Discount Rate Reduction (Miscellaneous Acts Amendment) Bill 2017
Debate resumed from 23 February 2017
Mr ALISTER HENSKENS ( Ku-ring-gai ) ( 10:46 :24 ): I am happy to lead for the Government in debate on the Discount Rate Reduction (Miscellaneous Acts Amendment) Bill 2017. With the greatest respect to the shadow Minister and member for Cessnock, who introduced the bill, I believe that the issues involved in the bill are too important for a dangerous thought bubble from the Opposition to be passed by this House. Given that, the Government opposes the bill. Indeed, many of the flawed characteristics which were the focus of the campaign mounted about the Land and Property Information [LPI] concession and which were vigorously opposed by the Labor Party at the instigation of the member for Cessnock are in this bill. The member's heart must surely have fallen when he learnt earlier this week that his misinformation about the LPI concession was rejected by the Victorian Labor Government when it announced that it, too, would privatise its land titles registry.
It is unfortunate and embarrassing to be found to be wrong publicly, but it is even more cruel to be exposed by one's own team. No-one could suggest that the Victorian Labor Government has rejected the dishonest arguments about the concession as a result of party politics because it is doing exactly what the New South Wales Government has done with LPI. Had the New South Wales taxpayers listened to what the Labor Party said about the concession, they would have lost the huge premium that was gained by New South Wales being the first State in Australia to have entered into such a concession arrangement. If they had listened to members opposite, they would have lost billions of dollars of infrastructure funding.
Mr Clayton Barr: Point of order: The House is debating the Discount Rate Reduction (Miscellaneous Acts Amendment) Bill, which has nothing to do with the Land and Property Information debate we had several months ago. Mr Deputy Speaker, I ask you to direct the Parliamentary Secretary to return to the leave of the bill.
Mr ALISTER HENSKENS: To the point of order: It is about the economic management or mismanagement in the ideas put forward by the Labor Opposition, of which this bill is only one. I am drawing a question about the credibility and veracity of the economic arguments put forward.
Mr Clayton Barr: Further to the point of order: I am very happy for the member to address the economic veracity of the argument as it relates to the discount bill. In my contribution I raised a number of economic arguments about the discount rate bill. I am very happy for the member to address those but it has got nothing to do with LPI.
Mr ALISTER HENSKENS: I am doing you slowly, old son. Do not worry.
Mr Clayton Barr: You cannot even make up your own stuff.
Mr ALISTER HENSKENS: I am just warming up.
The DEPUTY SPEAKER: Order! The member for Newcastle will cease interjecting. He will have an opportunity to contribute to the debate. The member for Ku-ring-gai has the call. As the member for Ku-ring-gai is aware, second reading debates are broad ranging in nature. However, I ask him to return to the leave of the bill.
Mr ALISTER HENSKENS: The simple point I wish to make, and it does relate to the bill, is that just as the New South Wales taxpayers would have lost billions of dollars if they had listened to Labor on the LPI concession, they will also lose billions of dollars if they listen to Labor and pass this bill before the House. I will explain why that is the case. The member for Cessnock is a bit like a dalek in Doctor Who. He sees his role as simply exterminating anything of utility that the Government puts up. He really ought to have regard to the true merits of matters.
Mr Clayton Barr: You do not understand the economy. Just stick to the laws.
The DEPUTY SPEAKER: Order! The member for Cessnock will cease interjecting. His interruptions are causing the member for Ku-ring-gai to retaliate.
Mr ALISTER HENSKENS: I am returning fire. As a Hunter boy, I know that the member for Cessnock has been brought up in an environment of robust discussions. The real problem is that this bill again exposes why the member for Cessnock and his colleagues have some serious flaws in their understanding of financial matters. It further highlights that in opposition they are every bit as financially dangerous as they were when they were in government for 16 years. Labor still represents a significant financial risk which the New South Wales people cannot take.
Part of the problem is that, with the greatest respect to the member for Cessnock, in his limited life experience he has had no exposure to an understanding of financial markets. Just as it would be undesirable to stick me in front of a classroom, which is part of the former life of the member for Cessnock, it is certainly dangerous and undesirable to give him and the Labor Party any control over the multibillion-dollar economy of New South Wales, which is one of the 50 largest economies in the world. His history as a staffer, as a council employee and working for a not-for-profit organisation hardly provides him with great economic experience to understand the true magnitude and consequences of this bill.
The DEPUTY SPEAKER: Order! The member for Newcastle will cease interjecting. This is his final warning.
Mr ALISTER HENSKENS: If this bill were to be passed by Parliament, workers compensation insurance premiums paid by employers would increase. If this bill were passed, there would be no other consequence but for that to have a detrimental impact on jobs. If this bill were passed, it would increase green slip insurance premiums, which this Government has tried to reduce. If this bill were passed, it would increase the cost of home insurance because most home insurance policies contain an occupier's liability component. If this bill were passed, it would increase professional indemnity insurance taken out by professionals and the citizens of New South Wales would pay more when they see their doctors, their accountants, their lawyers, their surveyors, their building certifiers, their architects, or their builders.
If this bill were passed, it would increase costs to business through their directors and officer insurance premiums and it would increase the cost of their business interruption insurance. New South Wales residents would pay for the cost increases created by this bill indirectly every time they made a purchase of a good or a service. Labor might want to increase the cost of living for people in New South Wales but the Coalition certainly does not. I could read and re-read the second reading speech of the member for Cessnock but there is no real answer to these propositions.
Mr Tim Crakanthorp: Have you read it?
Mr ALISTER HENSKENS: Yes, I have. I know the member for Newcastle rarely reads anything but I read the bills that come before this House. I read second reading speeches. I know that that is beyond the wit of the member for Newcastle, but I do my homework.
Mr Tim Crakanthorp: It is good to hear that you are reading the legislation and not just attacking people's personal attributes.
The DEPUTY SPEAKER: Order! I call the member for Newcastle to order for the first time.
Mr ALISTER HENSKENS: Although the member for Cessnock tried to dress this bill up as only impacting on personal injuries claims, it has a much broader impact on many more transactions in the community than simply those. The bill will cost taxpayers and premium holders across New South Wales more than $1.5 billion, which cost would inevitably be passed on to consumers with every grocery purchase, every clothing purchase, every purchase of services and other transactions. The bill is an example of classic Labor: Announce a huge budget spend with no way to pay for it—that is the way those opposite operate. They do not understand the economy and financial transactions at all and this bill is a classic example of that. The bill seeks to reduce the prescribed discount rate in the Workers Compensation Act, the Civil Liability Act and the Motor Accidents Compensation Act, which, I hasten to add, is a piece of legislation that has been changed recently by this Parliament, and this bill does not address it.
The bill seeks to change the discount rate to 3 per cent from 5 per cent. A court awarded lump sum payment for future economic loss essentially brings forward a series of future payments into the equivalent of a lump sum payment awarded at the time of a court determination or a settlement. In order to convert the future income stream into a current equivalent, a discount rate is applied to the future payments to adjust for the difference between investment earnings between the time of the award and the time when those future payments would have been obtained.
It is called a discount for the present value of a future income stream. It is a common step taken in legal proceedings throughout this State every day that the courts sit in every week of the year. The bill also seeks to remove the ability of the government of the day to prescribe the discount rate via regulation. As I have already said, the changes in this bill would affect legislation covering workers compensation, and motor accidents and civil liability through the setting of the discount rate. It concerns section 15J of the Workers Compensation Act and section 127 of the former Motor Accidents Compensation Act 1999 for the application of a discount rate where another rate has not been prescribed by regulation.
Discount rates are not unique to motor accidents or workers compensation schemes, as I have already said. Section 14 of the Civil Liability Act 2002 also provides for the application of a discount rate of 5 per cent where another rate has not been prescribed by regulation. The 5 per cent discount rate is based on longer-term expectations around market conditions, and is consistent with other Australian jurisdictions—most of which use discount rates of between 5 per cent and 6 per cent. All other jurisdictions in Australia that prescribe a rate in legislation or regulations have a rate of 5 per cent or more. For example, Queensland uses a discount rate of 5 per cent, while Victoria and Western Australia use 6 per cent. The Australian Capital Territory does not prescribe a rate, and therefore relies on the common law position set out by the High Court in its decision in Todorovic v Waller, reported in (1981) 150 CLR 402, which determined that a rate of 3 per cent is appropriate.
While the rate could be perceived as high, based on current rates and the extended period that interest rates have remained low, as a long-term view the 5 per cent rate is an appropriate value. At this point I will recap, from the second reading speech, the supposed justification for reducing the rate from 5 per cent to 2 per cent.
Mr Clayton Barr: Three per cent.
Mr ALISTER HENSKENS: Three per cent, I am sorry.
Mr Tim Crakanthorp: He keeps getting it wrong; he doesn't know what it is.
Mr ALISTER HENSKENS: Settle down, old son. I know that you are signing letters. You are barely literate, but settle down.
The DEPUTY SPEAKER: Order! Perhaps the member for Newcastle is hard of hearing. I have called him to order four times in this debate.
Mr ALISTER HENSKENS: The justification for the proposed reduction in the rate from 5 per cent to 3 per cent as stated by the member for Cessnock, according to the Hansard of 23 February 2017, is:
Can you spot the problem? The problem is that no-one anywhere in this country, or globally, can realise a 5 per cent interest rate in today's market.
No-one has been able to get 5 per cent since 2010, since the global financial crisis. The 10-year government bond rate today, as we debate, is set at just 2.61 per cent. The experts have determined that no-one will get anywhere near 5 per cent interest in the foreseeable future.
That statement exposes the lack of real-life financial experience or other business experience of the member for Cessnock. If he had any knowledge of how the litigation process operates and how clients who obtain lump-sum awards operate, he would understand. Typically, they obtain some financial advice as to how to deal with their lump sum award. Average people are not advised to invest all of a lump sum in government bonds. Government bonds provide the absolutely lowest rate of return that one can obtain. It is a risk-free rate of return, and it provides the lowest rate of return. Very low risk returns are available that are much higher than the government bond rate.
I will provide a few examples of the current rates of return on blue-chip Australian shares. People who invest in blue-chip Australian shares do not have any currency risk that would be involved in investing in overseas shares. For Commonwealth Bank shares the estimated yield, including franking credits, is 6.4 per cent. The estimated yield, including franking credits, on Telstra shares is 9.4 per cent currently. The estimated yield on Westpac shares, including franking credits, is 7.1 per cent and the estimated yield on Wesfarmers shares—the owner of Coles supermarkets and other businesses—is 5.9 per cent. So not only is the justification for the reduction in the rate from 5 per cent to 3 per cent proposed by this bill dubious to say the least, but also the impact of such a change would be significant.
Advice from the scheme actuaries is that any reduction in the discount rate percentage would result in significant premium increases. That is advice from people who are expert in this area, not a thought bubble from the member for Cessnock. It should be said that no State or Territory government that has turned its mind to this issue, and changed the common law position from Todorovic v Waller, has done what the member for Cessnock proposes. Not one government in any jurisdiction in Australia that has passed legislation with regard to the rate of return in this area has done what the member for Cessnock is proposing. He is proposing a rate of return that goes back to the 1950s. He is proposing a rate of return that is entirely out of touch with modern circumstances and what governments around Australia have done in relation to this matter. That shows the barren thought process that operates in the Labor Opposition on these matters. It flies completely in the face of the advice of actuaries and the people who are expert in this area.
Actuaries estimate that the impact on green slip premiums of reducing the discount rate to 3 per cent would be an increase of between $50 and $80 per policy. That is the magnitude of the increase for motorists in New South Wales. As the member for Cessnock noted in his second reading speech, this is a complex area, and pricing can be difficult, particularly if changes like those contained in this bill are thrust upon insurers. The bill will not only increase costs for motorists through comprehensive third party [CTP] insurance and for businesses through workers compensation increases, but also increase costs for doctors, hospitals and businesses through impacts on medical malpractice and public liability insurance. The member for Cessnock needs to understand that the changes will cause loss through future business interruption and future economic loss outside personal injury cases. The 5 per cent rate strikes an appropriate balance between supporting injured workers, motorists and others, and keeping green slips, workers compensation, medical malpractice, public liability and other insurance premiums affordable.
Changing the provisions as per the proposed bill would have a significant impact on premium costs for each scheme outlined in the bill. The scheme actuaries have estimated this would be in the range of $50 to $80 per CTP policy, $45 million to $70 million per annum in premiums for the nominal insurer—noting that the current premium pool is approximately $2.1 billion—and an increase of $155 million to $257 million in public liability, medical malpractice and other insurance products governed by the Civil Liabilities Act. Changing the discount rate to 3 per cent will have an impact on the State budget of $920 million to $1.52 billion based on the impact on workers compensation, CTP claims and civil liability claims.
The Government recently passed historic reform of the State's compulsory third party green slip scheme through the New South Wales Parliament, delivering premium reductions of more than $120 on average to citizens across New South Wales. The bill seeks to undo almost all of those premium reductions by further inflating the cost of lump sum compensation claims under the scheme. CTP insurers are covered by an insurance industry deed that requires the Government to pay damages to each insurer of an amount sufficient to fully fund the increased liability caused by legislation or regulation retrospectively applied, which is adverse to insurers. The direct cost to taxpayers of this bill, if passed, would amount to $525 million to $875 million—that is between half a billion dollars to more than a quarter of a billion dollars.
Clearly, those opposite need to be reminded why we needed to reform the scheme. Put simply, the old CTP scheme was seriously broken. The adversarial nature of the scheme meant that only 6 per cent of benefits were paid out in the first year and 22 per cent were paid out in the second year. The majority of payments to injured road users did not start flowing until years three, four and five. Injured road users received only 45¢ in every green slip dollar, with the balance being subsumed in costs. This is systematic of a grossly inefficient scheme. Compensation delayed is compensation denied, and the delay under the former scheme was denying people compensation. Under the new scheme, 55 per cent of benefits will be paid in year one and 56 per cent by year two. In simple terms, this means that people injured on our roads will receive better payments faster so they can focus on rehabilitation and return to good health, rather than being left out of pocket while a protracted dispute between lawyers and insurers takes place.
Under the reforms, 57 per cent of premium dollars will go to injured people, of which 65 per cent will be paid to those people with more serious injures. It should be noted that under the new scheme claims for economic loss can also be made where dependants of the deceased can prove another driver was at fault. The new scheme also retains access to modified common law damages for injured people who can establish another driver was at fault and do not have soft tissue or minor psychological injures. This means people with injuries less than or equal to 10 per cent whole of person impairment will continue to be able to make a claim under common law for economic loss. Those with injuries above 10 per cent whole of person impairment will be able to make claims for economic loss as well as pain and suffering. The cap for non-economic loss payments for pain and suffering will be $521,000, which is the current cap under the existing scheme and is indexed. It should be stressed that such a person with ongoing needs will remain entitled to defined medical and care expenses for life, if needed.
The Government is committed to ensure that compulsory third party insurance remains affordable for all motorists—in contrast to the Labor Party, which is the party of higher premiums, budget blowouts and poor economic management. The bill has an estimated impact on green slip premiums of between $50 and $80 per policy—which is $50 to $80 ripped from every motorist in New South Wales. With regard to workers compensation, nothing emphasises the difference between the two parties more than the management of the workers compensation scheme. The Baird-Grant Government fixed Labor's bankrupt scheme and returned it to solvency. This Government is continuing those changes and is providing generous support to the most seriously injured workers. After 16 years of Labor, the Government inherited a scheme that was more than $4 billion in deficit, businesses were facing a premium hike of 28 per cent and 12,000 jobs were at risk. New South Wales had one of the worst return-to-work rates in the country, and most seriously injured workers were not getting the support they needed. In other words, the workers compensation scheme was failing on all fronts.
Compare that scheme with the one we have today. It has improved the return-to-work rate, reduced business premiums by 17 per cent and its reforms have delivered benefits for the business community and workers across the State. That is just one reason that this Government is known in New South Wales and across the nation as the Government of the worker. This bill is quintessentially New South Wales Labor. It seeks to undo all the solid economic reform undertaken by this Government and to ensure that consumers, businesses, taxpayers and premium holders pay more. Only a Liberal-Nationals Government has the commercial nous to understand the impact of Labor's reckless thought bubbles. Only a Liberal-Nationals Government can be trusted to manage our economy properly to ensure that jobs are retained and the cost of living is kept as low as possible. Through strong economic management only a Liberal-Nationals Government can ensure that the classrooms, hospitals, roads and transport services needed in this State are provided for our citizens. I urge in the best interests of our State that the reckless thought bubble of a Labor financial atrocity, as represented by this bill, does not pass through this Parliament.