Funding issue brews in ACC's cauldron

21:27, Jun 20 2012

It is a tribute to Judith Collins' image-making that she is still seen as tough and in charge.

Otherwise, with ACC embroiled in a privacy furore, four board members down the road, a chief executive gone, a major question mark over its future funding and the handbrake on plans to introduce privatisation, she might have been fighting off accusations she was more of a car crasher than a car crusher.

It is not to underplay the serial debacle over privacy breaches, nor the ham-fisted attack by the corporation on whistleblower Bronwyn Pullar, to say ACC faces other important but less headline- grabbing problems.

They include its future funding, its priorities and whether it correctly strikes the balance between cost control and fairness to claimants.

Funding has been dragged centre- stage this week, with Labour calling for a public debate over whether to dump full-funding in favour of pay-as- you-go (PAYG) - an approach broadly supported by the Greens, the main ACC lobby group, retirement policy academic Michael Littlewood, social policy expert Susan St John, and the trade union movement.

Ms Collins was at first equivocal. Ministers had agreed to a funding review and nothing was ruled out.


But she has since poured cold water on the idea, saying future generations should not be burdened with the cost of today's injuries as well as their own.

There are other reasons why National and ACT would be wary of PAYG. It would be a near-fatal blow to any plans for private sector competition, predicated on full funding and a level playing field for levy-setting.

Her appointments to the board may give a better steer, but it is time to look at the funding mix in light of the changed environment and the current economic climate, even if that does not go as far as abandoning full funding.

Put simply, the current fully- funded model ensures ACC has enough in reserve to meet the current and future costs of existing claims. It has made good progress towards its 2019 goal, and is just $4.5 billion shy of matching liabilities ($28.5b) with assets ($24b).

A PAYG model requires levies to cover only current costs with a buffer for unexpected events, so if full funding went, levies could be set much lower over the next few years.

With the economy flat, the potential $1b effective tax cut for workers, motorists and employers would be welcome.

There are powerful arguments against full funding. We do not take that approach with other known future costs, be it health, education or benefits. And a distinction can be made from the Cullen fund, which pre-funds a known spike in pension costs - and there is no reason to expect anything like that sort of boost to the cost of claims for accidents.

PAYG also allows costs, via levies, to be more finely tuned to match entitlements and changing state policy. But if lower levies are the Government's goal, there are a couple of halfway houses that might fit the bill without canning full- funding. One would be an effective "contributions holiday" on the road to full funding. Another could be a more gradual route, pushing full funding out beyond 2019.

The nuclear option proposed by Green MP Kevin Hague - PAYG, plus gutting up to $15b of ACC's $20b in reserves and using them for anything from the Christchurch rebuild to new capital projects - will almost certainly be too rich for Labour.

Nor is Labour support for a shift to PAYG assured, despite spokesman Andrew Little's obvious enthusiasm.

As one senior Labour MP put it, the full-funding project is nearly complete. Why stop now? And it is better to have one of the state's future major costs fully funded, before higher health costs hit the books, rather than fund all future social policy costs from future revenue.

It is a debate needed now, not least because the demands of a full-funding model impact on the way claimants are treated and compensated. That has never been more starkly in focus than right now.

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