ACC’s $1.5b shortfall should have been disclosed before election - inquiry

The previous Labour-led government should have revealed a $1.5 billion ACC funding gap in the run-up to last year's election, a ministerial inquiry concludes.

The report found the shortfall in the Non-Earner's Account was known to ACC, the Department of Labour, Treasury, ACC Minister Maryan Street and Finance Minister Michael Cullen in time for it to be disclosed as a fiscal risk in the Pre-election Fiscal Update.

"The previous government knew about the funding hole and effectively hid it. There are systems in place to protect us from this, but in this case they did not work," Finance Minister Bill English said when issuing the report today.

The most recent estimate was that the government would have to inject $385 million this year just to keep ACC's Non-Earner's Account afloat.

"This amounts to more than $1.5 billion over four years, which is a significant burden on the government's accounts."

The inquiry, by Michael Mills, director of consulting firm Martin Jenkins and Associates, found the funding shortfall met the legal criteria of a fiscal risk and should have been disclosed. It also found the pending election should not have been a constraint on the previous government considering or disclosing the matter.

According to the report, Treasury's rules for the fiscal risks section of the Pre-Election Fiscal and Economic Update did not always reflect the provisions and intent of the Public Finance Act.

"Treasury secretary John Whitehead has advised me that Treasury accepts responsibility for the part it played in this error and is committed to acting on the report's recommendations," Mr English said.

Those recommendations include Treasury updating rules on the disclosure of fiscal risks to bring them in line with the Public Finance Act and reviewing the training and guidance given to staff involved in economic and fiscal updates.

Other recommendations include ACC and the Department of Labour shortening the current process for the government meeting any funding shortfalls and reviewing their systems to ensure ministers get timely advice on pressure points.

The government would implement all the report's recommendations, Mr English said.

The report also painted a worrying picture of ACC's growing costs and liabilities.

"This represents a significant risk to New Zealand households. The report paints a picture of deteriorating rehabilitation performance and large future increases in levies," Mr English said. "In a time of recession, we need to ensure ACC is performing its job effectively."