My passion at the moment is exploring how treating government as a business is stopping much-needed alternative thought processes and debates. I see the special contributions of an economic way of thinking is constantly relegated to the black and white conventions of accounting.
I’ve been reading the nerd’s own bible ‘Public Net Worth’ by New Zealand’s very own Professor Ian Ball and several other international economists.
Under Ian Ball, New Zealand was a pioneer, going faster and further than any other country in pursuit of accounting rigor. I thought at one stage I would like to do a review of this book, but wading through it was slow work. When I had to ask the librarian to renew it for the 4th time, she rolled her eyes and said it dryly it was not in high demand.
Nevertheless, the message is clear and important; governments need to have a credible set of accounts and in particular pay attention to the government’s balance sheet. It is so good to remove the focus from just debt and meeting debt ratios, with no regard to the asset side of the balance sheet. Net worth (assets minus debt) for NZ government is a healthy $182 billion and puts debt into perspective.
However, to be honest it’s hard get past the opening sentence of the foreword written by economist Martin Wolf: “if something is to count it must first be counted”. There is a cursory but unsatisfactory nod towards the ‘smile of a child’ or the ‘grief of a widow’, as examples of important things that are unmeasurable. I think the problem I am having with Wolf’s line is that it should read “if something is counted it is likely to be the only thing that counts.”
We can see this played out in the prominence of the use of the GDP as a yardstick, despite everything we know about its deficiencies and the things it omits, like procreation and the unpaid child rearing ,elderly care and domestic work of women. There are many other caveats around the use of GDP to measure economic success that we conveniently forget.
But I want to talk about a very big item on the Crown balance sheet with an unhelpful name, the Outstanding Claim Liability (OCL). The OCL is around $60 billion and is lumped in with gross public debt in the calculation of net worth. So, if it weren’t there, our net worth would be even healthier at around $240 billion.
Most of the OCL is for our ACC scheme, the rest reflects genuine insurance-like contractual arrangements such as to pay government employees pensions under the old scheme that was closed in the early 1990s. Over time as pensioners die off this scheme is becoming smaller and less relevant.
ACC is a major social insurance scheme with ongoing obligations to injured people. But there are no individual contractual arrangements, just an implicit social contract; New Zealanders gave up their right to sue for personal injury in 1974 for a comprehensive and fairer coverage under social insurance. We expect in this social contract that if we have a serious accident that, regardless of fault, we will have proper treatment, rehabilitation, an income compensation for as long as we need it.
Sadly, ACC as social insurance was never implemented the way its architect Sir Owen Woodhouse envisaged, and over time there has been pressure for it to be made more like private insurance. The concept of ‘full-funding’ as required for private insurance, took hold in the early 2000s. Thus, for long-term claimants, the idea is that there has to be a pot of money set aside (ACC’s Reserves) that matches the actuarially determined cost of long-term claims. Both the reserves (as assets) and the OCL (as liabilities) must under the philosophy of private insurance be counted on the Crown balance sheet.
The other major social insurance scheme for income protection is New Zealand Superannuation. It is treated quite differently. It does not have an OCL, nor are its reserves set in relation to any such measure.
Currently there is much focus on the ACC’s OCL. It feels as in my reframing of Wolf’s quote, as if it is ‘the only thing that counts’. The primary purpose of ACC is set out in the ACC act:
The purpose of this Act is to enhance the public good and reinforce the social contract represented by the first accident compensation scheme by providing for a fair and sustainable scheme for managing personal injury that has, as its overriding goals, minimising both the overall incidence of injury in the community, and the impact of injury on the community (including economic, social, and personal costs), through—
(a) establishing as a primary function of the Corporation the promotion of measures to reduce the incidence and severity of personal injury:
New Zealand is falling far short with an embarrassingly bad accident record, among the worst in the world for workplace deaths. With the 15-year anniversary of the Pike River disaster we remember with shame and sadness the preventable loss of 29 lives. The NZ editorial today: New Zealand’s workplace health and safety record is a nightmare reminds us that the current policy propositions to water down the role of WorkSafe by the Minster are deeply flawed:
The Public Health Communication Centre Briefing report, written by leading health and safety experts, says key reasons for a lack of progress include weak enforcement, inadequate fines and poor understanding of legal duties by employers. Proposed policy changes, including the shift in WorkSafe’s focus from enforcement to advice, risk further undermining worker protection, it says.
If the aim was truly to reduce the incidence and severity of accidents, the focus would be on prevention, not on minimising the OCL. Yet Treasury is demanding even more cuts. From the front line we are hearing about the human cost of aggressively pushing long-term claimants off the system. The irony here is that successful prevention will automatically reduce the OCL and is the only fair sustainable way to do it and maintain our social contract.
I write about these issues in more detail here Accounting for ACC. PIE Briefing 2025-1, EPC, University of Auckland.