ACC for FREE

By Jim McVeagh 11/10/2009


Well, maybe not. It seems like it is suddenly going to get a whole lot more expensive. Trevor Mallard seems to think that the government is fear-mongering. He, along with Brian Fallow and Rod Oram, seem to think that the ACC blowout is merely an accounting problem, a combination of accounting standards and poor investment opportunities. They think that this could easily reverse as the economy improves and the recession lifts. While I am sure that they are partly right and that the situation is probably not as dire as Nick Smith is making it out to be, I do not buy in to the “only accounting” meme. Here are a couple of figures from a previous post which tell you why I think that.

acc_expenditure

And this

claim_liability

You will note in the graph that expenditure for ACC remains stable until the Labour government takes over. It then rises steadily, doubling over nine years (against an inflationary rise of only 30%), yet the levies have hardly kept pace with inflation; in fact the work levy rate has actually fallen. It appears that Labour viewed the extra ACC services and the increased leniency in accepting claims as some sort of freebie, presumably on the grounds that they could make up the difference from their much-spent surplus. Be that as it may, it is certain that some of the increasing deficit is due to the fact that ACC was spending more than it was receiving from levies and taxation.

And, in case Trevor, Brian and Rod think I am just making this up, you will note from the table that the ACC deficit rises steadily from 2000, long before that recession (even New Zealand’s which started a year earlier) and it rose regardless of the discount rate the accountants were using. I conclude that a substantial chunk of the increase in liabilities came from Labour’s mismanagement of ACC, rather than the current recession. Only last year’s $2 billion loss and this year’s $4.8 billion loss are likely to be substantially due to accounting changes and the economic climate. As approximate guess would put the shortfall in current expenditure to be about a billion a year, which accords well with John Judge’s estimate of $700-800 million a year.

It is this current expenditure shortfall that is going to raise our premiums by such a significant amount, not the attempt to fully fund ACC future liabilities (which I consider to be a bit of a waste of time, given that it is so hard to get an accurate figure on them).

I have often been told how wonderful ACC is because it is so cheap and provides such good cover.

Now you know how it is done. It wasn’t free, it was deficit funding.