John Armstrong: Stakes high in Nats' blitzkrieg on ACC

Is there anything more stomach-churning for an Opposition politician than watching helplessly as the enemy demolishes the very things he or she painstakingly put in place while in Government?

Michael Cullen has not said much about National's pretty obvious desire to suspend payments into his pride and joy, the New Zealand Superannuation Fund.

Nor about National's intention to overhaul the country's unique no-fault accident compensation scheme. Nor about National's marked reluctance to find the capital to modernise KiwiRail, the purchase of which, though expensive, cemented Cullen's reputation as a finance minister with the wherewithal to look

not only beyond the short term, but well into the long term when the national interest was at stake.

Others are doing the talking for Labour on these matters now. But it would be surprising if his mood was not one of resignation mixed with anger, such is his deep antipathy towards National.

Since taking office, the National Government has not been slow in axing the initiatives of its predecessor - be it reversing the edict that oil companies have to produce bio-fuels, allowing meat pies back into schools or canning research into pay equity.

However, that was all being done in a seemingly uncoordinated and piecemeal fashion, and was overshadowed by the more urgent task of implementing National's 100-day action plan.

Now that the latter has been completed, the Government seems to have moved into a new phase which sees it looking for bigger Labour-spawned fish to fry.

To a large degree, the deteriorating state of the economy and the hideous impact of that on the Government's accounts are providing National with the rationale and cover to go places where it might have taken much longer to venture.

Ironically, though it does nothing for Cullen's legacy, National's tampering with Labour icons like the super fund is good news for Labour in a tactical sense. The economy has been the overriding issue since Labour lost power.

It has had to be careful that in going after National on that score, it is not seen as putting petty self-interest ahead of the wider interest of the country pulling together to combat the deepening recession.

That has been the case with John Key's Job Summit, which Labour believes will be proven to be little more than a public relations exercise. But you won't hear Labour saying that publicly.

The party is on much more solid ground when it comes to berating National for meddling in the Cullen fund and moaning about the cost of fixing KiwiRail. The ideological battlelines are clearly drawn. No longer does anyone talk of the John Key-led National Party as Labour-in-drag or Labour-lite.

National has no allegiance to either the Cullen fund or KiwiRail. National signed up to the fund with reluctance; it was furious at Cullen for buying KiwiRail because it knew it would have to find the money to keep the new state-owned enterprise functioning.

Accident compensation is in a different category, however. While Labour might claim the overhaul of ACC entitlements and levies flagged this week is but the first step down the road to private competition and ultimately privatisation of the corporation, it is not that simple.

National's immediate priority is to turn what the party feels had become a de facto welfare agency under Labour back into an accident insurance vehicle.

The prevailing view in National is that even if it wanted to privatise elements of ACC beyond what the party has already said will be opened for competition, it is going to have to fix things first. That is going to take some time.

It is also significant that Nick Smith, the minister responsible for ACC, says he wants an "open dialogue" with the public about the balance to be struck between levies and entitlements.

It suggests he realises that ACC is a political minefield when it comes to redrawing the boundaries as to who gets cover and who doesn't. He has made it clear that there will have to be a pruning of the depth and breadth of the scheme, which expanded significantly under Labour. But removing cover is politically difficult once it has been put in place.

To win those future battles, Smith first has to convince the public that ACC really is in financial crisis. That is a matter of some debate. In the late 1990s, ACC was altered from a pay-as-you go scheme to a fully funded one that took into account future-year costs from current claims.

The idea was to fund ACC in such a way it could build up reserves and use the resulting income to reduce the total cost over the lifetime of a claim than would be the case with pay-as-you-go.

By Act of Parliament, the lifetime cost of all claims is supposed to be fully funded by 2014. This plan has foundered somewhat by ACC finding itself in the jaws of the international credit crunch. Like other institutions, ACC has taken a bath in terms of investment returns.

However, moving the 2014 deadline out to 2019 - as recommended by the ACC board - would substantially lessen the kink of levy hikes that Smith was fear-mongering with this week.

He highlighted the worst-case scenario flowing from a PricewaterhouseCoopers report which would see a family on the average household income of $67,000 paying a further $2400 a year in earner's and motor vehicle levies within five years if nothing was done.

He immediately deemed this increase to be unacceptable. He did not spell out what the Government would do instead, but left his audience to connect the dots. If the levy increases are to be smaller, then there will have to be cutbacks in ACC cover and treatment.

He did say he would extend the fully funded deadline to 2019. But he contends that move will not deal with the other half of the equation responsible for ACC's funding liability growing another $2.5 billion to nearly $22 billion in just six months - the ballooning expense of medical treatments that have made a mockery of Labour's over-optimistic forecasts of future ACC costs.

The worst-case scenario is something of a straw man - just as his claim that ACC is "technically insolvent" is similarly highly questionable. However, Smith is using such devices and language to blitzkrieg the public, steer debate and keep Labour on the defensive.

Labour's cause was not helped by charges it deliberately hid the cost blow-out in one ACC account from voters last year by not ensuring the resulting $300 million shortfall was included in the pre-election opening of the fiscal books. This week's report of the ministerial inquiry into that shoddy episode did not deliver Cullen's head on a platter to National - and Labour sure did revel in that.

However, Cullen is leaving Parliament shortly. It is Smith's head that will be the one to watch.

For something else is very much at stake here. So far the Prime Minister has been as good as his word with regard to National sticking to its pre-election assurances that there is no secret agenda. What happens at ACC will be the first real test of just how watertight are those assurances.