WORKERS REHABILITATION AND COMPENSATION

Adjourned debate on motion of Hon. R.D. Lawson:

That the regulations under the Workers Rehabilitation and Compensation Act 1986 concerning Claims and Registration—Discontinuance Fee, made on 26 March 2009 and laid on the table of this council on 7 April 2009, be disallowed.

(Continued from 14 October 2009. Page 3532.)

The Hon. CARMEL ZOLLO (20:39): The government opposes this disallowance motion. The 2008 scheme review amendment act inserted new section 76AA into the Workers Rehabilitation and Compensation Act. This section gives WorkCover the power to impose a discontinuance fee upon registered employers and/or self-insured employers when they cease to be registered with the scheme, and it is to be calculated in accordance with regulation 16A of the claims and registration regulations. Section 76AA and its supporting regulation commenced on 1 April 2009. The WorkCover scheme's current average levy rate is 3 per cent. This rate includes a clawback percentage to recoup the historical under-collection of levy. This means that employers are currently paying extra levy amounts to make up for the fact that they did not pay enough in previous years, which contributed to WorkCover's unfunded liability.

The discontinuance fee ensures that, when employers exit the scheme, WorkCover can recoup the amount that the employer may have, historically, underpaid. Logic would dictate that otherwise it would incur a greater cost to those who remain. So, this is necessary, as once the employer exits the scheme they will, clearly, no longer be contributing to the clawback part of the levy. The discontinuance fee thus protects the scheme from any adverse financial consequences that can arise from a transfer to self-insured status, or from an employer ceasing to be registered under the WRCA.

The discontinuance fee replaces the former balancing payment imposed by WorkCover under its general levy powers. The formula has been simplified and linked directly to the level of underfunding experienced by the fund. Once the scheme achieves full funding, the fee will no longer be applied, as the unfunded liability within the calculation will equal zero.

The Hon. Robert Lawson also spoke about other issues, not strictly related to the discontinuance fees. If I could make some brief remarks relating to the IT system, or Project Harry, as it is known. I am advised that WorkCover is required by legislation to administer the Workers Rehabilitation and Compensation Act 1986. To do this, there are many scheme overheads that relate to the general administration of the scheme, and these cannot be considered to be either self-insured or registered employer obligations.

I am advised that they are the obligations of the scheme as a whole. Self-insurers do not move outside the scheme when they become self-insured, they become a separate part of the scheme with their own obligations to administer parts of the act under the supervision of WorkCover. They are required to pay a fair contribution to the overhead costs of the scheme. These overheads include the WorkCover computer system, which is essential to the proper administration of the system, the system of dispute through the Workers Compensation Tribunal, and medical panels.

I am advised that, whilst the levy contributions for 2009-10 from self-insurers have increased by approximately 28 per cent, the largest part of the increase was to pay for costs which self-insurers do use. My advice is that, whilst the cost of Project Harry is a component of the increase, it should be noted that self-insurers are expected to pay for 19 per cent of the cost of the project, rather than the 36 per cent of the scheme that they constitute.

The Hon. Robert Lawson then gave another example relating to the components of the application fee structure and alleged that WorkCover has failed to justify the figure. In relation to that, I am advised that the Self Insurers of South Australia (SISA) have been consulted in relation to this proposal, first, in the October 2008 regulation review public discussion paper, which discussed the need for an increase in the fee, and then in the regulation review proposal paper, which was considered by both WorkCover's stakeholder group, the Legislative and Regulatory Consultative Group (LRCG), and the Workers Rehabilitation and Compensation Advisory Committee. Robin Shaw of SISA, I understand, sits on both these committees.

I am advised that the LRCG, the WRCAC and the WorkCover Board Regulations Review Committee have all supported this proposal in their consideration of the regulation review recommendations. As well, I am told that WorkCover has provided significant detail to all stakeholders on the reasons for and the detail of the proposed fee increase. I am further advised that the application fee for self-insurance has not been increased since 1999 and does not reflect the cost of the assessment for WorkCover and is significantly less than the equivalent fees in New South Wales and Victoria.

I have been advised that the proposed fee has been based on a detailed analysis of the costs of assessing an application for self-insurance. It is considered to be a conservative assessment, and even the proposed maximum fee will still not cover the costs incurred by WorkCover for the assessment of large or complex applications.

Mr Lawson contends that WorkCover has refused to justify the fee to SISA. I am advised that this is not correct. SISA has been provided with a range of detailed information, and discussions have also been held with WorkCover staff. I am told that SISA has said that the current fees are probably low due to the lack of indexation since they were first introduced. SISA has stated that, in principle, it does not object to the notion that the fee should cover the actual costs. SISA has further stated that it is in full agreement that the new applicant should bear the full cost of assessing applications, rather than its being an impost on existing self-insurers.

I am advised that SISA also provided an alternative suggestion of a flat base fee, payable up-front, with variable post paid fees based on the actual cost of processing the individual application. However, WorkCover considers that the current proposed model is simpler and more appropriate than the SISA proposal.

This regulation is not about hostility on the part of WorkCover or the government towards self-insurers; rather, it has been enacted as a logical consequence of the changes to the act and, as already placed on the record, replaces the former payment. I urge honourable members not to support the Hon. Robert Lawson's motion. This regulation is simple, fair and, in the light of WorkCover's unfunded liability, clearly necessary. The government opposes the disallowance motion.

The Hon. R.P. WORTLEY (20:48): If this motion is disallowed, there would be a shortfall going into the workers compensation scheme and, one way or another, it has to be made up, either by the smaller employers paying a lot more, which would put a great impost on them as costs, an unfunded liability by the blow-out, or we would probably have to make more draconian cuts to workers' entitlements. So, they are the three options I can see if this motion is disallowed. Does the honourable member agree with those options, or is there another option that would not involve those three?

The Hon. A. BRESSINGTON (20:49): I rise briefly to indicate my support for the Hon. Robert Lawson's motion to disallow the regulations under the Workers Rehabilitation and Compensation Act 1986 concerning claims and registration discontinuance fees. I wholeheartedly agree with the Hon. Rob Lawson's considered assessment. The discontinuance fees as set out in these regulations are extortionate and intentionally so. This intention is seen not only in the fees themselves but also in the recent doubling of the costs to a business to apply for self-insurer status, the recent hike in their annual levies, and in the general hostility shown to self-insurers.

Further typifying WorkCover's hostility to self-insurers is the demand that they pay nearly one-fifth of the cost of Project Harry, WorkCover's IT replacement project. Self-insurers will not have access to the system and will derive no benefit from it, yet, as part of their annual levies, they will have to pay for 19 per cent of it.

As stated by the Hon. Robert Lawson, this is nothing short of highway robbery. Speaking apolitically, the discontinuance fees are, to my mind, a hindrance to the inevitable, that being the eventual decentralisation of employee insurance. Whether this will see WorkCover's demise or just lose its near monopoly status only time will tell, but I cannot see how the present arrangements can go unchanged, given that the corporation continually demonstrates that the present model is unsustainable and delivers such poor outcomes to stakeholders, those being employers and injured workers.

While minor improvements may occasionally be made on the fringes, the stark reality is that WorkCover is failing and will continue to abysmally fail its mandate to both employers and injured workers. That larger employers are seeking to jump ship is not surprising.

I seek to make clear that my support of this motion is not an unquestioning endorsement of companies that presently are self insured. I am aware of several cases in which it would appear that the same complaints levelled at WorkCover are also being made against self insurers, namely, the victimisation of injured workers, it is a denial of the few statutory rights that remain, and the corruption of due process.

It certainly concerns me that such abuses occur even further from public scrutiny than the impenetrable WorkCover and EML, but that alone does not justify WorkCover's hostility to self-insurers, particularly those seeking to become self insured. In fact, to argue this would be most hypocritical. In saying that, I support the motion.

The Hon. R.D. LAWSON (20:52): I thank honourable members for their contribution. I particularly thank the Hon. Russell Wortley for his contribution, where he referred to what he described as 'draconian cuts to workers' entitlements'. These were so-called cuts that his government proposed, that he voted for and that he supported and never once raised a word in this parliament against them; not once. The hypocrisy of the Hon. Russell Wortley is truly staggering.

The Hon. R.P. WORTLEY: Point of order! I asked a question in three parts. The honourable member is misrepresenting the questions I asked. Could he answer the questions before we vote on it?

Members interjecting:

The PRESIDENT: Order! The Hon. Mr Wortley did ask questions, but the Hon. Mr Lawson, whose motion it is, has the right to sum up.

The Hon. R.D. LAWSON: No doubt we will be forwarding to some of Russell's former comrades in the union movement a copy of his intervention tonight when he refers to the draconian cuts to workers compensation, which he supported.

He did pose a question as to what happens if these regulations are disallowed. If these regulations are disallowed, the discontinuance fees that previously applied will continue to apply; so, this is not a windfall loss or gain either way. The existing discontinuance fees will apply, as is entirely appropriate.

I am amazed that the Hon. Russell Wortley would be seeking to resist this, because the fact is that workers who are employed in self insured industries or for self insured enterprises actually receive a considerable benefit. They have better return-to-work rates than those in the WorkCover scheme generally. They have faster recovery periods; they have better outcomes generally.

It really is amazing that somebody who purports to be a friend of the worker would be seeking to prevent employers and enterprises joining a scheme which enables them to provide better outcomes, which enables them to provide lump sum redemptions and which has provided a better scheme for many years. That is an extraordinarily stupid intervention, but not one that is altogether surprising from the Hon. Russell Wortley.

The Hon. Carmel Zollo's speech would suggest that this change in fees is entirely innocuous and benign. She claimed, for example, in support of her argument, that the application fee has not increased since 1999. That may well be true, but the application fee itself is a very small part of the discontinuance fee. The discontinuance fee proposed to be charged in these regulations is many hundreds of thousands of dollars more than the discontinuance fee that was calculated upon the pre-existing formula.

The Hon. Carmel Zollo said on behalf of the Labor Party that employers exiting the WorkCover scheme to a self-insured status should be required to pay a fair contribution to the scheme. I certainly agree with that. In my view, the existing discontinuance fees—which are quite high, quite substantial and quite a disincentive to actually exit the scheme—did allow for the payment of a fair contribution to the scheme. But what has happened is that that formula has been adjusted and we now have this penal formula imposed in these regulations, which is designed as a positive disincentive for employers to exit the scheme.

The Hon. Carmel Zollo suggested that the self insurers association representing self insurers has acknowledged that the current fee is probably too low. That is simply not the case. SISA, the association, has been vehement in its opposition to the changes that have been made. The honourable member suggested that the fee ought to be simple and fair. We would agree with that motherhood statement, but the fact is that nobody could ever describe the formula for calculating these fees as simple, and this one is certainly not fair at all.

SISA was not apprised of these discontinuance fees. The fact that Mr Shaw might have been a member of an advisory committee does not reflect the fact that he, his association or his members were fully apprised of what the government proposed, either in the legislation or in the subsequent regulations.

I think one of the Hon. Carmel Zollo's final comments was that SISA agreed that the applicant leaving the scheme should bear the full costs. That is not disputed either, but the pre-existing formula did provide for exiting employers to make a contribution and pay a discontinuance fee, which was not only a fair reflection of the actual cost of their leaving the scheme but actually was loaded to be an amount greater than the full cost. The industry is prepared to bear that, although it has complained in past years.

The fact is that this fee, as I have described it in my earlier contribution, is a penal fee designed to achieve a particular result. In those circumstances, I urge members to vote in support of the disallowance motion, the effect of which, as I said, will be to restore the pre-existing fee.

The council divided on the motion:

Majority of 3 for the ayes.

Motion thus carried.