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House of Assembly - Fifty-First Parliament, Third Session (51-3)
2008-10-15 Daily Xml
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MOTOR ACCIDENT COMMISSION

Mr HAMILTON-SMITH (Waite—Leader of the Opposition) (14:38): My question is again to the Treasurer. Is the Motor Accident Commission on the brink of insolvency; what losses have been incurred to date by the agency; and what is the risk of a call on the taxpayer to bail out the enterprise?

The Hon. K.O. FOLEY (Port Adelaide—Deputy Premier, Treasurer, Minister for Industry and Trade, Minister for Federal/State Relations) (14:38): Scaremongering and terrifying people—

Members interjecting:

The Hon. K.O. FOLEY: No, that is not what he says at all. To suggest that the Auditor-General is saying that is just plain wrong. The solvency rate of the Motor Accident Commission when I took office, at 30 June (having been under the Liberal government), was a solvency of 103.3 per cent. Today, I am advised, as of 30 June this year, just prior to the most recent report (and I will come to this current data), it was 101.5 per cent. So, within two percentage points of where it was when we came to office. As of 30 September, with the sharp collapse in equities, it is 98.4. In terms of comparison to WorkCover, it is fully funded.

Under the Liberals—the five years leading into 2002—to 30 June 1998, it was 110.9 per cent; 30 June 1999, it was 107 per cent; 30 June 2000, 108 per cent; 30 June 2001, 108.5; and 30 June 2002, 103.3. What did I get when I came into office—this advice. The advice states:

The Motor Accident Commission presently has assets sufficient to cover the claims provision calculated in the way to produce a small positive net asset position (about $100 million). To maintain the present position, Motor Accident Commission must be able to operate at break even. To improve its position MAC must be able to make a profit.

It is important that people listen to this because this really underlines what we inherited from the opposition. It continues:

In order to restrain the rate of increase in compulsory third party premiums, the government—

that was the Liberal government—

has directed the Motor Accident Commission to charge premiums which are below those determined by the Third Party Policy Committee. As a consequence—

Mr Hamilton-Smith interjecting:

The Hon. K.O. FOLEY: Well, we will come to that. I continue:

As a consequence, the premium level—

that was the then Liberal government in 2002—

now in force is sufficient only to enable the Motor Accident Commission to break even. Unless it is able to outperform consistently on its investment returns, the Motor Accident Commission has no capacity to generate profits. Unless future increases in claim liabilities are fully funded by future premium increases, the Motor Accident Commission will enter a period of declining net assets. This will pose serious risks to the continuing viability of the scheme and ultimately to the government's budget position. A policy of allowing financial assets to decline or allowing unfunded liabilities to grow is equivalent to running budget deficits. It is inconsistent to adopt a policy of balancing budgets while, at the same time, directing government entities to run down their assets or accumulate unfunded liabilities.

That is the advice we had coming into office. What did we then do? We instigated a more significant—

Mr Hamilton-Smith interjecting:

The Hon. K.O. FOLEY: Yes. When we came to office, I accepted that advice, and we increased the prudential margin that I wanted Motor Accident Commission to achieve to ensure that we had a hell of a big buffer for when something like we have seen in recent months occurred. When we came to office, we bit the bullet. We were advised to increase third party premiums to catch up to the Liberals. We better have a quick look.

Back in July 1997 (the election year), they were advised to increase premiums by 8.2, they lifted them 5. The next year they were advised to lift them 12.9, they lifted them 8. In July 1999, they were told to lift them 10.8 to keep it solvent, they lifted it 2.6. In 2000, they were told to increase it by 7.8 and they increased it 2.6. In 2001, treasurer Lucas, I assume, was told to increase premiums by 13.7 because they were getting so far behind and the entity was at such financial risk. They only increased them by 4.7.

The cumulative effect of that was that the system, as I was advised coming into office, was in severe financial trouble. What did we do? We were told to increase premiums by 21.7 per cent in our first year on coming to office.

Members interjecting:

The SPEAKER: Order!

The Hon. K.O. FOLEY: When we came into office, we found 21.7, the cumulative neglect of the last government, a bitter pill to swallow, so we did not increase it by 21.7 but we increased it by nearly double the previous record increase (in recent years), that is, by some 15.5 per cent. I remember that. That was a tough call and all of us on this side felt that it was a very hard decision, but we were in the business of making hard decisions that the Liberals could not and would not. In 2004, we were told to increase by 0.5 per cent and we increased it by 0.5 per cent. Then, what I can say happened—

An honourable member interjecting:

The Hon. K.O. FOLEY: No; what I am giving you is a comparison between our management and your management. Come 2005, the solvency level of the Motor Accident Commission, through our tough decisions, reached approximately 160 per cent. Do you know what that enabled us to do in 2005? On the advice of the Third Party Premium Committee we reduced premiums by 2.6 per cent. The next year—

An honourable member interjecting:

The Hon. K.O. FOLEY: The solvency level was above the prudential requirement that I had put in place; I think it was 160 per cent, give or take a few per cent. There were similar figures in 2006. The Third Party Premium Committee said, 'Your buffer is so large, you don't need to increase premiums any more,' so we decreased them by 1.1 per cent. The reality is that, from 160 per cent solvency, when the world has suffered the most severe financial collapse and crash in history, all but for the depression—

Mr Williams interjecting:

The Hon. K.O. FOLEY: Well, I have no control. Just like the leader has no control over his share portfolio, I have no control over the independent advice I am given as to where we invest our shares, our money. The stock market has thundered down at a rate and to a depth nobody predicted, nobody could foresee. But, do you know what has saved the financial viability of that entity? It is because it had 160 per cent solvency; it had a buffer so large it could withstand the biggest meltdown the world has seen since the 1920s on capital markets.

I wear as a badge of pride that this government ensured that the Motor Accident Commission, fully under its control—levies under its control, assets under its control and free of legislative constraints—was able to keep that entity incredibly solvent, so in its position today it is able to ride through this period. When equity markets recover, what do you think? If we are at 100 per cent—and, hopefully, we are at the bottom, we may not be; we may go a little lower—and when the markets recover, the Motor Accident Commission's asset base will see it go back to prudential coverage well in excess of what anyone has ever seen under the Liberals in office, and it just shows how well we have managed that entity.

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