Wednesday, 23 February 2022

Committees

Public Accounts and Estimates Committee

Reference

Mr RICH-PHILLIPS (South Eastern Metropolitan) (17:00): I move, on behalf of Mr Davis:

That this house, pursuant to section 33 of the Parliamentary Committees Act 2003, requires the Public Accounts and Estimates Committee to inquire into, consider and report:

(1) by 30 June 2022, on the financial position of WorkSafe and its administered WorkCover insurance scheme, including but not limited to the:

(a) financial sustainability of the scheme;

(b) ability of the scheme to assure employees that proper financial and medical support will be received into the future;

(c) level of premiums paid by employers;

(d) the impact of any potential increased premiums on employment statewide;

(2) by 30 September 2022, on the operations of the port of Melbourne lease, including but not limited to:

(a) the impact on the price of consumer items due to the outcomes of the lease;

(b) the failure of the operators to comply with their obligations to run the port efficiently for the long-term interests of users and Victorian consumers;

(c) issues of significant and sustained non-compliance with the pricing order during the review period;

(d) why the port of Melbourne’s power has not been effectively constrained in relation to the process for setting or reviewing rents or associated payments payable by its tenants;

(e) the ability of current legislation, port concession deed and other contractual arrangements to constrain the port of Melbourne’s power;

(f) the port of Melbourne’s use of a broad range of negotiation strategies and processes to drive higher rent outcomes that are not appropriate in a monopoly market, where tenants at the port face significant barriers in pursuing and securing alternative suppliers of suitable land;

(g) whether the port of Melbourne’s exercise of its power has caused material detriment; and

(h) whether further economic regulation is justified to ensure there is mitigation of the ability of the port to exercise power through rent seeking.

This motion seeks to make a referral to the Public Accounts and Estimates Committee under section 33 of the Parliamentary Committees Act 2003 in relation to two matters. The first is the financial position of the Victorian WorkCover Authority, WorkSafe, in relation to the financial sustainability of the scheme, the ability of the scheme to assure employees that proper financial and medical support will be received into the future, the level of premiums paid by employers and, finally, the impact of any potential increased premiums on employment statewide. The motion seeks for that reference to be considered by 30 June this year.

The second element of the motion is a referral in relation to the port of Melbourne and the operation of the port of Melbourne lease. The elements that Mr Davis seeks to have referred to the committee include the impact on the price of consumer items due to the outcomes of the lease; the failure of the operators to comply with their obligations to run the port efficiently for the long-term interests of users and Victorian consumers; issues of significant and sustained non-compliance with the pricing order during the review period; why the port of Melbourne’s power has not been effectively constrained in relation to the process for setting or reviewing rents or associated payments payable by its tenants; the ability of current legislation, port concession deed and other contractual arrangements to constrain the port of Melbourne’s power; the port of Melbourne’s use of a broad range of negotiation strategies and processes to drive higher rent outcomes that are not appropriate in a monopoly market, where tenants at the port face significant barriers in pursuing and securing alternative suppliers of suitable land; whether the port of Melbourne’s exercise of its power has caused material detriment; and whether further economic regulation is justified to ensure there is mitigation of the ability of the port to exercise power through rent seeking. That reference seeks a response by the committee by 30 September this year. These are two very significant and important reviews that we are seeking from the Public Accounts and Estimates Committee. They are not being sought out of casual interest, they are being sought because with both the Victorian WorkCover Authority insurance scheme and the port of Melbourne lease we are now seeing material issues arise in the operation of both of those matters.

I will go firstly to the matter of the Victorian WorkCover Authority. The Victorian WorkCover Authority, as members know, has responsibility for ensuring that compensation and rehabilitation, medical and the like expenses are made available to people who are injured in the workplace. In addition, I might add, the WorkCover authority has responsibility for occupational health and safety. But this motion refers to the insurance side of that operation, which has at its heart an obligation to supply support and to fund support, be it medical and the like support, be it income support, be it lump-sum support for people who are injured in workplace accidents. It is a very substantial scheme which runs into the billions of dollars every year, and it is a scheme which is supported by a balance sheet in the order of $10 billion to cover the long-term liabilities of that scheme.

What we have seen over the life of this government is the continuing year-on-year deterioration of the WorkCover scheme in this state. In fact the annual report for the Victorian WorkCover Authority for 2020–21 records that deterioration in the performance of the WorkCover scheme over the entire life of this government. It is not just an aberration for one year or two; over the entire life of this government, from 2015, the WorkCover scheme has been in a position where it has been deteriorating year on year on year. The table on page 62 of last year’s annual report for the VWA effectively highlights that deterioration. There are really only two measures which are relevant in looking at the performance of the WorkCover scheme in this state.

As I said, it is a very large scheme. It has billions of dollars of assets, including billions of dollars invested in markets, and the value of those investments fluctuates year on year. There is a lot of noise around the performance of the WorkCover scheme because of investment returns—because of capital gains and capital losses on its investment portfolio. But when you separate out those factors and look at how the actual insurance business is operating, there are two key metrics. The first is performance from insurance operations, which takes out the noise of investment returns, takes out the noise of markets and looks at how the actual insurance business is operating.

The second key metric is actuarial release, which is where, on a twice-annual basis, the actuaries who work with the Victorian WorkCover Authority assess the long-term liabilities of that scheme and whether they are increasing or reducing based on actuarial modelling. That is a direct measure of whether the scheme is being well run.

We know the WorkCover scheme is a long-tail insurance scheme. There are injured people, injured workers, who are reliant on the WorkCover scheme in some cases over a short period of time. They may be associated with the scheme for only one year. They may receive rehabilitation medical services or compensation et cetera in a year and be out of the scheme. Other people associated with the WorkCover scheme have a very long-term relationship, which could be whole of life for the period of their injury. Particularly in those cases the liability associated with individuals who have long-term dependence on the scheme can run into millions of dollars, and that is accounted for on the VWA’s balance sheet. The test of whether that is well managed, the test of whether the WorkCover authority is managing those individual claims prudently in a way that is in the interests of the claimant and in a way that is in the interests of the scheme, is whether those liabilities are adjusted up or down on an annual basis—the actuarial release. If claims are being well managed—if WorkCover is investing money in the short term to reduce the long-term liability of particular claims—that generates a positive actuarial release. It shows the scheme is being well run, and it is reflected ultimately in the balance sheet of the WorkCover authority.

But we have seen since the change of government negative actuarial releases in the WorkCover scheme year on year on year. Starting in 2014–15 we saw negative actuarial release for the first time of $60 million. That deteriorated the following year to $135 million and then to $169 million. By 2018–19 it was down to $190 million negative, and in 2019–20 we saw a massive blowout in negative actuarial release to $2.9 billion—effectively a deterioration in the management of the scheme of $2.9 billion in 2019–20. It had nothing to do with investment returns and nothing to do with markets; it was purely how the scheme was being managed.

In 2021 a further downgrade in actuarial release was $3.2 billion. So in the last two years of operation the WorkCover scheme has had negative actuarial release of $6 billion—in a scheme that is worth, or was worth certainly when I was associated with it, around $8 billion or $9 billion. So this is a massive downgrade in the performance of that scheme in a very short period of time, and of course that is reflected in the overall bottom line, the performance from insurance operations, which in those last two years accounts for a nearly $7 billion negative result in performance from insurance operations and minimal results in the years prior to that. This is an absolutely significant negative result for that scheme which has major implications for the viability of the scheme going forward. If actuarial release continues to be negative, as it has been over the life of this government, the long-term viability of the scheme is not there. We have already seen the government need to tip capital into the WorkCover scheme. I think $550 million was tipped in by the government in 2021 to try and stabilise its viability. That is not sustainable long term. We have not seen premium rates reduced under this government for seven years. The previous government cut WorkCover premiums three years in a row. Premiums went down from 1.387 per cent of payroll to 1.272 per cent of payroll.

At the change of government in 2014 we had the most competitive WorkCover premiums anywhere in the country. That is no longer the case. I think we are actually the most expensive now, and we have not had a single reduction under the life of this government. So employers continue to pay premiums which are higher than they should be and the performance of the system has deteriorated year on year on year, to the point that it is absolutely now critical and the government has had to tip capital in. So there is a very strong reason why the opposition is calling for the Public Accounts and Estimates Committee to undertake this review of the WorkCover scheme. We have seen it deteriorate year on year under the life of this government. The last two years have been absolutely critical, pointing to absolute failures in the management of the scheme such that that negative actuarial release has blown out to the extent it has—$6 billion over two years. We need assurance that there is a way forward with this scheme. We need confidence that the government can get it back on track where it has failed to do so over the last several years, and that is why an inquiry by the public accounts committee into the viability of the scheme is so important.

The next matter I would like to touch on is the second element of the motion today, which relates to an inquiry into the port of Melbourne lease and the consequences of that port of Melbourne lease. This is something this Parliament spent considerable time on in 2015–16. The government came forward with a proposal with legislation to lease the port of Melbourne in 2015–16. A select committee was formed by the Legislative Council to review that legislation, particularly with a view to whether that lease was going to be in the long-term interests of the state of Victoria—whether privatising the port as proposed by the Treasurer would be in the long-term interests of the state. Through that select committee we took evidence on a very wide basis. We spoke to users of the port, we spoke to stevedoring companies operating at the port, we heard from the ACCC. The chairman of the ACCC, Rod Sims, gave evidence before that inquiry. One of the things that came out of the evidence given by Rod Sims was the need for governments to ensure that when they are privatising assets they are doing it for the right reasons, and the right reasons for a government to privatise an asset are to drive productivity and to drive efficiency, not simply to seek the highest price to get the cash. The concern with the sale of the port of Melbourne is it was driven purely by the Treasurer’s desire or the government’s desire to get a pot of cash rather than to deliver an asset which operated more efficiently and drove productivity in the public sector hands.

Mr Finn interjected.

Mr RICH-PHILLIPS: As Mr Finn says, they have blown the cash. We saw a big cheque from the port of Melbourne—I think it was $9.7 billion that was received by the state for the sale of the lease of the port of Melbourne. It has been spent on projects. It has gone into the black hole of capital works blowouts, and what we now have is a port of Melbourne in private hands without the regulatory framework to ensure it operates in the long-term interests of this state. That was a concern that was highlighted through the select committee inquiry. It was a matter where there were substantial revisions to the legislation forced by this house on the government. The government made concessions about ensuring the port of Melbourne would operate in a way that was efficient, operate in a way that was productive and operate in a way that was in the long-term interests of the state. Those commitments given by the government have come to naught. We saw in January the Essential Services Commission release its five-year review of the port of Melbourne’s compliance with the pricing order which was put in place at the time the port of Melbourne was leased, and the Essential Services Commission has found extensive evidence that that lease, that pricing order—

Business interrupted pursuant to sessional orders.