Whither ACC?

There is no doubt the Accident Compensation Corporation faces considerable funding challenges, but such is the intemperate tenor of ACC Minister Dr Nick Smith's pronouncements and actions - the latest being his unheralded and reportedly overbearing appearance at the transport and industrial relations select committee last Thursday - the suspicion arises he is unduly trying to "soften up" the public for as yet unannounced and radical changes to the scheme.

The sacking of board chairman and former union boss Ross Wilson, and impending replacement of other members of the board, is further evidence of the Government's intention to take the corporation in a different direction to its predecessor.

However, Mr Wilson's removal should not come as a complete surprise: he was a Labour Party appointee and presided over an expansionary period in benefits and costs at ACC.

The National-led Government means business and in the case of ACC certainly cannot be accused of sitting on its hands.

The announcement on Tuesday of a $32 rise in the motorists' levy, although unlikely to be welcomed by car-owners, shows that it is making a start in addressing some of the scheme's funding issues.

These are thought to amount to a shortfall of $300 million annually for the next five years and arise through the convergence of two factors: the global financial downturn and the benefits-and-costs blowout.

In the late '90s, ACC was changed from a pay-as-you-go scheme to a model that took account of the future costs from current claims.

This "fully-funded" regime took a portion of the levies charged and invested them in funds so as to reduce the actual costs compared with the pay-as-you-go model.

The lifetime cost of all claims was supposed to be fully funded by 2014.

But, as with other investment funds, ACC has suffered significant reversals in the share and bond markets with up to about 75% of the annual funding shortfall thought to result from this.

One answer to this - as mooted by the outgoing board - is to move the 2014 deadline out to 2019, which would substantially reduce the hike in levies that Dr Smith has liberally used to get traction on the matter.

This would make good sense, since the financial meltdown has been much more sudden and savage than anyone - including the last government - could have predicted.

On the second front, Dr Smith may be on firmer ground, although some independent commentators have claimed ACC "ain't broke and doesn't need fixing".

He says that, under Labour, ACC became less of an accident compensation scheme and more of a welfare agency.

The corporation was established in 1974 as a no-fault compensation scheme for workers injured in accidents, whether at work at the time or not.

In 1995, a government report indicated that small claims involving no more than two visits to a doctor consumed 91% of the total payout.

This startling figure is thought to be approximately still the same and raises some first-principle questions of the scheme.

Primarily, what is it for? When is an accident an accident? Where should personal culpability end and State responsibility begin? How far should that largesse extend - for example, to physiotherapists? If accidents are to be subsidised by the State what about (accidental) illnesses? Should certain physical contact and adventure sports attract additional levies or private insurances?

Dr Smith and, to a lesser extent, Treasurer Bill English, have been right to draw attention to the problems at ACC.

Former finance minister Michael Cullen and ACC minister Maryann Street were technically exonerated in a report released last week of obscuring the corporation's true financial position for the pre-election financial update, but National may have genuine cause for alarm at the "hospital pass" it has received over the state of ACC's finances.

However, Dr Smith is almost certainly incorrect when he says ACC is "technically insolvent" and with his more extravagant pronouncements appears to be gilding the lily.

With a new chairman and board appointed, he needs to tone down the rhetoric and get on with sorting out the problems - in a calmer and more confidence-inspiring manner than he has done to date.