Ministerial Statements

Hon BILL ENGLISH (Deputy Prime Minister) Link to this

I wish to make a ministerial statement under Standing Order 347. The Public Finance Act is critical to the credibility of public finance in New Zealand. The Act requires Treasury to produce accounts that accurately set out the state of the Government’s accounts, in a run-up to an election. The purpose of this provision is to protect the Government, the Opposition, and the public. It protects the Government by presenting an independent verification of the Government’s financial position, and it protects the Government against anyone claiming that it did not reveal the true financial position. It also protects an Opposition coming into Government from finding problems it did not expect, which would compromise its undertakings as an incoming Government. It protects the public from manipulation of the public accounts for political purposes, and the resulting cynicism.

When the National Government took office on 19 November 2008, among the first pieces of advice we received was the advice that the Accident Compensation Corporation (ACC) would need substantial additional Government funding for the non-earners account, commencing this financial year. This came as a surprise to the Government, because that had been covered neither in the 2008 Budget nor in the Pre-election Economic and Fiscal Update, either in the fiscal forecasts or in the fiscal risks. From discussions at that time, it became clear that officials and senior Ministers in the previous Government had been aware of the matter but had chosen not to disclose it in the pre-election financial update, despite knowing that the item was material to the fiscal and economic outlook.

I therefore took three steps. First, I approved an urgent request for additional funds to go to ACC. This was to ensure that the corporation had the financial resources it needed to properly meet claims in the non-earners account. Secondly, I began to work with my colleague the Minister for ACC on options to manage ACC’s costs, which are growing at an unsustainable rate. Thirdly, I commissioned an urgent review into the circumstances that led to non-disclosure in the pre-election fiscal update.

Today I am pleased to inform the House of the findings of the Ministerial Inquiry into Disclosure of Funding Shortfall in ACC Non-earners’ Account report. The detailed inquiry report has been published in full. In summary, its main findings are as follows: ACC was facing a funding shortfall arising from a number of general factors. Added to the funding pressures for the non-earners account were the previous Government’s policy decisions to expand cover for treatment injury and to fully fund new claims from 2001, to increase the non-earners account funding for the treatment injury account, and to change the basis on which ACC purchased some treatment and rehabilitation services in order to reduce the need for co-payments by claimants.

On 14 April 2008 the chairperson of the ACC board met with the Minister of Finance to discuss “the issue of non-earners account funding”. On 16 May 2008 the Department of Labour provided a written briefing to the Minister for ACC. That briefing drew the Minister’s attention to the fact that new entitlement claims were above the forecast, the 3-month rehabilitation rate was continuing to drop, investment returns were below budget and target by $800 million, and the adjustment to the outstanding claims liability had added just over $2 billion to ACC’s liability and was likely to affect levy rates and appropriations in the coming year.

On 14 August 2008, ACC advised the previous Minister for ACC of its intention to seek increased funding. The amount was around $300 million, although the exact figure was undecided. The Department of Labour advised the previous Minister for ACC on ACC’s proposals on 15 August 2008, and Treasury advised the then Minister of Finance of this on 1 September 2008, well before the fiscal aspects of the Pre-election Economic and Fiscal Update were finalised on 17 September. The statement of responsibility was signed by the then Minister of Finance on 24 September.

Because Cabinet had not been presented with proposals to increase Vote ACC non-earners account appropriations by the time of the Pre-election Economic and Fiscal Update, there were no agreed changes to appropriations to include in the forecast financial statements. Treasury decided that because the matter was not under active consideration by the Minister of Finance and responsible Ministers, as required by the rules it had developed for disclosing fiscal risk, the risk to the Crown of funding shortfalls in the non-earners account would not be included in the Pre-election Economic and Fiscal Update.

The inquiry has found that the Public Finance Act requirements for the disclosure of fiscal risks in economic and fiscal updates are clear and that the risk to the Crown of the funding shortfall should have been included in the pre-election update. This was not done. Furthermore, the inquiry has concluded that normal principles and processes relating to Government decision-making in the lead-up to a general election would not have been a constraint on the Government’s ability to consider adjustments to Vote ACC non-earners account appropriations.

As a result of these findings, the inquiry recommends that the current process for updating Vote ACC non-earners account baselines be reviewed; that the current rules used by Treasury to identify fiscal risks be reviewed and amended; and that Treasury review its guidance and training to both its own staff and to officials in Government departments and agencies involved in the update processes, to ensure that all know and understand the broader context and requirements of the Public Finance Act, as well as Treasury’s own specific requirements and rules.

Ministers played a part in this failure to disclose, because they knew of the problem and did not ensure its disclosure. Treasury accepts that the Ministers made a mistake in not ensuring that the amount was included in the pre-election update. I accept the assurance of the Secretary to the Treasury that he will implement the recommendations of the report.

There may be an interesting constitutional debate to have about the implications of a potential breach of the Public Finance Act. However, the Government intends to focus on the substantial and growing problems with ACC itself. I quote from the report: “Deteriorating trends in scheme costs and rehabilitative outcomes had been evident for some years, but any impact on premiums and appropriations had been masked by better than forecast investment returns and an increasing discount rate until 2007. This changed in 2007 when actual investment returns began to deteriorate due to worsening global financial and economic conditions. As investment returns deteriorated pressures on scheme costs flowed through to levy and appropriation proposals in 2008.”

Since the first revelations, the size of the problem with the non-earners account has grown. Firstly, we were informed that the Government would have to put $300 million into the non-earners account by 30 June this year in order to keep it solvent. I am now advised that the requirement is $384 million by 30 June, with a further $1.15 billion required over the next 3 years. At a time of significant budget constraints, this is a large and unwelcome problem.

Hon DAVID CUNLIFFE (Labour—New Lynn) Link to this

The Minister of Finance, Bill English, should be hanging his head very low today. His attempts to portray the actions of the previous Government’s Ministers as inappropriate in respect of the Accident Compensation Corporation (ACC) have proven to be the political charade that they always were. The previous Minister of Finance, Dr Cullen, and the previous Minister for ACC, the Hon Maryan Street, have been exonerated by this report. The report found that officials did not provide the appropriate advice either to Minister Street or to Minister Cullen, and it makes recommendations about improving the processes at Treasury, the Department of Labour, and ACC.

Quotes from the report are instructive: as well as Treasury’s failure to act, “by the date of PREFU in October 2008 … DOL had yet to: complete its detailed scrutiny of ACC’s premium proposals,” it had yet to “decide whether or not to recommend to the Minister for ACC support for ACC’s proposals”, and it had yet to draft the necessary papers for Cabinet. Because Cabinet had not been presented with those papers, Treasury took the view that there were no agreed changes to appropriations to include in the forecast financial statements, and it decided it need not conclude the matter, because it was not under active consideration with Ministers. As the report goes on to make clear, this followed a standard process with officials operating as they had always done.

The report concludes that that process itself needs to be improved. In no way does it implicate Ministers in the failure of officials to adapt their time line to the electoral cycle. Clearly, Treasury in particular failed to properly uphold its responsibilities under the Public Finance Act, and we welcome that the Secretary to the Treasury, John Whitehead, has accepted responsibility for this and is to make the proposed changes.

It was regrettable that the Minister of Finance repeated in question time today his misrepresentation of Treasury’s apology as being given only “for its part of the error.” On the contrary, the secretary’s apologies and regrets were unreserved. Mr English does no credit to himself or, more broadly, to the Government by attempting to slant this very honourable Treasury response for his own vindictive political purposes.

Certainly, if the report’s author, the esteemed consultant Michael Mills, had believed that his report made adverse findings against either Minister, he would have seen himself bound by natural justice to interview them and seek their input. He did not do so. Those Ministers—both of them—were not interviewed. Neither Minister was interviewed. Dr Cullen’s request to Treasury for his papers was declined by Treasury on Mr English’s personal letterhead, for which it has since apologised. In hindsight, Mr English is probably regretting the rather shameful refusal to undertake that disclosure.

Mr English should also be ashamed that having inherited by his own admission to the Finance and Expenditure Committee last week a very favourable set of Crown accounts from his predecessor, Dr Cullen, he was intent, after all of these results, on demolishing the reputation of his predecessor, who has given three decades of service to this House and a decade as Minister of Finance. Members on this side of the House believe that Dr Cullen deserves better.

This raises the question of why the charade was undertaken. The answer to that question is probably revealed in the Minister’s own statement to the House this afternoon. ACC was funding a shortfall. It had expanded cover for treatment injury. It had increased the non-earners account funding, and the change on the basis of this treatment had left it worse off. It is actually the quantum of the unfunded liability that the Minister is most concerned about. How interesting, therefore, to discover, with a bit of research, that the percentage of unfunded liability that the previous National Government passed on to the Labour Government in 1999 was greater than the one it inherited, by some 60 percent of the total to some 40 percent. I wish National members had done their research before lambasting the outgoing Government with something that they themselves were more guilty of, if it is a sin at all.

The Labour Opposition concedes that there was a failure of official process. We support the point that that process should be improved to ensure that other Ministers are not left in the position that Labour Ministers were left in near the change of Government. But the real reason for this charade is the Government’s new-found intention to deal to ACC. Let us cast our minds back. This was first alluded to in a brokers’ report by Merrill Lynch. It leaked to the press before the election its certainty that the National Government would privatise ACC. Let National members deny that they are concerned now about its so-called sustainability. Let them take privatisation off the agenda or let them not, I tell Dr Smith. If they do not have the courage of their convictions, then they should not try to pin the problems on two former Ministers who have worked hard and acted honourably in the service of their country.

Hon TREVOR MALLARD (Labour—Hutt South) Link to this

I raise a point of order, Mr Speaker. I did not want to interrupt Mr Cunliffe during his response on behalf of the Opposition, but I do want to refer to the ruling you made at the end of Mr English’s speech, following his invitation to you to do so, and to make it clear that I have reviewed Standing Orders 347(1) and (2) in chapter 7 and also Speakers’ rulings 127/3-5 and 128/1—that is, all those that relate to ministerial statements. There has not been either a Standing Order or a Speaker’s ruling in the past that states that ministerial statements should be heard in silence. Before your ruling goes on the record, I ask you to contemplate that, because it would be a major change.

Dr RUSSEL NORMAN (Co-Leader—Green) Link to this

I stand to respond to the Ministerial Inquiry into Disclosure of Funding Shortfall in ACC Non-earners’ Account report. The first thing I will say is that I hope the Government is not thinking about using the results of this important inquiry as a reason to contemplate the privatisation of the Accident Compensation Corporation (ACC). ACC is an incredibly efficient and incredibly successful institution. This report is a very important report, and I congratulate the Government on having it done. I think it was the right thing to do, but this report is no reason to move towards privatising ACC. ACC is an incredibly successful institution, and it is incredibly important to New Zealand workers and New Zealanders in general.

One of the key things I take out of this report is the uncertainty around the election date and the role that that has played in some of the mistakes that were clearly made over this issue. It strikes me that it is ridiculous that we do not know when the election is to be held. We should have a fixed election date. In terms of having open government, in terms of making the Public Finance Act work properly—which is one of the issues here, as the Public Finance Act has not been working properly—and in terms of getting the accounts right in relation to the Pre-election Economic and Fiscal Update, it would be enormously helpful for the bureaucracy to know when the election was going to be held. It would make it much simpler if there was a fixed election date. It would make it much easier to operate an open, transparent, and honest government if all officialdom and all of the political parties knew exactly what day the election was to be held on.

It astonishes me that we have gone as far as this in our democratic history and we still do not have a fixed election date. I tell the Government that one of the great things it could do with this report in order to make it simpler for the bureaucracy to meet the rules of the Public Finance Act, and in order to give an accurate Pre-election Economic and Fiscal Update, would be to have a fixed election date.

There is another aspect of this matter that demonstrates one of the weaknesses in our system, and that is the system of secret Cabinet meetings. We still have in our society secret Cabinet meetings where these decisions are being made, as was the case with some of the earlier decisions that feature in this report. Cabinet meets in secret. Nobody knows what goes on in a Cabinet meeting. Some Cabinet documents become public afterwards, but no minutes are published from Cabinet meetings. We as citizens do not know what Cabinet is up to. Some of the information gets published, but a lot of it gets held on to.

Why do we not implement a much more transparent and upfront system for telling the public of New Zealand what goes on inside Cabinet meetings? If people knew what was going on inside Cabinet meetings, it would be much easier to take account of, and keep a watch on, the issues that have been revealed in this report. If we know when the election date is, so that officials have a clear date to work towards in the Pre-election Economic and Fiscal Update, and if we know exactly what is going on inside Cabinet, then it is much easier for citizens to keep the Government accountable in the run-up to an election when there is the greatest pressure on the Government to hide the sorts of big holes in the accounts that have been exposed here. It seems to me that if we were to adopt even just those two simple measures it would help enormously.

There is, I believe, exposed in this report a whole reason why we need an open government agenda in New Zealand and why we need to have government in our country that is much more transparent, so that it is much easier for people to know in the lead-up to an election what is actually happening in the Government books. As this report demonstrates very clearly, it is possible to hide hundreds of millions of dollars. Whether that has been done with intent or whether it was all because of the officials will be up to the interpreters of the report to decide, but taxpayers and voters were not aware of a shortfall of hundreds of millions of dollars, because they did not have sufficiently strong open government provisions.

The Greens once again say that this report is a call to open up government, to make government much more transparent, to have a fixed election date, and to open up Cabinet so that people know much more about what goes on inside Cabinet. It would help enormously if people knew the true state of the Government books in the run-up to an election. That would help the Public Finance Act work in the way it is supposed to work in order to provide the kind of information that voters need on voting day.

Hon Sir ROGER DOUGLAS (ACT) Link to this

Today it has been revealed that Labour did not heed the reporting requirements placed on a Government. The previous Prime Minister and the previous Minister of Finance were so arrogant that they thought the law did not apply to them. They thought the law did not apply to them. They seem to have been aided and abetted in that by Treasury’s inexcusable incompetence. The previous Prime Minister and previous Minister of Finance knew there was a shortfall in the accounts, but they decided they would not declare it, despite what the previous Minister of Finance said in the updated statement of fiscal responsibility. He said: “To enable the Treasury to prepare this Update, I have ensured that the Secretary to the Treasury has been advised of all Government decisions and other circumstances”—and other circumstances—“as at 17 September 2008 of which I was aware and that had material economic … implications.”

Hon TARIANA TURIA (Co-Leader—Māori Party) Link to this

Tēnā koe, Mr Deputy Speaker. The National Business Review called the shortfall in accident compensation funding “an A grade scandal,”. The scandal is not a new one; it is one that this House has heard once too often: the scandal of failure to disclose. Previous Parliaments have been stigmatised by the improper use of parliamentary funding to purchase pledge cards, the improper use of broadcasting spend, and subsequent legislation to validate unlawful spending. And here we go again.

The billion-dollar blowout at the Accident Compensation Corporation (ACC) should concern this House on many levels, and the questions around the breach of the Public Finance Act requirements need to be resolved quickly. But my particular concern is the compounding errors that threaten the capacity of the State to provide good government and fiscal stability. The shortfall in the non-earners account was known to ACC, the Department of Labour, and Treasury; today we hear that the officials are being blamed by members of the previous Government. I read from a statement of responsibility: “I accept overall responsibility for the integrity of the disclosures contained in this Update, and the consistency and completeness of the Update information in accordance with the requirements of the Public Finance Act 1989.” I understand that the Hon Dr Michael Cullen signed that statement.

Last week the Government’s Job Summit agreed to a key recommendation that we must ensure that the Government’s services to Māori deliver effective results. All the data available to ACC in regard to current Government delivery of accident compensation to Māori shows that Māori are not receiving entitlements to care, rehabilitation, and compensation at a level comparable to the proportion of Māori in the population.

Hon PETER DUNNE (Leader—United Future) Link to this

There is only one point substantially arising from this report that will concern New Zealanders, and it is the revelation that about $1.5 billion is required to make good the shortfall in the non-earners account of the Accident Compensation Corporation (ACC). The issue that that gives rise to is the question in many people’s minds about the certainty of the services provided by ACC in the future. If we believe in having a universal accident compensation system, the questions that this report discloses are how that will be funded into the future and how much certainty and security there is for those people who are non-earners and who become clients of ACC in the years ahead. I would have been interested to hear during the debate this afternoon some consideration being given to how that shortfall problem will be addressed and how the accident compensation scheme will be made viable for the longer term. It is easy to indulge in political name-calling, but people who have accidents and rely on the scheme will want to know where the money is coming from, how the service is to be funded, and what assurance they will get about their care in the future. That is what we need to focus on, not on some of the more arcane matters regarding this issue.

The procedural matters do need to be resolved. I think that the apportioning of blame is rather irrelevant in that process. What is important is the service that we will provide in the future. That is what counts.

Hon BILL ENGLISH (Deputy Prime Minister) Link to this

I agree with the member that by far the most important issue the Government now has to deal with is turning round the deteriorating performance of the Accident Compensation Corporation (ACC). I have been appalled in this debate by the ideological blinkers of the Labour members. They still cannot accept the fact that while they were representing to the public that ACC was in great shape, its performance was deteriorating rapidly.

That brings me to the issue of responsibility under the Public Finance Act. Here is the statement of responsibility. It is signed by two people. One is John Whitehead, the Secretary to the Treasury, who has taken responsibility for the error that Treasury made. He has taken responsibility. He believes that the amount should have been disclosed under the Public Finance Act, and it was not. But can members guess who has not taken responsibility? It is the previous Labour Government, as represented by Michael Cullen, who stated: “I accept overall responsibility for the integrity of the disclosures”.

Labour members still cannot see that their blinkered ideology about the accident compensation scheme being perfect led them down a path to circumstances where they misled the public about a $1.5 billion problem. Every time those members get up in the next 3 years and ask why the Government is changing this or taking money from that, I will remind them that if they had disclosed that risk—and, better still, had done something about managing it—then we would be in a much better position when facing times of economic restraint, because there would have been $1.5 billion more to deal with the situation than there is. Labour failed to take responsibility.