Key Points:

The outgoing Labour Government left behind a $1 billion hole in the ACC budget which has to be filled, Prime Minister John Key said yesterday.

Briefings from ACC officials said the corporation was seeking $297 million more for the current 2008/2009 year and similar figures for coming years.

Mr Key said he had ordered a ministerial inquiry into how the "significant and serious hole in the Government accounts" had come to be, and why it had not been disclosed earlier.

Officials had warned as early as May that the non-earners account had cost blowouts that led to the "very large ticking time bomb", he said.

The account pays for accident treatment of those not in the workforce and comes from Government coffers.

Mr Key said there would be no cuts to spending plans already promised to fill the gap, and said the Government would have to borrow to meet the cost.

"This is a $1 billion hole in the non-earners account, somewhere along the line that liability has to be met," Mr Key said.

"Our frustration is that we found out about this after the election."

The papers show officials flagged concerns in May (this year's budget was delivered in May) and former ACC minister Maryan Street wrote to former finance minister Michael Cullen on October 22 about the shortfall.

According to the papers it said officials had originally advised that it should not have been disclosed because they were not certain of the cost.

Then there was no disclosure because no decision had been made and later because it was a decision for the incoming Government.

It is usual for Treasury to flag in pre-budget documents when they become aware of fiscal risks even if they can not be quantified. Treasury opened the books on October 7.

Labour's ACC spokesman David Parker said the papers showed that ministers acted appropriately throughout as the money needed had not been quantified until the election period.

He said ACC and others often made adjustments to budgets and it would have been wrong to approve that during the election campaign.

Mr Key said the advice not to disclose was "convenient" and an inquiry would find out if that was correct.

Mr Key said the public and his Government had a right to know the information and if it was okay not to reveal it then something was wrong with the Public Finance Act.

Mr Parker said National was just trying to soften up the public for the privatisation of ACC and if the Government chose to borrow to meet the shortfall that was its choice.

ACC Minister Nick Smith said the hole was due to cost blowouts and poor projections.

Asked how the $1 billion account could be out by 25 per cent in the current year, Dr Smith said he had received some advice on the issue but was not satisfied with it.

The released paper said cost increases for medical treatment and rehabilitation accounted for $116 million in the increase.

Another $91 million was a shortfall in reserves due to the cost increases and less investment returns, and another $75 million due to underfunding.

Before the election Labour revealed there would have to be a change to the law to stop a massive increase in fees next year due to the way ACC calculates its liabilities and levies.

Dr Smith said that issue was not connected to the hole found in the books.

- NZPA