Some worrying signs are starting to emerge about Labor’s handling of WorkCover which was one of the biggest disasters in the Cain-Kirner era and one of the greatest achievements of the Kennett government.
SOME worrying signs are starting to emerge about Labor’s handling of WorkCover which was one of the biggest disasters in the Cain-Kirner era and one of the greatest achievements of the Kennett government.

It was all very well for Labor to launch a populist campaign from Opposition to reintroduce common law rights for injured workers. In the context of the Kennett government’s wide attack on democratic rights and accountability, it was a sensible political line to run.

Unfortunately, the new government seems to be going about it the wrong way. Firstly, they’ve appointed a plaintiff lawyer, Bob Cameron, as WorkCover minister. He’s hardly going to be balanced in assessing whether those labour lawyers such as Maurice Blackburn and Slater and Gordon should be allowed back into the trough.

Then Premier Steve Bracks and others attacked WorkCover in Parliament for alleged mismanagement because the fund’s solvency ratio drifted back to only 93 per cent as at June 30 this year.

This was obviously laying the ground work for last November’s sacking of WorkCover chief executive Andrew Lindberg.

The clear political message here is that somehow Lindberg mismanaged WorkCover and therefore was shown the door because Labor is clamping down on waste and mismanagement.

Nothing could be further from the truth. It is constructive to cast your minds back to how Labor appallingly mishandled WorkCare as it was known back then.

In 1992, Victoria had the highest workers’ compensation premiums in the country at three per cent of payroll. This was literally sending hundreds of small businesses to the wall and driving many employers interstate.

And whilst Victorian employers paid Labor’s WorkCare scheme $1.14 billion in premiums, only 66 per cent of this was getting through to injured workers. The rest went on the “WorkCare industry” – the lawyers, doctors, physios and the like all waxing fat at the trough.

In 1998-99 – this year of so-called Coalition mismanagement – 92 per cent of WorkCover’s income found its way to injured workers because the “industry” has been largely shut down.

Labor complains about a WorkCover blowout, but this blowout has been caused by the last minute surge in common law claims before the lawyers feast is banned.

Labor is complaining about a 93 per cent funding ratio even though the scheme’s $4.15 billion in assets almost cover the estimated $4.45 billion in claims liabilities.

And why has the scheme drifted slightly into the red? Well, let’s just have a look at what sacked CEO Andrew Lindberg and the highly respected WorkCover chairman Professor Bob Officer wrote in the 1998-99 annual report.

“The Authority’s funding ratio has declined from 96.1 per cent in 1997-98 to 93.2 per cent this year, and the main reason for this is the higher than expected common law liability,” they wrote.

“However, our independent actuary Tillinghast Towers Perrin is of the opinion that the current overall premium rate of 1.9 per cent continues to be more than adequate to fully fund our ongoing costs, and a return to full funding is expected in 2001.”

So there you have it, Labor attacks WorkCover for a blowout that has been caused by the lawyer-fuelled run off of common law claims, the exact thing they want to reintroduce.

Here’s another telling extract from the annual report: “The growth in liabilities (up $440 million to $4.45 billion last year) has been contributed to by an increase in the injury costs WorkCover is liable for prior to the November 1997 legislative reforms (when common law was axed). The largest single component of this increase in costs has been common law settlements: a higher than expected number of successful common law writs and a higher than anticipated rate of settlement. Common law was responsible for $954 million (including claims expenses), or 22 per cent of our total net liability of $4.3 billion.”

Total WorkCover lump sum payouts rocketed from $366 million in 1997-98 to $473 million last year. The specific common law component of this jumped from $206 million to $355 million.

And don’t listen to people who tell you benefits paid to injured workers fell under the Kennett government. In 1998-99 a total of $1.05 billion was paid out in net claims payments, up from $909 million in Labor’s last disastrous year in charge of WorkCare. That’s not a big increase, but it’s an increase.

And that last year was when the unfunded WorkCare liability blew out to $2.1 billion, despite Victoria having the highest premiums in Australia.

How ironic that Labor is carrying on about a 93 per cent funding level presently when in 1988-89 the scheme was only 14 per cent funded. That’s right, there were liabilities $4.8 billion and only $694 million set aside to pay for it.

This had improved slightly to 48 per cent funding when they lost office, largely because of the huge premiums employers paid. In 1991-92, employers paid over $1.14 billion to WorkCare and last year it was $1.17 billion. So during a period when the economy has grown more than 20 per cent in real terms, employers are collectively paying no more to insure their workplaces against onsite injuries.

And the average premium is down from 3 per cent to 1.9 per cent – taking it from the highest in Australia to the lowest. This is a huge competitive advantage for Victorian business. If Bob Cameron and Steve Bracks want to keep the Victorian economy ticking over, they should abandon their common law plans because all it will do is force premiums higher. We’ve already lost Virgin to Brisbane and seen the Docklands project fall over. Higher WorkCover premiums from a return to common law would make it worse. It was a former Labor Premier, Barry Unsworth, who abolished common law in NSW during the 1980s and that former BLF organiser turned Tasmanian Labor Premier Jim Bacon is also talking about doing it to rescue his insolvent and lawyer-captured scheme.

And Steve Bracks should read the autobiography of Labor legend Diamond Jim McLelland to learn about his attitude to lawyers running amok in a workers’ compensation system. Diamond Jim says don’t do it Steve.

Thankfully, Labor has deferred their WorkCover legislation until next Autumn when hopefully they will come to their senses. If it does get to the Upper House then the Coalition should block it in the interests of Victorian businesses.

John Cain saw the dangers in encouraging a lawyers picnic. That’s why he introduced the TAC with its anti-lawyer focus. Hasn’t that been a huge success. Cain also attempted to reduce common law in WorkCare by capping the maximum payout at $100,000 and not indexing it. However, when the unions really took over under Joan Kirner, the cap was lifted and indexation was introduced.

I should declare at this point that being Roger Hallam’s press secretary for WorkCover in 1993-94 persuaded me about the merits of him as a Minister and the reforms he introduced.

On arriving at Sydney’s Daily Telegraph in October 1997, I discovered that the Carr government was also making a complete hash of WorkCover.

In one of the most cynical political exercises I’ve ever seen, the Carr government tabled the NSW WorkCover authority’s 1997-98 annual report at 5pm on Christmas Eve last year. It showed the scheme had lost more than $800 million that year and was close to a $2 billion deficit.

Lawyers are running amok in NSW and the Carr government has been disgracefully negligent in doing anything to turn it around. Premiums are set to rise again to more than three per cent of payroll as committee after committee fiddles while Rome burns.

In a private briefing to business leaders late last year, Bob Carr said NSW Labor would never be as bad as Cain and Kirner. On WorkCover, they are just as bad, that is for sure.

The unions and Labor lawyers are going to be pushing Labor hard in Victoria. Steve Bracks would do well to look at page 95 of the annual report which shows one Mr John Francis Halfpenny was fined $4000 in 1998-99 for breaching the Accident Compensation Act. Apparently, the former Trades Hall Council leader was illegally on benefits whilst working as a consultant.

And to think it was John Halfpenny who took the entire Victorian workforce a couple of times in defence of WorkCare’s outrageous rorts.

Halfpenny’s WorkCare fine probably would not have happened under Cain or Kirner, because a Labor-stacked WorkCare board would have been less likely to go after one of their own.

Labor’s sacking of Lindberg is ironic given his superb performance and the fact that Labor appointed him as managing director a few months before losing power in 1992.

The next question is whether Labor will also sack WorkCover’s well-respected board led by chairman Bob Officer and which includes Professor Michael Pryles, a partner at legal firm Minter Ellison, Kevin Courtney, a former regional partner of accounting giant Ernst and Young, Catherine Walter, one of Australia’s better regarded professional directors, Don Swan, a professional director and former Comalco boss, Dr Richard Russell, an occupational health and safety expert and Heather Waddell, the executive director of the United Dairyfarmers of Victoria.

And will they strip WorkCover of its excellent work since taking over Occupational Health and Safety. Just like the TAC did with road safety, WorkCover is now spending $50 million a year on workplace safety. This is more than double what the Health and Safety Organisation spent before it merged with WorkCover in 1996. WorkCover field staff spent almost 100,000 hours in on site at Victoria’s 300,000 workplaces in 1998-99 and plan to double this to 200,000 hours this year.

Because WorkCover was wisely not privatised, the authority has a wonderul central data base just like the TAC does. It is therefore investing heavily in education and training to get overall workplace injuries down.

The complete transformation of workers’ compensation in Victoria is in my view the second most important achievement of the Kennett government after energy privatisation. Labor is being churlish and foolhardy in attempting to tear this legacy down.

Victorian taxes are already $300 millon above the national average. Employers do not need to see their WorkCover premiums rise by $100-$200 million a year just to allow a lawyers picnic.

Can you believe that the ACC – WorkCover’s predecessor body – had a legal budget of about $140 million for 1992-93 when the Coalition came to power. That was good for Bob Cameron’s colleagues, who are also plaintiff lawyers, but what about the overall benefit for Victoria. It was a complete disaster.

Rather than attacking the WorkCover board and sacking CEO Andrew Lindberg, the Bracks government should be offering their services to their Labor counterparts in NSW to help fix the continuing financial disaster up there.

While I’m an overall supporter of the need for a change of government in Victoria to purge ourselves of the Kennett excesses, Labor needs to be very careful on this issue. Steve Bracks says he is pro-business and that’s he’s learnt from Labor’s past mistakes. Well, WorkCover is his next big test. Don’t go for the pro-lawyer option Steve and give credit where its due, as that is always a far more credible strategy than pursuing unjustified witchhunts.

Have a look around the world and you’ll see that a consensus is emerging that common law does not work in workers compensation systems. It’s a disaster in California, NSW and many other places. We have a statutory benefit scheme and claimants should not be given a second go through the courts because the lawyers will always find loopholes to boost their fees. Besides if you allow the common law run off to finish, you’ll be a Labor hero for announcing an affordable increase in benefits to injured workers in a couple of years time that will not necessitate increased premiums for employers.