Idiocy
ACC’s higher than forcecast investment return has exposed the Government’s “scaremongering” about the corporation’s financial situation, Labour leader Phil Goff says.
Levies are going to be raised and some entitlements cut because the Government says ACC isn’t in a viable state to continue the way it is.
But Mr Goff, citing the latest Treasury figures, said today ACC’s investment funds had returned $500 million in the four months to October 31, which was higher than forecast.
I swear Labour oppose national standards for numeracy and literacy, because their election chances seem to be based on a hope residents can’t do basic maths.
I’m not sure what is scarier – taking (on paper) high returns for four months as some sort of guarantee of high returns over the long-term, or thinking that a $500 million return over four months will cover the $4.8 billion loss in the last year.
This is of course the same Labour that knew ACC lost $2.4 billion in 2007/08 and continued to increase benefits and entitlements. And then the Government broke the Public Finance Act, by not revealing the problem before the election.
Anyway let’s look again at Phil’s mathematics. Now the unfunded liabilities have increased from $9B to $24b in just four years. Part of the reasons is that the ACC Board and Minister assumed investment rates of returns that were grossly unrealistic – and Goff wants to do it all over again, on the basis on one four month period of good results.Does he really think that level of returns will persist for the next decade? If so, then I suggest he set up his own investment company.
December 7th, 2009 at 10:13 am
Poor Phil. Can’t buy a good headline at the moment.
December 7th, 2009 at 10:15 am
What are unfunded liabilities? Payments to be made in the future, from future income.
Is this any different to my mortgage? No, but the Notional Govet seems to think that you shouldn’t ahve a mortgage unless you have all the money to repay it in hand at the time of taking the mortgage.
Idiots!
[DPF: The moron speaks up. Unfunded liabilities are liabilities already incurred but not yet paid out or funded. Both National and Labour have said that the income collected in a year should match the cost of accidents incurred in that year.
You can disagree with that, but both parties have agreed to that.]
December 7th, 2009 at 10:16 am
Mr Farrar, you forgot to mention that not only did Labour increase entitlements in ACC when it was bleeding money, but Labour also promised to cut levies at the 2008 election. Labour did more to destroy ACC through its lies, politicking and financial recklessness than any government in ACC’s history.
December 7th, 2009 at 10:20 am
Yep, its crazy, but the worst thing is it will have traction with a large part of the population. Who actually can’t do basic maths, and/ or don’t want to because the outcome is too frightening. And who keep trying to elect idiots like Goff who feel no shame in pandering to such ignorance and illiteracy.
The inescapable truth is that over the long term ACC is economically nonviable, and is just one more millstone around the neck of NZ’s social and economic improvement. A delusional unworkable insanity.
Let it all roll on to its inevitable collapse I say.
It seems only famine and poverty will awaken these people from the delusion that money grows on government trees. Only the gnaw of hunger will cause them to think before they so weakly accept the lies of strutting self interested political charlatans.
So let’s get it happening.
Sooner we bottom out, sooner we can climb back.
December 7th, 2009 at 10:24 am
Red – another good reason to be growing most of my own food. If our economy does finally collapse I would rather be on a decent patch of land in the country than in the cities with all the vermin running amok.
December 7th, 2009 at 10:26 am
Ah, the old lefty mortgage argument from MNIJ that just shows more idiocy. Yes, you pay your mortgage off over time but you try not to add another $10,000 to it every year because you know that eventually you won’t be able to pay for it. At least with the mortgage it generally won’t get bad enough that your grandchildren have to pay.
December 7th, 2009 at 10:37 am
Yeah, I agree Brian. Can you imagine the behaviour of the morally, intellectually and spiritually bankrupt left supporters if they suddenly found themselves completely free of the threat of law enforcement? They would be like the animals they often reach for to justify some of their beliefs.
December 7th, 2009 at 10:40 am
nh – ya beat me to it! well said
although i wouldve gone with adding another 50k a year to it.
December 7th, 2009 at 10:41 am
The ACC financial picture can be confusing, especially when confused opportunist politicians weigh in.
Operating – the income collected in a year should match the cost of accidents incurred in that year – should surely be a given. As should reducing the cost of accidents and “accidents”.
Investment – the losses and gains on investments over the last 18 months in particular have allowed for a range of distorted claims.
December 7th, 2009 at 10:41 am
Indeed nh, let’s not forget the added idiocy of MNIJ’s argument, that Labour governed for nine years while ACC was supposed to be moving towards full funding of its liabilities by 2014 and didn’t change it.
All of the private insurers until 2000 were required to be fully funded. Full pre-funding is an actuarial requirement in private insurance.
The 1967 Woodhouse report proposed a 1% levy on wages to fund ACC premiums. The equivalent cost now is approaching 4%. In other words, ACC is now costing four times what was intended in the original Woodhouse scheme.
December 7th, 2009 at 10:42 am
DPF “I’m not sure what is scarier – taking (on paper) high returns for four months as some sort of guarantee of high returns over the long-term, or thinking that a $500 million return over four months will cover the $4.8 billion loss in the last year.”
Is that any scarier than assuming that $4.8B is the true short fall on long term liabilities? The loss figures get massaged by the riding instructions given to the actuaries.
Key and Smith both agree that Treasury forecasting more than 10 years is pointless. What would the $4.8B be if that was restricted to 10 year rather than lifetime costs.
December 7th, 2009 at 10:43 am
If we had a MSM that could analyze pronouncements on economics and/or business by idiots they would be quickly exposed but alas a purportedly serious statement by Mr Goff is accepted at face value. As I understand Mr Goff’s background here, is a few weeks work as a student, at a freezing works probably doing something close to the heartbeat of the enterprise such as playing a hose on a railway wagon to assist cooling or some other vital action to ensure the economic viability of the business. FFS the biggest economic decisions he has made in his time on earth is a house purchase or his motorbike.
December 7th, 2009 at 10:45 am
Do you mean this sort of thing?
December 7th, 2009 at 10:47 am
There’s no reason why ACC should be unsustainable. At heart it’s an insurance scheme. And you can make a viable insurance for pretty much anything, so long as the premiums, losses and expenses are commensurate and managed*.
*Which isn’t necessarily the case at present.
December 7th, 2009 at 10:53 am
“so long as the premiums, losses and expenses are commensurate and managed*.”
They never will be by government. Especially when re-election depends upon sustaining the delusion.
December 7th, 2009 at 10:55 am
I agree. But there’s no reason why ACC can’t be put a arms length to avoid that problem. Like Transpower for example.
December 7th, 2009 at 10:58 am
“Do you mean this sort of thing?”
No I don’t. I mean in the one instance the rape theft and thuggery that would no doubt occur in the case of what the amoral left would be doing if law enforcement suddenly failed in NZ, and in the second instance , the need of free men to deal with tyrants who would enslave them.
As you well know you deceitful smearing coward.
December 7th, 2009 at 11:00 am
“But there’s no reason why ACC can’t be put a arms length to avoid that problem.”
There are so may reasons. All political but none rational.
December 7th, 2009 at 11:09 am
Red, I think you pull more tits than a Mackenzie dairy farmer would like to. You can’t be serious, so I’ll take this as hilarious.
December 7th, 2009 at 11:11 am
I’m sure a lot politicians would love to have ACC out of their laps. Particularly when it’s in a mess. After all, they gave up the ability to set interest rates and that had clear political advantages.
It’s true that even an SOE still has political influence brought to bear on it. Witness Helen Clark’s interference in Transpower’s new 400 kV line to Auckland. But politicians still weld power over private insurance companies. There’s loads of laws in US which force insurance companies to cover people they wouldn’t otherwise take on.
There’s no perfect system but there is no reason why NZ can’t have a good single-provider insurance scheme for personal injury.
December 7th, 2009 at 11:15 am
Of course Phil Goff can do maths. But for him the only important piece of maths is the bit where you add up the votes.
December 7th, 2009 at 11:26 am
About 35-40% of NZers have poor numeracy skills*. When you’re at 30% in the polls, 35-40% looks pretty good.
* made up fact that may or may not be true
December 7th, 2009 at 11:30 am
“There’s no perfect system but there is no reason why NZ can’t have a good single-provider insurance scheme for personal injury.”
There is a reason, and that is a majority of voters who are brainwashed into thinking only government can do that.
December 7th, 2009 at 11:35 am
Wouldn’t single-provider imply government? We surely wouldn’t tolerate a monopoly if it were privately provided?
The main reason that we cannot have a good single-provider insurance scheme is because it is run by government. And very little that is run by government ever works out well. They just aren’t geared up to run businesses. I’ll readily accept that many businesses are also incompetent. But so long as you have the option to move to another provider, I’m not concerned about that. If the business is too incompetent, they won’t be in business any more.
December 7th, 2009 at 11:49 am
Since the DomPost switched to its tacky new magazine-style layout a few weeks back (…a la New Idea, Womans Day etc) the proliferation of stories reporting Goff’s latest whinging and whining all seem to suit the new format well, and look quite at home.
December 7th, 2009 at 11:52 am
nh (16) Vote: 2 0 Says:
December 7th, 2009 at 10:26 am
Ah, the old lefty mortgage argument from MNIJ that just shows more idiocy. Yes, you pay your mortgage off over time but you try not to add another $10,000 to it every year because you know that eventually you won’t be able to pay for it. At least with the mortgage it generally won’t get bad enough that your grandchildren have to pay.
Well, not every year, but I do increase my mortgage as I buy another rental, thus adding to the debt that must be paid at some time in the future. The assumption is that my income will continue to grow to fund each new liabilty.
December 7th, 2009 at 12:02 pm
MNIJ: Every other insurance company is required to provision for the future costs of accidents occurring in the current year. So, if I injure myself this year, and actuarialy I would be expected to stay on the insurance for 4 years, then the insurance company should provision for that full 4 year cost this year.
I think that this “provision for future costs” thing is poorly explained by the media, so people are getting the impression that there is somehow an expectation that they’re being required to make provision for future accidents, not the future costs of current accidents.
If I were to run an investment scheme where I used the funds inflow from new investors to pay returns to old investors, I would be up before the courts for running a ponzi scheme. Because you’re running a scheme that isn’t long-term sustainable, and you’re counting on some magic in the future to make it all come good. It’s exactly the same when the premium inflow in an insurance company isn’t sufficient to cover the claims that eventuate in that year. You’re running an unsustainable scheme, and hoping for some event in the future to make it all come good. In the case of Labour, I think the event in the future was the election of a National govt, who could be made to take the blame for the fact that Labour were running a ponzi scheme.
December 7th, 2009 at 12:06 pm
Yeah, I was meaning government run, but run hands-off. Like Transpower.
I agree that government is not good at running businesses. But the core insurance part of ACC is a simple business. Much larger insurance companies (where I’ve worked) might only have a dozen actuaries, a dozen underwriters and some investment people. The treatments, evaluations etc are all done by contractors (as is the case with most private insurance).
I don’t have anything in particular against private insurance, but there are some advantages to a single provider. Especially in the case of NZ where there are really no NZ owned insurance companies. Also the state invariable gets involved in insurance anyway via some sort of insurance guarantee scheme.
December 7th, 2009 at 12:18 pm
PaulL, ACC is not an insurance company. Insurance implies spreading risk, calculating premiums based on individual risk profiles, loading premiums of high claimants and refusing business where deemed in the company’s interest.
Which part of Accident Compensation Corporation says its an insurance operation?
December 7th, 2009 at 12:41 pm
Because Transpower is well run?
I understand that it shouldn’t be hard, but it doesn’t follow that therefore the govt cannot screw it up. The political process is a large part of what creates the screw up – for example, deciding to run it as a pay as you go scheme, rather than fully funding.
How does the ownership of the insurance companies make any difference to whether it is a good idea to have private involvement? This is something I’m seeing more and more around the blogs – some thought that whether something is NZ owned or not makes a difference. I think it is showing significant gaps in economic understanding.
So far as I can tell, the argument here is that somehow if NZ owned the profits would stay in NZ. But that is shallow thinking. The NZ economy has a certain amount of “NZ owned” capital available. Whether that capital is invested in an insurance company, or invested in some other enterprise, it will generate a return. Presumably those who own that capital are choosing to invest it in the place where they think they will get the best return. So if we asked them to instead invest that capital in an insurance company in NZ, they’d either ask for a higher rate of return than the market suggests should be needed, or they’ll lose money by getting a lower rate of return than what they’d otherwise invest in.
It isn’t the place of government to second guess that by attempting to force individuals (through the tax system) to invest in something they otherwise wouldn’t have invested in.
What might be the place of government would be to rebalance the incentives between different asset classes. So, for example, people might be more inclined to invest in insurance companies rather than rental property. I think that’s one of the things that the current taxation review is looking at.
December 7th, 2009 at 1:04 pm
Yeah I think Transpower does a good job, given that it’s pushed in lots of different directions by the government, the power companies and the generators. But it can’t get too heavy with any of them. And at the same time it’s ultimately responsible for security of supply.
But back to ACC. Yeah my comment about NZ owned was sloppy. I should have said that in a good decade insurance companies are a licence to print money so it’s not necessarily be a bad thing that any benefit of a well run scheme stays in NZ (via reduced premiums etc). There are also related advantages of ACC, e.g. you cannot sue and thus you don’t get a society moulded around the fear of litigation, as is the case in the US.
My main point is that insurance is a simple business at heart and there’s no reason why ACC cannot be run well in a hands-off manor.
I agree totally with the silliness of “NZ owned”. Most people who talk about this as a bad thing have probably never bought a share in their lives.
December 7th, 2009 at 1:40 pm
An inquiry set up by Bill English found Labour DIDNT break the Public Finance act in the Prefu.
You seem to be a 9/11 type denier in this regard.
The culprit was the Treasury … again. They were the ones that wrote the document and they didnt follow the law and their own rules in getting the numbers.
You should know this, just repeating Hootens smear is indefensible
[DPF: I said the Government broke the Public Finance Act. Treasury is part of the Government and Ministers are responsible for their departments]
December 7th, 2009 at 1:41 pm
Malcolm: even worse – many of them have bought shares, and often overseas ones. They don’t see the inconsistency in owning overseas assets whilst complaining about foreigners owning our stuff.
December 7th, 2009 at 2:29 pm
That’s true. I try to be consistent, but I can see the appeal of just dispensing altogether with the quaint notion.
You often hear people bemoaning that a NZ company has been bought by a foreign company, but many of them would never consider buying shares themselves. Or if you suggest that they too could own some of that company they will say something about being “ripped off by men in suits”.
But as is often the case, their general point does have some validity. Plenty of successful NZ companies have been bought by foreign concerns. Part of this is inevitable because of NZ’s small size and part of it is because NZ is relatively poor and getting poorer. And partly that is because NZ’er don’t invest in NZ companies.
Manor? Manner.