A ministerial inquiry into why a $1.5 billion four-year shortfall forecast in ACC's non-earners account was not revealed before the election has concluded the previous government hid it, Finance Minister Bill English said today.
The report found the shortfall in the non-earners account was known to ACC, the Department of Labour, Treasury, ACC Minister Maryan Street and Finance Minister Michael Cullen in time for it to be disclosed as a fiscal risk in the Pre-election Fiscal Update (Prefu)
"The previous government knew about the funding hole and effectively hid it. There are systems in place to protect us from this, but in this case they did not work," Mr English said when issuing the report today.
The inquiry, by Michael Mills, director of consulting firm Martin Jenkins and Associates, found the funding shortfall met the legal criteria of a fiscal risk and should have been disclosed.
"Treasury Secretary John Whitehead has advised me that Treasury accepts responsibility for the part it played in this error and is committed to acting on the report's recommendations," Mr English said.
Those recommendations include Treasury updating rules on the disclosure of fiscal risks to bring them in line with the Public Finance Act and reviewing the training and guidance given to staff involved in economic and fiscal updates.
The report said Cabinet had not been presented with options before the Prefu was finalised.
Because of this Treasury decided it was not under active consideration by ministers and did not need to be disclosed as a fiscal risk.
However, the inquiry concluded it should have been disclosed because:
* it was a material risk costing more than $10 million.
* the risk arose from a statutory requirement to fund and provide services; and
* it was reasonable to expect that funding would have been increased.
The report said Treasury should be clearer about how it identifies fiscal risks and officials should receive better training of the requirements of the Public Finance Act.
The Government had accused Labour ministers of blindsiding it by failing to include the forecast ACC funding shortfalls in Prefu.
The report said the ACC board told its minister in August that funding would have to be increased and Dr Cullen was advised by Treasury on September 1.
What was not decided in September was how much more money would be needed to be put into the non-earners account.
The non-earners account pays for accident treatment for the elderly, students, children and the unemployed.
Mr Whitehead said Treasury accepted the risk should have been disclosed and took responsibility for not doing so.
The report's recommendations would be acted upon, he said.