The Accident Compensation Scheme and Unfunded Liability

Abstract

The ACC is currently funded on a pay-as-you-go (pay-go) basis. This means that levies on participants in the scheme cover only its current period operating costs. In the past these costs have been lower than the amount required to fully fund the cost of the new claims being added to the ACC each year. This has created a $7.5 billion unfunded liability that the government must address as part of any long term reform of the ACC. The introduction of competitive private delivery of the Employers' Account of the ACC requires that all future participation by employers be on a fully funded premium basis. What should the government do with the unfunded liability of the Employers' Account at the time that competition is introduced? This paper argues that if the government wants to create an efficient accident compensation market for employers it should not levy current employers for this unfunded liability. The government should not in any way entangle the funding of past liabilities with the operation of the ongoing competitive market.