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ACC's financial woes add to the chance that New Zealand's credit rating will be downgraded, said Accident Compensation Minister Nick Smith.

The agency's liabilities - the estimated sum it needs to cover the future costs of existing claims - are expected to reach $21.8 billion by June 30, largely because of declining growth in its investment fund.

Though the estimate is partly academic and may prove a temporary blip, Dr Smith says it's very real.

He said: "$22 billion is on New Zealand's books. The deterioration is having a negative effect on New Zealand's accounts and adds to the risks of a credit downgrade that is actively being considered at the moment by Standard and Poor's."

He has highlighted the liabilities deterioration, signalled by actuaries PriceWaterhouseCoopers, as the Government prepares to attack the rising cost of accident claims and extensions to ACC coverage introduced by the Labour Government. He says a large driver of the $2.5 billion projected increase in liability is the 12 per cent annual growth in claim costs.

Analysts point out that most of the rise is an allowance for reduced investment yields over the next two to three years because of the global recession.

Yields are expected to improve once interest rates start to rise.

But Labour finance spokesman David Cunliffe said Dr Smith was over-egging the pudding.

"Why is Nick Smith saying these things? He is setting ACC up to fail, to create a public mandate to reform the scheme."

Investment adviser Jonathan Eriksen said ACC's books would have a relatively small influence on any decision to revise the Government's credit rating, which affects the cost of borrowing.

Standard and Poor's would be more interested in factors such as the current account deficit, trade figures and the exchange rate.

ACC's outstanding claims liability was to some extent a theoretical figure as the Government-owned agency was not a commercial insurer and not required to return a profit.

"It's only a paper loss, which can be completely reversed once returns on equity improve," said Mr Eriksen.

But Dr Smith said: "There needs to be a change in direction and significant focus on cost management.

"I'm a firm believer in the Woodhouse principles [the no-fault, no-liability scheme devised by ACC architect Sir Owen Woodhouse]. Some issues are not for change, but we want to review the recent extensions that have been made."