Treasury has taken responsibility for a $1.5 billion funding shortfall in ACC but Finance Minister Bill English is laying the blame firmly at the feet of the previous Labour administration.
Mr English should not be surprised at the shortfall given that each government that has been elected in recent memory has always claimed that the previous administration left unfunded liabilities.
That usually means some election promises being cancelled because they cannot be afforded. Mr English will be mindful of that history as he prepares his first budget due on May 28.
Any postponement on the planned tax cuts because of the ACC liability will cause a voter backlash and open the Government up to attacks in Parliament of "U-turns".
The standard procedure is for an incoming administration to blame the previous government as a way of softening the blow for broken election promises.
An independent report found the shortfall in the non-earners account was known to ACC, the Department of Labour, Treasury, former ACC minister Maryan Street and former finance minister Michael Cullen in time for it to be disclosed as a fiscal risk in the pre-election fiscal update.
The report said the ACC board told its minister in August that funding would have to be increased and Dr Cullen was advised by Treasury on September 1.
What was not decided in Sep-tember was how much more money would need to be put into the non-earners account. The non-earners account pays for accident treatment for the elderly, students, children and the unemployed.
"The previous government knew about the funding hole and effectively hid it. There are systems in place to protect us from this. But in this case, they did not work," Mr English said.
The most recent estimate was that the Government would have to inject $385 million this year just to keep the ACC's non-earner's account afloat. That amounted to more than $1.5 billion over four years - a significant burden on the government's accounts, he said.
However, Ms Street said the report exonerated her actions as the former ACC minister and those of Dr Cullen and made it clear National was intent on misleading the public to create a case for privatisation of ACC.
"The report found officials did not provide the appropriate advice to both herself and [Dr] Cullen and makes recommendations around improving Treasury, Department of Labour and ACC processes as a result."
Ms Street shifted the blame to Treasury saying the government department failed to uphold properly its responsibilities under the Public Finance Act.
Mr English said the inquiry by Michael Mills, director of consulting firm Martin Jenkins and Associates, found the funding shortfall met the legal criteria of fiscal risk and should have been disclosed.
It also found the pending election should not have been a constraining influence on the previous government considering or disclosing the matter.
Recommendations included Treasury updating rules on the disclosure of fiscal risks to bring them in line with the Public Finance Act and reviewing the training and guidance given to staff involved in economic and fiscal updates. Other recommendations included ACC and the Department of Labour shortening the current process for the government meeting any funding shortfalls and reviewing their systems to ensure ministers got timely advice on pressure points.
Mr English said the Government would implement all the report's recommendations.
"The report also painted a worrying picture of ACC's growing costs and liabilities. This represents a significant risk to New Zealand households."
The report outlined a picture of deteriorating rehabilitation performance and large future increases in levies. In time of recession, the Government needed to ensure ACC was performing its job effectively, he said.
