Andrews government gears up to hit Victorian employers with premium hikes

The Andrews government has chosen to make the heavily redacted document public on New Year’s Eve – weeks after last month’s state election.

Victorian WorkSafe Minister Danny Pearson. Picture: NCA NewsWire/David Crosling

The Andrews government is gearing up to hit Victorian employers with WorkCover premium hikes in 2023, as it scrambles to respond to an alarming report it has kept secret for two years, which casts doubt over the viability of the state’s workers compensation scheme.

The December 2020 report by consulting firm Finity found WorkSafe was “at a tipping point in its history and is facing both internal and external threats to its financial stability”, with increases in mental health claims, government raids on dividends and unstable financial markets to blame.

The government has chosen to make the heavily redacted document public on New Year’s Eve – weeks after last month’s state election – after a Freedom of Information request forced its hand.

The 11th-hour release of the report comes after The Australian revealed in September that Victorian taxpayers had bailed WorkSafe out to the tune of $450m, following years of poor performance and an escalation in costly mental health claims.

It also follows Labor’s appointment days later of senior Bracks and Brumby government minister Bob Cameron as chairman of WorkSafe, working alongside former Bracks and Brumby government staffer Colin Radford, who is chief executive.

New WorkSafe Victoria chief executive officer Colin Radford.

The report’s authors note that it was commissioned “following the completion of the June 2020 accounts for WorkSafe which showed a material diminution in the financial position of the scheme”, and that a number of their recommendations “require immediate attention”.

“Until recently WorkSafe had been remarkably stable over almost 20 years, despite comparatively little supporting legislative change over that time. This stability is in contrast to many of the other schemes around Australia which have undergone significant changes over that period, generally in response to material deteriorations in their financial performance,” the report found.

“However, WorkSafe is now at a tipping point in its history and is facing both internal and external threats to its financial sustainability. That is, unless changes can be made to improve claims performance then the scheme is on an unsustainable financial trajectory that will require either significant premium increases or legislative reform, or both, to address the trajectory.”

The report notes that current premiums of 1.272 per cent of wages have “not increased in a decade”.

“It is now apparent that premiums have been insufficient to fund scheme costs for at least five years,” the authors conclude, recommending that the “average rate needs to be increased significantly”.

The authors also note the impact of an “uncertain economic outlook” on investment income, which has historically funded about a third of claims.

They outline threats to financial stability from “multiple areas” of the claims structure, including continued deterioration in return-to-work rates among claimants, “materially more claims gaining access to long-term benefits”, and “unsustainable” mental injury claim growth.

The report is also critical of government raids on WorkSafe dividends, stating that the practice removes funds from the organisation, “potentially depleting its ability to withstand adverse financial outcomes”.

In November 2020, days before the publication of the report, the Andrews government quietly abandoned plans outlined in the 2019-20 budget which would have seen it funnel $700m in WorkSafe dividends into infrastructure funding.

WorkSafe Minister Danny Pearson said worker compensation schemes were facing challenges “in many jurisdictions, and Victoria is no different”.

“A key factor is we are now seeing more mental injuries coming into the scheme. This is a natural flow-on from the advances we have seen in addressing mental health in the community,” Mr Pearson said.

“We will consult with unions, employers and legal experts so the scheme continues to be contemporary, fit for purpose and best serves the needs of workers.”

“Our priority needs to be helping people get back to work after an injury – and ensuring every Victorian has the opportunity to return to the workforce after an injury will be front and centre in these consultations.”

Opposition spokeswoman for WorkCover Ann-Marie Hermans said Victorian workers could not afford WorkSafe to be “run into the ground” by the Andrews government.

“Victorians need a strong and stable worker support scheme, not one that is left to fall apart and viewed as a dividend cash cow by a government that has run up debt to record levels,” Ms Hermans said.