Editorial: ACC action vital

OPINION: When New Zealand workers received their tax cuts on April 1, there were warnings that their value would be eroded or wiped out by increases in other Government charges.

That this will actually occur is clear from ACC's financial problems and its warning that "unpalatable" hikes in its levies are inevitable.

For the present Government, ACC has been one of the most challenging portfolios. No sooner had it taken office than it discovered that the non-earners account had blown out. In March it replaced half of the ACC board in an effort to control costs.

But the full extent of ACC's woes were not revealed until the corporation released its annual report last week. The corporation posted a $4.8 billion loss in the year to June and its outstanding claims liabilities have risen to $23.8b, with its assets worth only $11b.

Part of the reason for this poor position is that the recession has eaten into ACC's investment returns. Yet it is also apparent that the previous period of healthier returns disguised the true state of ACC's books, including that claims had not been fully funded for several years.

Also driving the deterioration in the financial position are a sharp increase in the number and the cost of claims, worsening rehabilitation rates and the previous government's extensions to the scheme.

To address ACC's parlous finances, increases in its levies will be required. Although Prime Minister John Key says that rises of up to 50 per cent, which have been mooted, would be unacceptable, it is clear that the increases will be significant.

For many New Zealand workers, who were forced to accept major increases in the earners levy and the motor vehicle levy earlier this year, the new levels will be another unwelcome impost on their household budgets as they struggle to deal with tight economic times.

But levy rises are only part of the solution, if a recurrence of ACC's financial problems is to be avoided. The corporation itself believes that it can find savings of $2b in its operations, although this will go only part of the way to meeting the liability gap, while the Government will push back the date by which claims must be fully funded by five years.

Longer term, the Government has set up a comprehensive stocktake of ACC to examine how the scheme can be made affordable for families and businesses. Now, ahead of this full review, it will set out options for scaling back entitlements, with obvious targets being the extensions to the scheme last year.

Such is the sensitivity of ACC entitlements, the Government will seek the public's views on the options and no doubt will want changes in place well before the 2011 election.

The Government has said that its proposal to open ACC's work account to competition is not a policy priority. But this will not stop critics complaining that the Government is scaremongering over the corporation's finances to undermine it as a precursor to competition.

What would really undermine ACC and its no-fault comprehensive coverage principle would be a lack of firm action taken now to control its costs, with major levy rises not just a short-term source of financial pain for New Zealanders but something that continues well into future years.

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