Open letter to new Government: How to find $36 billion for health spending and lower ACC levies at the same time
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.”
Of course we can afford to. ACC has been fleeced to create a pool of capital for various people to dip their greasy hands into. It would be great to see a fully audit of ACC going right back to the 1980s, and where all the money that went in over the years has spent time.
On a slightly different topic, there is another way the government could massively increase revenue, and it could be tied to spending health (and education) as it was in Washington and Colorado; create a regulated, taxed, R18 market for cannabis. Colorado has about the same population as Aotearoa, and within a few years of legalizing, they ran out of ways to spend their massively increased health and education budget, and had to pass an amendment to allow tax revenue from cannabis sales to go into the general fund.
Even the Drug Foundation, with counts some *very* conservative organizations like the Sallies among its membership, is now recommending a legal cannabis market. When, oh when will the politicians catch up?
Once they’ve worked out a way so that only Big Pharma can profit from it and all the small people are prevented from competing with them.
That is, of course, why Labour didn’t back Chloe Swarbrick’s bill that allowed any one to grow their own. It actually allowed and encouraged competition and even, dare I say it, cooperation.
Totally agree with this advice on all aspects.
The huge surplus fund should go towards funding urgent state / public needs.
The ACC system has been mongrelised and is now a monster. People who should have received ACC support were denied, time and time again while the private practitioners who were paid by ACC to provide patient ACC care – the patients lucky enough to be granted it by ACC – have built small glass palaces to practise out of. It all needs roping in.
I assume that the bulk of that fund however is invested in offshore markets….theres a reason for that, to spread risk. Now I agree that now is not necessarily a great time to be exposed to those markets but is it wise to repatriate it ?….perhaps a percentage and I guess given the time required to implement any substantial infrastructure project it could be done over a period. Certainly the intent could be announced,
Your call may well be prophetic.
Why insurance should be a state monopoly
“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.”
Mr Woodhouse lived in another age, and perhaps his later comments were formed by that.
Mike, the investment the ACC Corp has in overseas shares and bonds and so, that is casino money. It has so far paid off for the gamblers in charge of the ACC Fund, to win, and get more in return, for what they ‘invested’, i.e. gambled with on the international markets.
That may of course change one day, but why disturb the ‘gambler’ doing ‘well’ for NZ Inc?
Are you an idealist or pragmatist, the pragmatist we have in the present government is happy with the status quo, and happy to get more returns, and do with it what they see fit.
The idealist may think otherwise, see the risks, and warn, hey, do it differently
So we have voters who can decide, do they know, do they understand, do they act as informed voters and democrats?
I doubt they are, so I get your point, but as we are linked into an international market where EVERYTHING is TRADED, even humans as workers or not, we are condemned to play the shit game we have.
Voters can opt out, as they are not informed, they are too frightened to do so, hence a authoritarian government can decide for them, but have we got one that has the guts?
I despair at times, at the naivety, or indifference I see and hear around me. You write some sensible stuff here, but it seems like an isolationist viewpoint, not based on the real world we face, and which we are locked into. I hear the activist base scream and shout, but have they the voters behind them?
The status quo is not pragmatic. Pragmatism is all about doing what is possible and capitalism simply doesn’t work in the Real World which means that it’s not possible. That’s why it always collapses and takes entire civilisations with it.
“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.”
You may fail to realise, the pay as you go model functions well in a ‘growing economy’, which in NZ Inc is really often based on a growing population creating a ‘growing economy’ situation, nothing else.
The flaw with that system is that you have a growing base of younger and/or immigrant population, that funds the relatively affordable existing population percentage needing ACC support. The same principle applies to retirement incomes and services, it is like have more babies and you will be looked after well.
The insurance model is more like pay and save, and make sure that you have enough for the needs that come with sickness, injury and old age.
That is never an easy model, but it is more reliant on good investment in ‘productive’ economic activities, so that a country or society can afford what it needs.
Of course both approaches have some flaws.
But we have in NZ had a lazy approach by various governments, both left and right, to ‘solve’ the challenges. John Key chose immigration and easy investment regulations to do this, this government has caved in and is also using immigration to solve many issues, and with ACC, I think, they will be no different to Nats.
If you can present a solution that does NOT rely on growing the population, i. e. more kids or more immigrants carrying the relative burden for the sick, injured and aged, then I will commend you. If you simply follow the flawed past approaches, you are in dead end street territory, I’d say.
NZ has limited territory, limited resources and hence can only sustainably have so much in population. So far I see most politicians behave like lazy folk or cowards, not addressing the real problem and challenges. In any way, the more people we have, and the more we shift the final solutions into the future, we are condemning our future generations to a failed state and society scenario, where nothing will be sustainable. We are close to that in Auckland, so do not sow sand into people’s eyes, do not sell illusions and lies, face up to it, we cannot carry on as usual.
In 1972 it was envisaged the fund would be built up to a point where it would be applied for illnesses. Redic that a young mother or father with terminal cancer get poor state support when a crim gets compo for injuries incurred on a burglary.
ACC has become an exploitive carbuncle on the neck of society
Good to see this questioned
Worse still the assets in ACC are not offset against gross debt when the government is calculating its net debt target.
The fund tries to make ACC look like private insurance. Sir Owen rightly insisted it was Social insurance- not constrained by the fine print and making a profit
Good stuff, Mike Treen, and I liked the way your blog got lotsa support from comment. I think we should pursue the Labour led government’s fixation on balancing the budget, you say “self imposed fiscal responsibility”. Get real Robertson, reject the Nats neo-liberal argument for not ‘over spending’ that conveniently ignores their own agenda for not spending on basic social services, failing to sustain decent health care,education etc which the new government are now struggling to provide. Past Labour governments went into debt, borrowed to put things right. Respect the social wage contribution which should support the needs of ordinary people.