WORKERS REHABILITATION AND COMPENSATION (SCHEME REVIEW) AMENDMENT BILL

Second Reading

Adjourned debate on second reading.

(Continued from 2 April 2008. Page ##.)

Ms CHAPMAN (Bragg—Deputy Leader of the Opposition) (15:51): On 28 February 2008 the government, and in particular the Minister for Industrial Relations, introduced two bills. One was this bill, which is currently before us for consideration, and the other was the WorkCover Corporation (Governance Review) Amendment Bill. It is fair to say that both bills had been jointly presented to the parliament as the government's answer to the reform which it claimed was necessary to remedy a rather frightful financial situation that workers compensation—particularly through the WorkCover Corporation—had come to in this state. We had six years of warning of an ever-deteriorating situation, and this was presented as the government's remedy.

Many speakers from the opposition have spoken on the modes of reform, the effectiveness they are likely to provide and the methods to be employed for them to be executed. I do not propose in this contribution to speak long in relation to those aspects generally. What I do want are some answers. However, because this debate, as I understand it, is shortly to be adjourned to next week after second reading contributions, I consider that the minister will have an opportunity to clarify these matters. When he closes the debate the minister may be able to enlighten me. We have received notice of a substantial number of amendments from both the government and the member for Mitchell, and some of my questions are pertinent to the issues raised in those amendments.

I should indicate that the three areas in relation to this bill on which I seek some clarification and information are, first, the current unfunded liability; secondly, the return-to-work rate; and, thirdly, the use of redemptions. I indicate that, after the introduction of this bill, the WorkCover Corporation (in particular, the Chairman Mr Bruce Carter, his Chief Executive Ms Julia Davison and other staff representatives) kindly provided a briefing for the opposition. A number of issues were raised during that consultation and they were helpful in clarifying a number of matters. However, some issues were left unanswered and in response to other submissions we received further information was sought.

With respect to the current unfunded liability, the chairman confirmed the figure of $844 million which was referred to in the Clayton report and indicated that the board was yet to receive information to enable it to determine what the unfunded liability would be as at 31 December 2007.

Upon making further inquiries I was informed that the board is meeting today and that one of the matters to be considered is the unfunded liability information that will be presented to them which will then be released to the minister. As I understand it, that will indicate what the position was as at 31 December 2007. I ask the minister to ensure that, as soon as practicable after he receives that information—and, of course, not later than Tuesday of next week—it is given to the opposition.

After all, it is the explosion of the unfunded liability that is a substantial factor as to why we are here debating this legislation at all. So I look forward to receiving that. I think it is also fair to say that, if the minister has available through the WorkCover Board any other material which confirms the unfunded liability—for example, as at 31 March, which is the third quarter of this financial year—that information should be before the house as we exercise our minds in dealing with this legislation. I seek that that information be provided.

The second matter to which I refer is the return-to-work rate which, it has been claimed, has been deteriorating over a period of time. According to the information which has been presented (including the Clayton report) this is a matter of serious concern. Information which has been presented from one of the very many parties that have put in a submission includes a claim that freedom of information documents from WorkCover on this issue have disclosed that in 1997 the number of injured workers on benefits for 12 months or less was 2,141 and that in 2006 the number was exactly the same.

The second thing that is asserted from this freedom of information material is that the number of injured workers on benefits for 24 months or less (in the same corresponding period) in 1997 was 2,640 and in 2006 it was 2,788. That is an increase of 148 workers on benefits in this 10 year period. The third thing that they claim is that the number of people accepted as permanently incapacitated—that is, with only a 6 per cent chance of ever returning to work—and in receipt of benefits in 1997 was 1,970 and in 2006 it was 3,728—a 100 per cent increase. If one were to accept that these figures are both accurate and illustrative of the issue of concern, it begs the question whether the claim of a significant deterioration in return to work rate is the case. I ask the minister to clarify whether that is the position, that is, whether or not that information is accurate because, that, along with the unfunded liability, is a significant factor of why we are even here debating this legislation.

A third matter is the use of redemptions. On 14 March, after the opposition's meeting with WorkCover, I wrote to Mr Bruce Carter (the chairman), and I place on the record that letter that I sent to him. Apart from acknowledging his attendance and expressing my appreciation to him for having had time to brief the opposition, I wrote:

I understand that a successful redemption campaign has been run by Employers Mutual Limited (on behalf of the WorkCover Corporation) over the past 12 months or so. Please confirm this to be the case.

Please also provide me with the following statistical information:

1. How many injured workers:

1.1 Commenced receiving income maintenance?

1.2 Entered the long term income maintenance (36 months+) category?

1.3 Exited from that category (i.e. by any means)?

1.4 Of the workers in 1.3, how many received redemption payouts?

In the following periods:

(a) 1 July 2005—30 June 2006

(b) 1 July 2006—30 June 2007

(c) 1 July 2007 to date, on a month by month basis.

I am disappointed that this information has not been forthcoming. When I inquired at WorkCover, I understand that Ms Davison, the CEO, had been away during the week that I had sought this information. I think she was coming back on 26 March.

Again, minister, I seek that information as soon as possible so that we can fully consider the matters before us. Amendments are already foreshadowed relating to that aspect. I note the government's proposal at this stage that redemptions be very much narrowed to be accessible only in very limited circumstances with a monetary limit of the amount being redeemed not to exceed $30 a week in value. I would like that information.

The second matter I raise relates specifically to the WorkCover Corporation Governance Review Amendment Bill, which is to follow this bill immediately, as I understand it. This is essentially the assertion by the government that it is necessary to do two things: (1) to replicate the power of ministerial direction used in the Public Corporations Act providing the government claims greater certainty over the exercise of ministerial direction; and (2) to require the preparation of a charter and performance agreement between a minister and WorkCover as would apply if it were under the Public Corporations Act.

On the former of these grounds, again, during the meeting that we had with WorkCover, I inquired as to whether there had been any ministerial directions in the period of time that Mr Carter had been in charge of WorkCover. He responded by indicating that he thought there were a couple. He could not remember exactly what they were. He thought that one of them was a direction to restrict employees in some way in respect of overseas travel. I am not sure about the amount of times or value or anything of that nature but that was the only one he could think of during the course of the meeting.

My question to the minister is: how many ministerial directions has he given (which he already has the power to do, and at least we understand he issued one or two), what were they for and when did they occur during the lifetime of this government? That may pre-date him a little because I am not sure whether he has had industrial relations for the entire period since 2002. I may be wrong but, if he has not, could he also include details from the time of his predecessor? How many of those have been issued, what they were and at what date? We will be following on to consider that.

As I have indicated, I will not be going into all the issues that I consider important in the substance of the bill but the committee stage will be very extensive because there are a lot of amendments. We have been encouraged by a great number of people and organisations who made submissions to the opposition and, during the course of consideration of this matter, under the guidance of the shadow minister for industrial relations, we have undertaken extensive consultation with stakeholders. He and his office—and, in particular, I recognise Ms Heidi Harris—have spent a good deal of time in bringing all the people to the opposition so that we may receive submissions. But the overwhelming message from the stakeholders, irrespective of the view they took on this, was that we deal hastily with this matter. So, it is on that basis that I am not going to be speaking long on the substance of the matters but I will cover the issues of importance to me during committee.

In conclusion, I acknowledge the member for Morphett for his substantial amount of work in assisting opposition members in the consultation period and, of course, for his exemplary contribution to the house in this debate.

Mrs PENFOLD (Flinders) (16:07): Labor governments are notoriously bad managers and this new WorkCover legislation is just another example of their bad management. This can be proved by comparing the performance of WorkCover under the Liberal government in 2002 with the existing legislation, where the unfunded liability had been reduced down to $56 million in contrast to the performance of the current Labor government where the unfunded liability, as at 30 June 2007, under the existing legislation, was $844 million and rising.

Sceptics who need more convincing can compare the differing success of the two schemes that currently fall under the same existing WorkCover legislation: first, the 65,000 registered small business employers, who represent 60 per cent of the employee workforce, who are already suffering increasing levies that are fortunately capped at 7.5 per cent, and who will be hit the hardest by the new legislation, with that cap being increased significantly; and, secondly, operating under the same existing legislation, the 74 self-insured large employers and the South Australian government who represent 40 per cent of the employee workforce and who manage their own claims. Many of these large businesses have reducing levies and even receive bonuses. But with this new legislation their employees will receive reduced benefits and their cap being increased will not matter, because it is even less likely to be reached.

If that is not enough for the sceptics, they can compare the levy rates for the 65,000 small businesses that are registered with WorkCover because they are too small to be self-insured. These levies are expected to rise for many of these small employers under the new legislation when the cap is removed, when the levies are higher than other states already, therefore making our businesses less competitive by comparison. Levies average 3 per cent here in South Australia, way above New South Wales at 1.77 per cent, Victoria at 1.46 per cent and Queensland at 1.15 per cent.

The message is: don't be a small business operator in South Australia under a Labor government, because your costs will be higher than other states and are going up, and this applies not just to WorkCover but also to payroll tax, stamp duty, etc.

I believe one of the reasons for the very poor WorkCover result by this Labor government is its decision in 2004 to cut stand-alone mediation services by fully qualified private providers. Presumably, this was done on the assumption that mediators would be provided by rehabilitation consultants and internal government human relations employees who were not necessarily properly qualified but who probably belonged to the right union. I dare say the additional government people required make up some of the 12,000-plus more public servants that Labor has employed at a huge cost to taxpayers since 2002.

Public servants undertaking this kind of work have, to my knowledge, not been a great success. For a start, many have little understanding of, or sympathy with, the risks and responsibilities taken by private enterprises, particularly small ones. Therefore, there is immediate distrust. There is a red tape requirement that is deadening for all public servants where they have to justify their existence with statistics which are not conducive to finding good outcomes, particularly for harder cases. In addition, there is the fact that Employers Mutual is the sole claims agent, providing no competition or choice for the employee or employer.

The results of WorkCover claims that I have seen in my office usually involve people who are at the end of their tether, suffering from depression caused by their lack of work, financial and family pressures and WorkCover requirements. The discussions are usually about the difficulties pertaining to WorkCover, not about their employers and the original issue with them. They just want to get off WorkCover. The same applies to employers who contact my office.

So, why cut the stand alone mediation services? In many of these cases early intervention between the employer and employee may well have solved the problems before WorkCover had to become more than superficially involved. Once WorkCover is involved, both employee and employer lose any sense of control and they are on a merry-go-round which moves very slowly but which is almost impossible to get off and costs time and money for all concerned.

I am advised that of one company which undertook mediation between 2002 and 2004, before this government severed ties, was able to provide a service that achieved a return to work on an average of about five weeks at an average cost of less than two weeks' notional weekly earnings; indeed, with over 70 per cent agreeing to return to work following mediation.

In 2004, the company was advised by the board that it would no longer be funded by the WorkCover Corporation. Keep in mind that the company had conducted about 300 mediations dealing with allegations of harassment and bullying in the workplace that resulted in claims for anxiety, depression and stress. As a result of the board's decision there is no requirement for accreditation or specialised mediation qualifications, and a rehabilitation consultant is not trained in mediation skills and may well have a conflict of interest between an injured worker and an employer.

The value of mediation cannot be underestimated. Mediation empowers the parties to find their own resolution, whereas in other forms the decision is imposed upon them. As the mediator cannot impose a decision upon the parties, it is likely to be quicker and more cost effective than the more formal processes of arbitration or litigation.

The current WorkCover situation shows that we have the nation's slowest return to work, and that is contributing to the increasing unfunded liability. Reverting back to accessing independent mediation services is perhaps just one small step in restoring our WorkCover system to a better state. It was interesting to note from the Clayton Walsh report that while South Australia, New South Wales and Victoria outsource claims management, South Australia is the only state that has one monopoly claims agent.

As my time in this place is coming to a close, and I would like to cease being amazed by the ineptitude of the Labor government, I can once again see that it will take the return of a Liberal government to bring our state back to financial security and to be able to afford to deliver quality services to all who need them. So much of what this government does is media-driven and delivered by smoke and mirrors.

It is important that South Australians remember that this legislation imposes a double whammy on businesses by their having to pay the WorkCover levy twice within a single financial year once the legislation comes into place. The effect of this will, of course, make this woeful government look better with a significant funding boost, and I have no doubt that will be a part of misleading propaganda leading up to the next election.

At the end of the day, this legislation further penalises small businesses and, most particularly, shows little regard or compassion for injured workers, nor does it assist them to return to work.

The Hon. M.J. WRIGHT (Lee—Minister for Industrial Relations, Minister for Finance, Minister for Government Enterprises, Minister for Recreation, Sport and Racing) (16:15): I thank members for their contribution to the second reading debate on the bill. This is important legislation and it is important to get it right. South Australia's WorkCover scheme needs to be fixed. Members on the other side of the house seem to be under the misapprehension that the problem with WorkCover is a new problem, that it is something that sprang up almost immediately after the election of the Labor government.

To this end, they pick and choose quotes from the Clayton report and various WorkCover publications. The fact is, though, that this has been a problem for quite some time. Claims about the performance of the scheme made by members opposite demonstrates a misunderstanding of the complexities of the scheme and issues that existed under the former Liberal government as far back as 2000. The fact is that these problems even go back to the late 1990s. I remember raising WorkCover's poor performance in getting injured workers back to work when I was shadow minister. Even back then, our return to work performance lagged well behind the performance of other states.

As far back as 1999, according to the Campbell Return to Work Monitor, a survey conducted under the auspices of the heads of workers compensation authorities, South Australia's durable return to work rate was as much as 10 per cent behind the Australian average. The fact is that, in South Australia, fewer injured workers successfully return to work than in any other scheme in Australia.

Citing Mr Clayton's report, the member for Morphett and others opposite like to talk about the scheme appearing—and I stress 'appearing'—to be in a healthy state in the early 2000s. What he and others on his side of the house failed to mention, when quoting Mr Clayton, was the preceding paragraph of his report where he states:

In spite of this relatively favourable appearance, the first warning signs for South Australia were beginning to emerge through the inability of the scheme to successfully control the number of claimants continuing to longer durations on income benefits. Increasing use of redemptions was controlling this trend somewhat, but at the same time was leading to a pernicious spiral effect whereby fewer short-term income maintenance claimants were returning to work, but rather were staying on benefit until receiving a redemption payout. Claims agents seemed unable to reverse this trend through effective injury management and claims management.

This remains the key challenge faced by the scheme today. Mr Clayton goes on to say that successive actuarial valuations in 2001 and 2002 increased the outstanding claims liability. This worsened in 2003 when, under the direction of the new board and new management, a more thorough examination of the problem resulted in a better understanding of the scheme's liabilities, which were much higher than was previously estimated. These problems are not new.

The board the government appointed in 2003 knew this and they appointed a new CEO and management team to address the problems at WorkCover. Since then, a range of initiatives have been undertaken by WorkCover to help improve the performance of the scheme. These include, amongst others: the appointment of a single claims manager, Employers Mutual, a proven performer in the New South Wales scheme; put in place new regulations that ensure the claims agent contract provides better incentives for claims managers to get people back to work; the appointment of a single legal provider, Minter Ellison, who I am advised has significantly reduced the scheme's legal costs and contributed to decreased dispute duration; improved arrangements in relation to rehabilitation providers; and improved fee arrangements for medical providers in the scheme.

These reforms, while important and valuable, have not proven to be as effective as hoped. The WorkCover board has advised me that, while they will continue to work to improve performance, little more material change can be made to the scheme without reforming the legislation.

I know and I appreciate that there is some distress in the community about the changes proposed by the government. I acknowledge that there will be some reduction in benefits as a result of these reforms, but what has disappointed me during the public debate on this issue, both in and out of the house, are the campaigns that have been run by some organisations.

An example of this is an advertisement published by the Australian Lawyers Alliance in yesterday's Advertiser. It cited examples of four injured workers who would be affected by this legislation: Michael, Andrew, Sascha and John (not their real names), with various claims that these workers would suffer under these reforms.

I do not know the details of each of those individual cases, but I have been advised that the ALA may not have taken a balanced view in the way it has presented them. The ALA claimed Michael's payments would cease immediately upon passage of this bill. Despite being injured more than 2.5 years ago, he could remain on 80 per cent of his pre-injury earnings providing he was working to his maximum capacity. If he was not working to his maximum capacity, his entitlement to ongoing payments would cease after a work capacity test had been undertaken.

It is important to note that the nature and extent of rehabilitation provided would be considered when determining whether there is a capacity for work. It is also important to note that the legislation allows for at least 13 weeks' notice to be provided to the worker and, during that time, the worker can seek a review of the decision.

The South Australian Workers Rehabilitation Scheme was never intended to be an ongoing pension scheme. Its objective is to provide short-term support and rehabilitation to injured workers while they recover and return to work, providing only longer term support to those who are seriously injured and unable to return to work.

In regard to Andrew—who, according to the ALA, would immediately lose his weekly payments and receive reduced lump sums—under the new legislation, he would be entitled to payments immediately under provisional liability, enabling rehabilitation to commence immediately. He would then be entitled to 100 per cent of his pre-injury earnings for the first 13 weeks, reduced to 90 per cent at 13 weeks (based on the amendments I have proposed) and 80 per cent at 26 weeks. If Andrew was seriously and permanently impaired, he would have access to the increased lump sum benefits, which have almost doubled from $230,000 to $400,000 in the proposed legislation.

In regard to Sascha—who, according to the ALA, struggled to have her claim accepted, and will now have her payments stopped—under the new legislation, she would be entitled to payments immediately under provisional liability, enabling rehabilitation to commence immediately. If Sascha had no capacity for work after three years, she would be entitled to ongoing weekly payments at 80 per cent of her pre-injury earnings. Similarly, if Sascha had capacity to work and was working to that capacity, she would be entitled to ongoing top-up weekly payments at 80 per cent of pre-injury earnings. However, if she had capacity and was not working to that capacity, she would no longer be entitled to ongoing payments. This is consistent with the objective of the scheme, to provide short-term support and rehabilitation to injured workers while they recover and return to work, providing longer-term support only to those who are seriously injured and unable to return to work.

In regard to John, who the ALA said suffered many serious and permanent disabilities, on that basis he would be entitled to increased lump-sum benefits which have doubled from $230,000 to $400,000, as I have already said. As I said, I do not know the details of these individual cases, but I understand that each of these workers would be likely to be worse off if they were injured in other states where there are harsher step-downs and less generous payments for non-economic loss. I am concerned that a number of interest groups in connection with this bill have caused undue distress to people currently on WorkCover.

When I announced the Clayton Walsh review early last year, as well as the financial objectives, I said that the primary objectives of the review were to deliver a scheme that both provides fair compensation to injured workers while they prepare to return to work and is affordable for South Australian business.

I believe that Mr Clayton's review delivered on those requirements. I believe that the government's bill delivers on those requirements. There is a new work capacity review at 2½ years, based on a model that works in Victoria. There is a similar review in the current legislation; however, as Clayton has pointed out, it has 'become opaque and tortuous' and 'interpreted in a very restricted and technical manner in a number of decisions of the tribunal'.

As far back as the Byrne report, which a number of members mentioned in the course of debate, a system was envisaged that would determine whether injured workers should stay on the scheme long term because of serious or permanent injury and those who should be rehabilitated quickly and returned to work. These are the important parts of the package in making sure our scheme encourages return to work where that is the best outcome and provides good long-term compensation for seriously injured workers.

For injured workers who can return to work—and that is the vast majority of people injured in this state—we have to make sure the scheme design has the right structures in place to get them back to work. Many of the changes proposed in the bill are aimed at exactly that. Notwithstanding the business community's opposition, workplace-based rehabilitation and return to work coordinators will ensure there is someone at work who can help the injured worker back to work and to help liaise with the employer, case manager and fellow workers. A new system of provisional liability will ensure that weekly payments and medical expenses are paid quickly and rehabilitation gets underway quickly. This avoids the complexities and delays that can occur at the start of a claim and helps get the focus immediately onto getting the injured worker back to work.

In introducing these reforms, we wanted to give workers confidence that their rights in the scheme will be protected and that they will have the ability to exercise them. We will be introducing a WorkCover ombudsman to ensure that injured workers are treated fairly in the administration of the WorkCover system. With the amendments I have proposed to the bill, the role of the ombudsman will be enhanced further to ensure injured workers are protected from poor decision making and that return to work obligations are being met. We have introduced a code of claimant's rights, which will set out how injured workers should be treated in the management of their claim.

That code will be developed following the passage of this bill with injured workers and their stakeholders to ensure that their needs are met. We have also introduced more generous payments for non-economic loss for seriously injured workers and for the families of workers killed at work. This is a balanced package that is aimed at fixing up the problems that exist in the WorkCover scheme in a fair and balanced manner.

The reforms proposed by the government provide fair compensation to injured workers while they return to work at an affordable cost to the employers of the state. Many honourable members have commented that they believe this legislation has been rushed into the parliament. May I remind members that I first received a proposal for legislative change from the WorkCover Board in November 2006. I said, when releasing the board's proposals, that they were significant reforms that had the potential to affect the social fabric of the state.

It is for this reason that in March 2007 I appointed two independent experts in workers compensation, Mr Alan Clayton and Mr John Walsh, to review the WorkCover Board's proposals and provide me with recommendations about how to fix South Australia's WorkCover scheme. That review was conducted over some nine months. Mr Clayton met with a large number of interested parties in the conduct of the review and received some 72 written submissions. It is on the basis of that consultation that Mr Clayton and Mr Walsh based their report and that has led to the legislation that is before the house.

What about members opposite? On the one hand members opposite say that the government has been dithering over what to do about WorkCover and on the other they say we have rushed this legislation into this place. Since the bill has been introduced, I have also met with unions, employers and lawyers about the bill and it is as a result of those meetings that I propose some amendments that we will discuss in committee stage.

In his second reading speech, the member for Morphett said:

We will be reviewing the whole structure of the workers rehabilitation and compensation schemes in South Australia to make sure that when we go to the election in 2010 we will have a position.

You need a position now and I presume the position now is to support the bill. The crux of the matter is, what is the position? In fact, not only do they not have a position, but what about the Leader of the Opposition, who can stand up in this place and get the basics of the bill wrong? He stated:

I was at Prominent Hill last week where a dump-truck driver earns around $2,000 a week but if he or she is injured they drop down to 95 per cent of $1,190 and after 13 weeks to 75 per cent of $1,190.

What the poor old leader, of course, is quoting from is not the bill, not a government proposal, but what was proposed by the WorkCover Board—never the government's proposal.

The member for Morphett, during his prolix second reading speech, felt compelled to read into Hansard a number of submissions so that they are taken on board by the government. Let me assure the honourable member this government has consulted and now we have acted. I acknowledge that the decision to pursue these reforms is not a very palatable one for the government, but government is about making the right decisions even when they are the hard decisions. It is clear, however, that a shift in culture away from injury management and return to work towards a culture of compensation has occurred in the WorkCover scheme. Reversing this culture is the key to restoring the financial health of the scheme and ensuring that injured workers have the best possible chance of resuming productive working lives. That is what the WorkCover scheme is all about. I commend the bill to the house.

The house divided on the second reading:

AYES (39)

NOES (2)

Majority of 37 for the ayes.

Second reading thus carried.

Committee Stage

In committee.

Clause 1.

Progress reported; committee to sit again.