantined in his ministerial
Thorndon home awaiting test results on whether he
caught swine flu while honeymooning in Asia.
Within a few days of our interview, he will have been cleared of exposing the entire Cabinet to a potential pandemic, but for now he is communicating with the outside world down a crackly phone line and by email.
Smith, who has an intermittently confrontational personality
and turns bright pink when enraged, is also one of the intellectual workhorses of the new National Cabinet.
Now, he and his accident compensation portfolio are on the frontline of controversy for the new Government.
Opposition critics claim National’s shouts of alarm over the state of ACC’s finances have been exaggerated. Smith and his colleagues, say the sceptics, are drumming up a crisis as a prelude to privatisation. ACC is one of the three pillars of New Zealand’s social security system. It will pay out $3.2 billion this year in claims, up there with the $3.8 billion in benefits and $7.7 billion in pensions. Although cuts to the other two, benefits or pensions, would be politically unthinkable right now, ACC has always been an easier target. It provides crucial support to the injured, but is often resented for its levies and reviled by those who battle for entitlements. Smith says his choices are “all pretty
awful” as he tackles ACC costs, which are rising by 12% a year. He wants to pull that rise back to the rate of inflation. The corporation went into something of a “perfect storm”, says Smith, facing rising costs at the same time its massive $10 billion investment portfolio lost ground in the global financial crisis and delivered lower-than-forecast returns. Consequently, ACC needed an urgent $300 million injection of government funds before Christmas, and the outlook is one of steeply rising liabilities. Smith: “There are going to be levy increases, there is going to be some containment of the scheme’s cover, and obviously we’re going to be pushing hard for efficiency gains. It is going to be a mix of all three that gets us through this financial pickle.” Smith has several surprises up his sleeve.
He is backpedalling on National’s election promise that it would investigate opening up one of ACC’s four accounts, the work account, to competition. “We have not given any
consideration to the piece of work around investigating introducing competition into the work account. Mainly because the work account is actually the one in
the least trouble.
“The frank advice I’ve given to the Prime Minister is, ‘Look, the exploration of competition in the work account has got a potential to be a major diversion away from the major cost blowouts that are principally in the earners account, non-earners account and motor vehicle account. And why would we want to put all our political effort into the work
account that’s in the best shape?’” says Smith. “The scale of the problems within the other major accounts at ACC has
shifted our priorities.” He says it is still “possible” National
will investigate competition in the work account later in the Government’s term, but it is less likely than it was before the election.
“I’m interested in the long-term game of having ACC in reasonable shape for when we go back to the electorate in
2011,” he says. The May 28 Budget, says Smith, will contain funding for a comprehensive stocktake of the entire ACC system that will probe whether there is cross-subsidisation between the ACC’s main accounts, and look at incentives for rehabilitation and better safety behaviour. It will also look at ACC’s management of its $10 billion
investment portfolio. “The ACC model of monopoly has
some benefits, no question of that,” says Smith. “But there are also risks with a monopoly, in that it gets arrogant and fat and almost becomes a believer in its own spin. That is one of the reasons and one of the issues for this stocktake … when you don’t have the competitive pressure of a market, how do you try and provide some fair benchmarking? The focus of the stocktake is around how we make ACC into the very best 24/7 state insurer that we can make it.” National may in part be backing off an immediate focus on competition because even employers are not clamouring for more competition. A major PricewaterhouseCoopers report commissioned by
ACC last year showed workers’ accident cover in New Zealand is comparatively cheap – less than half the cost of levies in Australia, where accident insurance in workplaces is contracted out to private providers. Smith disputes the figures, however, saying the report was “highly political”.
Instead of pushing for competition, employers want ACC to provide an experience rating, which would mean cheaper
premiums for workplaces with good safety records. This is a well-worn area for argument between left and right. Unions and the Labour Party argue there are difficulties in experience rating, as there are incentives for employers to get better safety ratings by refusing responsibility for some workplace accidents. Smith is all for experience rating in
workplaces, and says it will be included in the stocktake. But that’s not all. He suggests motor vehicle levies, due
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