Before his death in 2016, the man dubbed the “founding father” of ACC in New Zealand Sir Owen Woodhouse said the government should take back the money in a fund controlled by ACC (current value = $36 billion) to use more usefully, as well as radically reducing the ACC fees which were much higher than need for the pay-as-you-go system he originally designed.
I explained a few weeks ago that the government had $36 billion in an investment account that could be taken and used to fund the desperate improvements we need in the health sector. They could do this without breaching their self-imposed fiscal responsibility rules.
Sometimes I think when I make what seem like outrageous claims people just don’t believe me.
So I would like to offer in evidence the testimony of Sir Owen Woodhouse. He actually agreed with me. He said the accumulated fund could be better used for other purposes and also said that ACC levies could be radically reduced at the same time with an improved service provided if we returned to a proper pay-as-you-go system.
The current government could take the fund, fix the crisis in health funding, and be wildly popular with all motorists who would be paying hundreds of dollars less in fees.
Woodhouse was one of the greatest legal minds of his generation in New Zealand and eventually served as President of the Court of Appeal.
But it was his role as Chairman of the Royal Commission on Accident Compensation in 1966 and 1967 that he left his permanent legacy in what became known as the Woodhouse Report that recommended the no-faults ACC scheme that New Zealand has today.
But one aspect of the scheme recommended by Woodhouse was subsequently undermined at great cost to New Zealand society – that was that the scheme be run simply as a pay-as-you-go system from current levies and taxation – not based on the private insurance models that inevitably were much more expensive to run and led to a denial of peoples entitlements in the search for profit.
Having the system shifted towards one based on a private insurance, fully funded model means that working people have been savagely taxed through punitive levies to build up the ACC fund.
In addition, the culture of ACC was changed so much that it became almost impossible for many people to access their legal rights. Ordinary working people making a claim were treated terribly as a culture of denial took hold. The same culture was introduced to WINZ for accessing welfare.
Big companies were also allowed to manage their own funds. These companies then had a direct material interest in denying entitlement. Workplace accidents were ignored or workers told to say it happened at home. Some medical personnel working for the big companies specialised in finding any cause other than an accident, no matter how fanciful, to deny entitlement. Few workers had the support and resources to go through the complex appeals process.
Woodhouse passed away in 2016, but not before giving a number of angry interviews late in his life over how the scheme he has initiated had been corrupted by successive governments.
Woodhouse thought the fund could be kept as a reserve for emergencies. But earthquakes and wars can be dealt with by aggressive spending and budget deficits when needed. The National government did that after the Christchurch earthquakes when they abandoned their so-called fiscal responsibility and went to budget deficits of up to 10% of GDP – levels not seen since the late 1970s and early 1980s in New Zealand.
The “emergency” we face now is an emergency of health underfunding. $36 billion is more than enough to fix it including whatever pay rise the nurses want and deserve.
I repeat again – don’t let anyone tell you “we” can’t afford it. We can afford it with different principles and priorities.
Below: Two extracts from two interviews with Sir Owen Woodhouse
An interview by Simon Collins in the September 11, 2011 New zealand Herald
The founder of accident compensation, Sir Owen Woodhouse, says accident levies could be slashed if the system were returned to its original “welfare-based” principles.
Sir Owen, now 95, told a seminar at Auckland University the system he designed in 1967 was feasible only because it was funded on a pay-as-you-go basis just like health, education and other social services.
He said the 1998 change to a “fully-funded” insurance scheme, setting levies in each year to cover the whole future cost of accidents that occurred in that year, was “a grave mistake”.
“The funded approach should cease… The overall amount collected as levies could be greatly reduced,” he said.
“It was done by substituting a single state welfare service for the earlier systems, and converting the insurance premiums to taxes levied on wages and vehicles.
“Only $50 or $60 of every $100 collected as premiums had ever reached the injured. The welfare system could return as much as $90.”
In practice, the original Accident Compensation Corporation (ACC) set levies above pure “pay-as-you-go” costs to build up a reserve fund, but it didn’t act like an insurance company.
This changed in 1998, when the National Government opened ACC to private competitors and began to increase ACC levies gradually to a fully-funded basis.
Labour, elected a year later, restored ACC’s monopoly except for a few big “accredited employers”, but continued to move ACC levies to full funding. John Key’s Government wants to reopen the scheme to competition next year if re-elected.
Labour ACC spokesman Chris Hipkins said Labour wouldn’t allow competition, but there was “an inter-generational argument” for full funding so people having accidents now did not pass future costs of supporting them on to their children.
Former Labour Minister David Caygill, who chaired the ACC “stocktake” that endorsed reopening the scheme to competition, said a competitive insurance system with fully-funded premiums based on an employer’s accident record would be an incentive for workplace safety and help the injured back to work.
But Sir Owen said that would give employers incentives to claim workers were injured somewhere other than at work. Everyone benefited from risky jobs such as aerial topdressing, and the costs should be shared on a pay-as-you-go basis just like other social services.
“The state doesn’t ask itself how many of today’s children starting school will go through to university and what it will cost to do that. Do we charge a parent sending a child into the system today for all those future costs or do we let the cost fall each year where it’s needed?”
ACC overcharge – according to Owen Woodhouse
Employers, per $100 Current*: $1.32 Woodhouse: $1.00
Workers, per $100 Current*: $1.70 Woodhouse: $1.00
Cars, per licence Current*: $228.23 Woodhouse: $100.00
Motorbikes under 600cc Current*: $376.86 Woodhouse: $50.00
Motorbikes over 600cc Current*: $490.96 Woodhouse: $50.00
*Current (April 2010), Includes GST
The following extract is from the June 25, 2012, National Business Review:
Back in 1967 the former president of the Court of Appeal chaired a Royal Commission into Accident Compensation which led to the creation of New Zealand’s much acclaimed no-fault accident compensation scheme.
It was funded on a pay-as-you-go basis just like health, education and other social services.
But in 1998 the National government changed it to a fully funded insurance scheme, setting levies in each year to cover the whole future cost of accidents which occurred in that year.
“ACC suddenly became far more expensive when it became a funded system and that was a grave mistake,” the sprightly 95-year-old says.
“Immediately the cost advantage and accuracy of a pay-as-you-go welfare based system disappeared and every year since then both employers and all owners of vehicles have been required to pay much larger sums than are necessary.”
Speaking exclusively to NBR ONLINE in his rambling Remuera home, Sir Owen chooses his words carefully, all too aware ACC is a hot political potato which has cost many people in high places their jobs and reputations over the years.
The fallout from the recent Bronwyn Pullar affair alone has claimed the scalps of an ACC Minister, the chairman, the chief executive and three directors, and the retired judge does not want to become collateral damage.
Which is why he made it clear from the outset that “I have no intention or desire to take sides in a political debate. After all, it was a bipartisan political decision which introduced the system”.
But that said, he wasted no time commenting, albeit diplomatically, on the stands being taken by politicians with regard to ACC.
Labour and the Greens favour a return to a pay-as-you-go system which some say could see premiums plunge by up to 25%.
And until a few days ago National appeared to be entertaining similar thoughts, but is now backtracking in favour of the fully funded model or perhaps even privatisation.
National’s about face is not what Sir Owen wants to hear. But rather than engaging in a slanging match he prefers to re-state what he sees as the overwhelming advantages of his system.
He says the pay-as-you-go system originally envisaged for ACC needed a levy of no more than $1 in $100 of wages.
It would also slash levies on car licences from $228 a year at present to about $100, and on motorcycles from up to $491 to $50.
“The other benefits are that the levies could be averaged; the individual Work, Earners, and Motor Vehicles accounts could and should be amalgamated; and the way would once more be open to extending the system to sickness incapacity as proposed by the Law Commission.
“There’s also the matter of the $15 billion of accumulated funds presently in hand.
“These excess funds, which are now held as investments, would become available as a large and necessary contingency reserve against the risk of a major disaster, with an appropriate balance available to underwrite reduced levies.”
His advice to those who want to revamp ACC is very simple.
“When you are peering into the future it is not at all a bad idea to remember where you have been.
“The social responsibilities which underpin ACC ought never to be tested by clever equations, or brushed to one side by economic dogma.
“In the end, they depend on decent fellow feeling and the ideas and ideals that support it.”