For those who suck at politics and economics

**ital916** · 20th October 2009, 12:32

Okay,

For those of us (primarily myself) who suck at politics and economics, why cant the government revert to the collect as you go system instead of fully funding everything. Why did they switch to fully funded in the first place. Doesnt it make sense to collect fees every year dependent on what is needed instead of speculating as to what is needed to fund for the rest of that persons life?

We need a thread explaining the politics and economics of how we ended up in this hole as a country.

**riffer** · 20th October 2009, 12:42

IMHO it's because if you have to compete with insurance companies, or be sold as an insurance company, you have to have a fully funded model.

**k2w3** · 20th October 2009, 12:43

Ultimately you can blame the investment bankers and hedge fund managers on Wall Street. Then blame the rest of us for collectively relying too heavily on credit.

That's tongue in cheek, of course. From what I read, ACC actually rode out the general downturn in investment vehicles (ha, get it?) really rather well.

**Bald Eagle** · 20th October 2009, 12:47

Originally Posted by riffer

IMHO it's because if you have to compete with insurance companies, or be sold as an insurance company, you have to have a fully funded model.

There's the key you can't sell the state owned asset if it hasn't got a 'greedy' profit driven funding model that insurance companies use.

Wait for the for Sale sign to go up.

**yachtie10** · 20th October 2009, 12:56

The cynic in me agrees with you but
It was Labour who changed the model not national
I think the idea is it will avoid a blowout in the future.
IMHO it was changed so Labour could have more money to spend on vote getting eg the payouts for suicides etc

**Clockwork** · 20th October 2009, 13:21

I understand that National first discussed the idea (the cynic in me suspects that it was necessary in order for parts of the scheme to be privatised because no insurance company would want to buy ACC's long term liabilities)

Labour have stated that they moved ahead with the idea because they were worried that as the baby-boomers retired and the workforce declined there would not be enough tax payers to meet the ongoing obligations.

**SPman** · 20th October 2009, 15:31

They went the fully funded model route when National opened everything up to private insurance companies and ACC was moved onto the same footing as an insurance company...so it could "compete"......and perhaps be sold, first time around.
Now National are back and have their big insurance mates wanting a go at the pie again.......

**Skyryder** · 20th October 2009, 21:40

Originally Posted by SPman

They went the fully funded model route when National opened everything up to private insurance companies and ACC was moved onto the same footing as an insurance company...so it could "compete"......and perhaps be sold, first time around.
Now National are back and have their big insurance mates wanting a go at the pie again.......

And some still think this is all Labours fault. Read somewhere recently that Labours ACC policy was in fact a reduction of levy's. Just can not find the link.

Skyryder

**98tls** · 20th October 2009, 21:43

Originally Posted by Bald Eagle

There's the key you can't sell the state owned asset if it hasn't got a 'greedy' profit driven funding model that insurance companies use.

How ironic.

**Coldrider** · 21st October 2009, 08:24

Doesn't everyone actually hate the facts.

Hansard 20 October 2009

Michael Woodhouse: Why is it Government policy for the accident compensation scheme to be fully funded rather than to be a “pay as you go” scheme?
Hon Dr NICK SMITH: The principle of full funding is that the accident compensation scheme should fund the full cost of accidents in the year in which they occur. The first reason for this policy is that it puts a proper focus on improving safety. If the costs are pushed out into the never-never, there will never be the same incentives for reducing accidents. The second reason concerns the incentives that apply to governance and scheme managers. It is easy to promise extra entitlements when another Government in the future has to do the paying. Full funding puts a better focus on the trade-offs between the entitlements and the actual cost to levy payers.

**Clockwork** · 21st October 2009, 10:27

I'm not sure how an answer to a "patsy question" in parliament can be considered to sole or even primary justification for the policies of any politcal party.

Seems as a nation we've been reluctant to fully fund our superannuation or any number of other Government services. Why should ACC be treated any differently?

**Coldrider** · 21st October 2009, 12:10

Labour handing out ACC payments willy nilly put ACC $2.4B in the red, that is money paid out for which there is no income yet.
So Nats want a one time fix.
I am past the emotions now, and want to concentrate on a good outcome.

Back up

Chris Tremain: Has the Prime Minister received any apology or explanation from the previous Government for its decisions in August and in October last year to extend accident compensation for seasonal workers, for victims of suicide, for part-time workers, and for superannuitants, despite the corporation in the year to June 2008 disclosing a loss of $2.4 billion?

Mr SPEAKER: Before I call the Prime Minister, I must remind him that he is not responsible for the previous Government’s policies.

Hon JOHN KEY: No I have not, but I believe the public is owed an explanation after the corporation lost $2.4 billion in the year to June 2008. It was quite reckless of Labour to have made further extensions to the scheme, with no funding. It was inevitable that that would only make the problems worse, but I guess June 2008 is before October 2008 and we all know what happened in October 2008.

**SPman** · 21st October 2009, 13:08

from the Harold...

Originally Posted by Dr Tim Hazeldine, Professor of Economics,A.U

Suppose you and your spouse are in charge of a family of, say, three young children. That means you are legally responsible for bringing them up to school leaving age and morally responsible for helping them in further training or education after that.

So how much is this going to cost you? A lot. Let's say $10,000 per child per year through their school years; possibly more later at polytech or university. You'd better also allow for some inflation of education costs, just to be on the safe side - and this is all about your children. You do want to be on the safe side, right? And then those unforeseeable contingencies - need a prudent margin there, too. It all adds up to many hundreds of thousands of dollars of expenditures. And just how are you planning to pay for this?

Well, you have a job, you say. And your spouse will be back in the workforce in a few years after the kids all get into school.

But that's simply not good enough. You can't guarantee you won't lose your job, can you? And as for your spouse's posited future contribution - well, how do you know present skills won't be outdated when the time comes, requiring further expensive retraining? No, you have these locked-in cast-iron financial commitments. You must match them with equally solid and secure income-earning assets.

You need to be able to show unencumbered funds of at least half a million dollars right now to guarantee the future income stream necessary to meet your obligations to your children. And you haven't got that, have you? You've got about $20,000 in KiwiSaver accounts. You've a bit of equity in your house, but, hey, you can't bring up your children in a tent, can you? Let's face it. Strictly speaking, you are broke; busted; bankrupt. And so are several hundred thousand other New Zealand families just like you - billions of dollars of unfunded liabilities, in total.
Suppose you and your spouse are in charge of a family of, say, three young children. That means you are legally responsible for bringing them up to school leaving age and morally responsible for helping them in further training or education after that.

So how much is this going to cost you? A lot. Let's say $10,000 per child per year through their school years; possibly more later at polytech or university. You'd better also allow for some inflation of education costs, just to be on the safe side - and this is all about your children. You do want to be on the safe side, right? And then those unforeseeable contingencies - need a prudent margin there, too. It all adds up to many hundreds of thousands of dollars of expenditures. And just how are you planning to pay for this?

Well, you have a job, you say. And your spouse will be back in the workforce in a few years after the kids all get into school.

But that's simply not good enough. You can't guarantee you won't lose your job, can you? And as for your spouse's posited future contribution - well, how do you know present skills won't be outdated when the time comes, requiring further expensive retraining? No, you have these locked-in cast-iron financial commitments. You must match them with equally solid and secure income-earning assets.

You need to be able to show unencumbered funds of at least half a million dollars right now to guarantee the future income stream necessary to meet your obligations to your children. And you haven't got that, have you? You've got about $20,000 in KiwiSaver accounts. You've a bit of equity in your house, but, hey, you can't bring up your children in a tent, can you? Let's face it. Strictly speaking, you are broke; busted; bankrupt. And so are several hundred thousand other New Zealand families just like you - billions of dollars of unfunded liabilities, in total.
Suppose you and your spouse are in charge of a family of, say, three young children. That means you are legally responsible for bringing them up to school leaving age and morally responsible for helping them in further training or education after that.

So how much is this going to cost you? A lot. Let's say $10,000 per child per year through their school years; possibly more later at polytech or university. You'd better also allow for some inflation of education costs, just to be on the safe side - and this is all about your children. You do want to be on the safe side, right? And then those unforeseeable contingencies - need a prudent margin there, too. It all adds up to many hundreds of thousands of dollars of expenditures. And just how are you planning to pay for this?

Well, you have a job, you say. And your spouse will be back in the workforce in a few years after the kids all get into school.

But that's simply not good enough. You can't guarantee you won't lose your job, can you? And as for your spouse's posited future contribution - well, how do you know present skills won't be outdated when the time comes, requiring further expensive retraining? No, you have these locked-in cast-iron financial commitments. You must match them with equally solid and secure income-earning assets.

You need to be able to show unencumbered funds of at least half a million dollars right now to guarantee the future income stream necessary to meet your obligations to your children. And you haven't got that, have you? You've got about $20,000 in KiwiSaver accounts. You've a bit of equity in your house, but, hey, you can't bring up your children in a tent, can you? Let's face it. Strictly speaking, you are broke; busted; bankrupt. And so are several hundred thousand other New Zealand families just like you - billions of dollars of unfunded liabilities, in total.

**pete376403** · 21st October 2009, 20:43

Did the harold really repeat that three times?

**pete376403** · 21st October 2009, 20:47

Originally Posted by Coldrider

Chris Tremain: Has the Prime Minister received any apology or explanation from the previous Government for its decisions in August and in October last year to extend accident compensation for seasonal workers, for victims of suicide, for part-time workers, and for superannuitants, despite the corporation in the year to June 2008 disclosing a loss of $2.4 billion?.

Why shouldn't seasonal workers, or part time workers receive ACC cover? Do they not pay tax on theri earnings?