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Legislative Council - Fifty-First Parliament, Third Session (51-3)
2009-06-17 Daily Xml
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WORKERS REHABILITATION AND COMPENSATION

The Hon. R.D. LAWSON (15:59): I move:

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.

As members will know, the Workers Rehabilitation and Compensation Act, as extensively amended last year, provides a scheme for the compensation and rehabilitation of workers who are injured or incapacitated at work. It is a good scheme. Unfortunately, it has not been managed well in South Australia in recent years. In fact, it has been so badly managed under this government and this minister that last year the unfunded liability of the scheme was headed towards $1 billion, and the act had to be changed in order to get the government off the hook and save the minister's neck. Latest reports suggest, unfortunately, that once again the unfunded liability of the WorkCover Corporation is headed towards $1 billion.

As a result of last year's debacle the act was amended, and a number of new provisions were inserted which deal with many aspects of the scheme. These particular regulations deal with only one particular aspect of the scheme, but it is an important one nonetheless. A new section 76AA was inserted, headed 'Discontinuance fee', and this provides that an employer who ceases to be registered under the act and who seeks to be self-insured is liable to pay the corporation a fee calculated in accordance with the regulations. This particular regulation has been made pursuant to that section.

It has always been necessary that a payment be made by an employer who leaves the scheme and becomes a self-insured employer—and I will come to that in a moment. However, many members of the public who are not involved with WorkCover, or who do not have any claim or familiarity with the system, would not be aware that many companies in South Australia administer the workers rehabilitation and compensation system on behalf of their particular employees. So the WorkCover scheme in South Australia, contrary to what some people might think, is not a monolithic system; it is not one under which the WorkCover Corporation is the sole operator.

In fact, in South Australia there are some 70 major businesses—and probably more than that—that self-insure under this scheme, and I believe all are members of an organisation called Self Insurers of South Australia. Major companies such as BHP Billiton, Advertiser Newspapers Ltd, Clipsal, Coca-Cola, Coles Myer, Woolworths, the major wine companies, Flinders Ports, General Motors-Holden, OneSteel, Origin Energy, etc., are all self-insurers.

The performance of self-insurers, on all the benchmarks relating to workers compensation and rehabilitation—in particular, return to work rates—is better than that involving the scheme administered by the WorkCover Corporation. Not surprisingly, that is because a company which is itself running a scheme will have a greater incentive to ensure prompt return to work and prompt settlement of claims, it will have a better knowledge of its workers' capacity, and it will have greater flexibility in finding alternative work (perhaps light duties, etc.). Generally, the best part of our system has been operated in the self-insurance area, and it represents a significant part of the entire scheme. Contrary to the belief of some, the self-insurers are not a growing section of employers. If one looks at the figures relating to the proportion of remuneration between the scheme participants and the self-insured participants, one sees that, for example, in 1995-96, when significant amendments were made by the previous Liberal government, some 38.9 per cent of remuneration was earnt by self-insurers. It is a significant proportion, of course.

That proportion has been reduced slightly over the years. The latest figures I have (2006-07) has it running at some 46.62 per cent. In 2005-06, it was 36.7 per cent, and the year before, 36.35 per cent. In real terms, the proportion of self-insurance has decreased, albeit somewhat slowly, primarily because the scheme itself has grown faster than the proportion of self-insurance. However, there are still companies and organisations which would be eligible to be self-insured, which would want to be self-insured and which have taken steps to get themselves ready, including implementing all the training and other organisational changes that have to be made, but the government has introduced a regulation which would make it very difficult, indeed, for those companies to become self-insurers because the fee that is being proposed in the regulations (which we seek to disallow) are extortionate.

Perhaps I can give some examples. The proposed discontinuance fee, for example, for a petrol wholesaler with some 500 employees, currently paying a levy of $570,000 a year, under this regulation would have to pay a discontinuance fee of some $1.08 million. I take another example. A furniture retailer with some 250 employees, currently paying a levy of some $456,000, would have to pay a discontinuance fee of $852,000. To become a self-insured employer, an employer in the air conditioning installing industry with, say, 1,000 employees, currently paying a levy of $2.7 million a year, would have to pay $5.1 million by way of discontinuance.

What we see here pretty transparently is an attempt by the government—and perhaps also by the WorkCover board—to prevent companies wanting to be self-insurers joining the other band of self-insurers by having to pay some penal and extortionate amount. I have had more recent information concerning that. A very well-known private hospital in South Australia, which has invested significant sums in preparing for self-insurance, has suddenly been hit with a $1.5 million discontinuance fee, which a private hospital organisation simply cannot afford to pay. A very well-known national transport group faces a fee of some $7 million in order to depart the WorkCover scheme. I believe that they wish to join the commonwealth Comcare scheme. Once again, that illustrates the magnitude of the issue we face.

It is my contention that it is all because of the hostility of WorkCover and this government to private employers and for no good purpose, other than extortion—in other words, keeping them in the scheme. Contrary to the claims made by anybody who says that the departing employers are being asked to contribute to the unfunded liability of the scheme, even these extortionate fees will make virtually no difference to the unfunded liability.

I have seen figures, calculated by Self Insurers of South Australia, which show that, even if they were to collect discontinuance fees at the rate of, say, $2 million to $3 million a year, and the unfunded liability stayed more or less where it is, the net benefit to the scheme would be negligible—something like .3 per cent of the unfunded liability.

In other words, the impact of discontinuance fees on the scheme as a whole is negligible, but the impost on individual employers is likely to be very significant and adversely affect how employers view their business and job prospects in South Australia. Why would you make further investments in South Australia? Why would you expand your business in South Australia if you knew that you were operating in an environment in which this type of practice persisted? So, from a cost-benefit perspective, this is a counterproductive measure.

It is said that employers continuing to subscribe to WorkCover are actually cross-subsidising the self-insurers. However, the fact is that there are already cross-subsidies within the existing levy pool; indeed, they are almost inevitable in any insurance pool, but the extent of cross-subsidy because of discontinuance fees is very small indeed.

We hear the Prime Minister intoning that it is all about jobs, and we hear exactly the same thing from ministers in this government, yet here is a measure that will directly affect employment and employment prospects in South Australia. It is not as though, as has been suggested by some, that there is a flood of companies either eligible or wanting to become self-insurers, but it is certainly true that there is a number who wish to do so and who ought to be able to do so.

An adjustment is already made, in addition to the discontinuance fee, when an employer becomes self-insured. I think it is loosely termed 'the 72 per cent arrangement', under which an adjustment is made calculated by reference to the levies the company has paid and the claim costs that are incurred over the past seven years.

So, if an employer departing the scheme has paid levies that exceed the claim costs, it will be entitled to 72 per cent of the difference. Of course, that amount is deducted from the discontinuance fee; notwithstanding that, these discontinuance fees are extremely counterproductive.

I will not go into the evidence, but it is abundantly clear, when one looks over the history and the reports of WorkCover and the statements of its recent ministers, that this bias against self-insurers exists, but the board and the government have been rather circumspect in admitting their true motives in relation to this aspect.

It has been pointed out that, at the rate of these discontinuance fees being charged and given the unfunded liability of the scheme and its likely unfunded liability into the future, it would take 200 years to recover the unfunded liability from these payments and, clearly, that is not the purpose. The fact is that WorkCover has not produced hard evidence to show that these fees are justifiable. They are not supported by actuarial evidence, and it has not been demonstrated that they measurably improve the funding position of the WorkCover scheme generally. As I have pointed out, the improvements are marginal at best. These regulations are also inconsistent with the much vaunted State Strategic Plan, by which the government says it will take action on compliance costs imposed on business in this state, because this measure will indeed discourage business growth and investment in South Australia.

There is other material I want to lay before the council on this matter. I will be seeking to conclude my remarks later, but I thought I would conclude at this point with a very pertinent observation made by Mr Robin Shaw, the manager of Self Insurers of South Australia Incorporated, which was published in the publication Workers Compensation Report on 7 April this year. In that respected publication, Mr Shaw is quoted as saying:

WorkCover...loses in the long term. The funds it gains in the short term are a very small drop in a very big ocean of funding shortfall. There is no notable funding improvement for the scheme. But the loss of levies and the generation of long-term claims from the companies abandoned into failure because of its discontinuance fee system...make it a certainty in my mind that discontinuance fees represent a long-term loss to the scheme.'

The publication continues:

This represents an alarming lack of strategic vision by WorkCover, [Mr] Shaw said.

The publication goes on:

It's a classic case of penny wise, pound foolish. It also means that the reputation of a State Government that repeatedly talks of its policy of making the State of South Australia more business friendly is being unravelled by a regulator that apparently has had a complete failure of vision. It is clear that the Corporation is making such decisions in an entirely self interested way and cares nothing for the impact on the employees and employers that it notionally exists to serve, and on the economy of the State it is supposed to be part of.

I think it is important, in concluding this aspect of my remarks, to say that it is not only employers who suffer because of these discontinuance fees: ultimately, it will be injured workers and workers generally who will suffer because of the fact that injured workers employed by self-insured companies, or those who wish to become self-insured, will not have the benefit of their better claims management record and their better return to work rates and, more importantly, the wider workforce will have fewer opportunities because companies simply will not invest in a state where an oppressive regime of this kind exists. I seek leave to conclude my remarks later.

Leave granted; debate adjourned.

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