GOVERNMENT DETERMINED TO RESOLVE THE TOUGH QUESTION OF ACC FISCAL RISKActing Prime Minister
"The Government is determined to address the tough question of managing the costs of past and future ACC claims," ARCI Minister Murray McCully and Associate Minister Deborah Morris said today.
"It's time that the billions of dollars of liability from accident claims that already have been accepted by the ARCI Corporation was dealt with," they said. "Consultation with employers' representatives and other key stakeholders will be critical in managing the process of resolving the unfunded liability of past ACC claims," the Ministers said.
"The Auditor General has indicated that the unfunded liability should be formally recognised. The outstanding claims obligations will be recorded on the Crown's balance sheet at 30 June 1999. "This 'tail' of claims has not been on the Crown's books until now, but it has been disclosed in the notes to both the ARCI Corporation's and the Crown's financial statements.
The unfunded liability was estimated at $8.2B in the last ARCI Corporation Annual Report. Around $5B of this liability is charged against the ACC Employers' scheme," the Ministers said.
"This would be the case irrespective of the introduction of competition to the Employers scheme. "Recognising this unfunded liability results in a net negative impact on the Crown's net worth of around $8 billion at 30 June 1999," the Ministers said. "But this change in accounting policy will not affect cash flows or net Crown debt."
"In the past, the ACC Employers' scheme has been run on a pay-as-you-go basis which meant that premiums were based on the forecast level of claims for that year, plus a reserve of six months. "Over the years, the proportion of the present premiums that went towards meeting past claims crept up so that now around 85% of the current premiums for the ACC Employers' scheme pay for workplace injuries that occurred in the past.
"With the introduction of competition, it is expected that employers will pay their premiums in advance, in line with normal insurance practice," the Ministers announced today. "About three quarters of employers and the self employed are paying their premiums in arrears, so that an estimated $800M will be owed as at 1 July 1999."
"The Government will also be discussing with employers' representatives the best way of collecting those arrears. One option is that they be collected over a number of years to smooth the cash flow impact on employers. This asset will be brought onto the ARCI Corporation books and will make a positive one-off impact on the Crown balance sheet in the year it is recognised.
"With commercial insurers as well as a Government-owned insurer underwriting claims for workplace injuries, the fiscal risk to the Crown will be reduced whereas under the current system it would have continued to increase."
The Ministers said that other fiscal implications associated with the move to competition included: · one-off costs which included the costs involved in restructuring the Corporation, · the establishment of a regulatory authority, (and) · changing Inland Revenue Department (IRD) premium collection systems, although there are also be savings for IRD with employer premiums no longer required to be collected.