Tuesday, October 20, 2009

Flawed defence of ACC

There is too much wrong with Tim Hazeldine's defence of ACC's viability in today's New Zealand Herald to take any comfort from his she'll-be-right reassurances. First he likens the cost of funding the results of accidents, to the costs of raising children. We need not possess the total cost up front, he argues. It would be "foolish" to treat children as unfunded liabilities.

Suppose you and your spouse are in charge of a family of, say, three young children. That means you are legally responsible for bringing them up to school leaving age and morally responsible for helping them in further training or education after that.

Putting aside the obvious problem that being 'legally responsible' does not make any New Zealand parent financially responsible if they refuse to be, there are others.

Along with the costs of raising children there are benefits. Parents do not generally end up poorer than non-parents. That is because the lifestyle they adopt as parents tends to accrue wealth. For example, they buy bigger homes and save larger amounts of their income.

So there is a return on raising children that does not exist in funding long-term weekly compensation payouts to accident survivors, where much of ACC's liability lies.

Children are dependent for a limited time. ACC beneficiaries may be dependent for the remainder of their lifetimes. Given most serious accident claims are from young men, their reliance will likely span decades. Because of ever-improving medical technology and a seemingly increasing propensity to take risks (driven ironically by socialising the adverse consequences) the numbers dependent will only grow. This is also evident in the never-reversing growth in invalid beneficiaries that far outstrips population growth.

But Mr Hazeldine is not concerned about future ability to pay because it can easily be funded by government on a pay-as-you-go basis. He says, "...the Government's ability to raise revenue when needed is much more secure than any individual's future income".

Again this is a troublesome notion. Government's ability to tax relies directly on the individual's future income. If his future income is much less secure, then so is the government's. He frames his defence of ACC on the power of forced collectivity but uses the productive individual (the integral cog in the wheel) to demonstrate vulnerability and uncertainty.

There are problems with ACC, but they very much depend on how the issues are framed. Truly, New Zealand can have a decent, efficient, state-run accident compensation system without breaking the bank. Don't fret about it. Get back to figuring out how you are going to pay for bringing up those kids.

So Mr Hazeldine wants us to add ACC to all the other pay-as-you-go budgets like "Vote Health and Vote Education" (I note he avoided any mention of Vote Social Welfare) and not to worry about it. Go back to figuring out how to pay for bringing up your kids, he says.

Frankly the worrying I am doing is how my kids are going to pay for tomorrow's ACC costs, on top of the burgeoning health and welfare costs associated with our rapidly ageing population. Now is not a time for offhanded complacency.


James said...

Nice one Lindsay.Submit that as a piece to the Herald.

Anonymous said...

There but for accidents go I.


Mackson68 said...

Not only is the defence flawed,but ACC's investment portfolio is already posting healthy gains.

This is all about preserving the Empire.

Anonymous said...

Hi Lindsay. First time I've commented on your blog. Don't always agree with your views, but love the thoughts and research you put into your opinions. (some of the best reading on the net).

I commented on this on at mouth piece of left wing hate, 'Tumeke' about how comparing PAYE as you go ACC to raising children was a really bad example. That was unless you kept popping out kids every year.

Tim Hazeldine fails to understand the basic idea that there will be a crunch at some stage in the future as more long term ACC claiments are added every year.