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Treasurer discusses medical insurance; Mitsubishi; Rio Tinto; Social and Community Services Award; and Sydney Airport.



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TRANSCRIPT of

THE HON PETER COSTELLO MP Treasurer

Interview with Alan Jones 2GB

Tuesday, 30 April 2002 7:15 am

 

SUBJECTS: Medical insurance; Mitsubishi; Rio Tinto; Social and Community Services Award; Sydney Airport

JONES:

The Treasurer, Peter Costello, is with me. Treasurer good morning.

TREASURER:

Good morning Alan.

JONES:

Treasurer, the insurance industry in yet another business. I was just saying earlier this morning, APRA is the Australian Prudential Regulatory Authority. It is designed to guarantee that it regulates adequately banks, insurance companies, superannuation funds and it's to establish and enforce prudential standards and practices. HIH, One-Tel, this outfit here, where does APRA come into this? How can these things happen?

TREASURER:

Well in this case APRA has ordered UMP to meet certain capital adequacy requirements...

JONES:

Bit late.

TREASURER:

...which it could not meet...

JONES:

Bit late.

TREASURER:

...and as it happened the Government had to actually step in and say it would guarantee the $35 million that was required. And even though the Government stepped in and said it would guarantee UMP-AMIL was apparently in such a situation that that was not enough. I agree with you, Alan, it is very late in the day for UMP-AMIL to, after being in trade, for what tens of years, twenty of years, I don't know how many years...

JONES:

Yes.

TREASURER:

...apparently was not pricing its premiums properly.

JONES:

And a letter from Doctor John Quayle, the Chairman of United Medical Protection, on March 28 to doctors are telling doctors, my advice is stay with United. United has never functioned better, this is on March 28, now they are going to a provisional liquidator.

TREASURER:

Well, you ought to ask the Doctor what he knows about this.

JONES:

Well we do have some doctors here. Could I just take you back to what the Prime Minister said to me when I asked what would happen to doctors, because there are people lined up everywhere in Australia today worrying whether the doctor will operate on them. The Prime Minister is very vague and indeed ambiguous. This is the most he, we could get out of him last week.

PRIME MINISTER:

I have given indications in that letter that in certain circumstances we would discuss with the company ways of continuing protection for doctors...

JONES:

That is about all. What are you saying. Are doctors covered today?

TREASURER:

The Government has said that it will guarantee indemnity for doctors that operate as from today. And that is if they cannot get insurance that the Government will cover them for liability up until the 30 th of June whilst we work on a solution to get other insurers to pick up the business and back into the field and put in place a long-term solution. But, can I come back to your original point, Alan, this was a company that was run by the doctors for a very long period of time. The doctors were responsible for setting their own premiums and meeting their own pay-outs, and they have got themselves into financial trouble. The Government has stepped in and will guarantee that doctors, not because we want to make up for the financial mistakes that were made, but because we want to ensure that doctors can get out there and can continue to deliver services to the public.

JONES:

So just say that again. So, a doctor operating today will be covered for whatever procedures he performs today by the Government as if he had full and effective professional indemnity insurance...

TREASURER:

That is right. From now until the 30 th of June.

JONES:

I'll just come to Tom on the line who is a surgeon with a full book starting at 8 o'clock. Tom, are you there?

CALLER:

Yes I am.

JONES:

Now how does that satisfy the questions you asked earlier this morning?

CALLER:

Well I think that is really the key point. We really need to know whether we are covered for today's events and on what has just been said that would seem to satisfy.

JONES:

Right, it does. Could I just ask Treasurer while he is here and while you're on the line, and Charles New is there who is the Chairman of the Society of Orthopaedic Surgeons. Charles, are you there?

CALLER:

Yes, I am Alan.

JONES:

Yes. That is a, that most probably, guarantees doctors that they will be covered for any liability as a result of what they might be doing between now and June 30 th. So there is a bit of breathing space, isn't there?

CALLER:

Well, it is pleasing. I would like to ask the Treasurer on national radio if that is on a claims incurred basis for that month?

TREASURER:

Well that is in relation to any procedure that you are doing as from now until the 30 th of June.

JONES:

But I think what he is saying, Peter, is that claims...

CALLER:

...(inaudible) time where they, an obstetric, a malpractice suit comes up against an obstetrician, you will cover that claim?

TREASURER:

If it was done between now and the 30th of June, in relation to any procedure that you do as from today until the 30th of June you can be very confident that whenever the claim comes up, maybe if it comes up in 5 years time or maybe if it comes up in 10 years time, you are operating with a Government guarantee.

JONES:

And hopefully by June 30 you're saying there will appropriate professional indemnity programmes available to doctors?

TREASURER:

Alan, can I make this point. The Government does not run insurance companies. And I will be the first to say here I am no expert on running an insurance company. You know, I probably know even less than the blokes that were running UMP-AMIL. So I do not want to get into the business of offering premiums and trying to price them and giving guarantees. Because it is so urgent to get doctors operating today we are prepared to step in and to give a guarantee from now until the 30 th of June. What we want to do between now and the 30th of June is to get other insurers to come along, and there are other medical defence organisations, and say we will pick up certain classes of the business. There might be other general insurers that will come in and say we will pick up certain classes of the business. And then if there are any people, any category, say, very high risk category that no one will pick up, then we will have to try and put together some kind of scheme for them. But Alan, you and I know that Governments are not set up to run insurance companies. They are not experts at running an insurance company and the last thing I would want is the Commonwealth Government to get into the business of insurance long-term.

JONES:

Right.

TREASURER:

We are going to get into the business of insurance short-term between now and the 30 th of June because there is nobody else there and we need the doctors to have the surety to go out and operate today...

JONES:

Right.

TREASURER:

...and between now and the 30th of June we are going to work on a long-term solution.

JONES:

Next Monday the provisional liquidator comes in. Until now these doctors have believed they had

effective medical indemnity insurance. There may be a set of circumstances whereby one of those doctors with that insurance is liable for some procedure that occurred at some point in the past. It may be that the liquidator decides next Monday that the liabilities are far in excess of the assets and will have to make some rationalisation of what can and cannot be paid. Does that, therefore, leave an obstetrician potentially, personally liable, depending on the way in which the liquidator moves?

TREASURER:

Well, this is a matter for the liquidator, as you said, who's, the first thing the liquidator has got to do, is, he has got to sit down, he has got to work out what the claims against the insurer are and what the assets are. As I understand it they are quite substantial assets left in this organisation. But we assume for present purposes they are not sufficient to pay out all of the claims. The one good thing about appointing a provisional liquidator or an administrator, Alan, in all of this is that somebody might actually go into the company and actually report on where it is at.

JONES:

And it may be worse than we know now.

TREASURER:

Quite, well, I hope not. But, but...

JONES:

Do you find it, do you find it extraordinary...

TREASURER:

...it invariably happens that when a liquidator does go into a company it looks worse than it is.

JONES:

...don't you find it extraordinary that we now know that UMP's balance sheet did not make provision for IBNR's, which are these incurred but not reported, and we now find that they may be to the sum total of $500 million?

TREASURER:

Alan, the figures have been bouncing around. At one stage UMP, and let's go back here, UMP was a company with directors, run by the doctors. At one stage we were told it was $35 million and we offered $35 million. And then we were told, oh, it could be $100 million. You are putting the figure around now of $500 million...

JONES:

Contingent liability, yeah. Claims down the track.

TREASURER:

...but, but, I must say to you, how are we going to know? The only way we are going to know is when a provisional liquidator, somebody from the outside goes in, and reports. And the one good thing I will say about this, is, that it might bring about a very hardnosed report about what the affairs of the company actually are, and that is going to make it easier for us to try and deal with the situation.

JONES:

Fancy having a balance sheet, though, which doesn't make provision for contingent liabilities?

TREASURER:

Well...

JONES:

In the medical profession?

TREASURER:

Well, UMP was not regulated by APRA.

JONES:

Right.

TREASURER:

It was not even an insurance company.

JONES:

And you have decided these medical defence organisations will be regulated?

TREASURER:

Will have to come in.

JONES:

So these contingent liabilities will have to now come into the balance sheet?

TREASURER:

Will have to come into the balance sheet. What UMP was, was what is called a medical defence organisation which was set up in the old days and it was a situation where the doctors all said to each other, if any one of us has a claim we will pay it out with our combined collective resources. We will all put some money into the pot. If any one of us has a claim we will pay it out of the pot. And, these medical defence organisations were set up in a more genteel society, before we became the kind of litigious society that we have become. And they were not reporting in the way that insurers should have been reporting and as they have been dragged into the system of reporting, and as you have said they have now had to bring to account their incurred but not reported claims, then they have been forced to concede that the situation is worse than they expected.

JONES:

Yes, and yet their Chairman, on March 28, United has never functioned better. Treasurer, I might just talk one, finally, to Charles New, the Chairman. Is there something else that your people, the Chairman of the Orthopaedic Surgeons would want clarified with the Treasurer?

CALLER:

Mr Jones, thank you very much. I have listened to both the Prime Minister and Mr Costello this morning. I'm mortally disappointed that Mr Costello thinks that this has been, he has given the impression that this is run by doctors. The vast majority of doctors have been on the receiving end of exponential rises in medical defence premiums and the (inaudible) as well. Mr Tjiong and Mr McLeod, have said that the company was in good condition and we have been very disappointed by that. The main point that the Australian Orthopaedic Societies want to make is that we are looking for tort reform. We're looking for a new definition or a return to the Bolan definition of medical negligence. We are looking for, it is, there is no point in propping up or re-establishing another company to continue in the same position where we are the most litigious state in the world...

JONES:

Okay, I think everyone, I think you have made the point and I think I'll just take it to the Treasurer. That's a very valid point. There needs to be new definition of what is negligence and what is misadventure and that has got to be quite specific hasn't it?

TREASURER:

Look, at the end of the day, Alan, society has got to make this choice. If it wants doctors who are paying reasonable premiums then we are going to have to limit and restrict the ability to sue them. And you will not fix this problem long-term until you do that and nobody is more aware of that than me.

JONES:

Right. (inaudible)...

TREASURER:

Now, the difficulty I have in this, let's just bring this right back to torts, the Commonwealth Government cannot legislate that. Here is the Commonwealth Government which is stepping into the breach to work out an insurance solution. But the Commonwealth Government does not legislate who can sue doctors.

JONES:

Right.

TREASURER:

That is a matter fairly and squarely for the State Governments.

JONES:

Yeah.

TREASURER:

And in all of the discussions that I have heard, and I hope that the Chairman of the Orthopaedic Surgeons and everybody else makes this point, that if he is legitimately aggrieved, he has got to continue to make this point to the New South Wales Government. And I think he made the point, did he not, that this is the most litigious State, this is where the problem has arisen...

JONES:

Yes.

TREASURER:

...and let's not forget the responsibility in here of the New South Wales Government to reform its tort laws and to actually step in and be of some assistance in this situation.

JONES:

Mr Justice James Thomas in the Queensland Court of Appeal on retirement recently said we have allowed the tests for negligence to degenerate to such a trivial level that people can be successfully sued for ordinary human activity, hence the reference to the Bolan test which imposes upon a doctor reasonable care, what a reasonable person would do in those circumstances. Courts here don't allow the Bolan test. That as been appealed and found wanting, they take a more expansive view, hence these phenomenal awards of damages against doctors. You're saying State Governments are going to have to reform all of that?

TREASURER:

Absolutely, because if they do not reform all of that then the verdicts will keep mounting, the premiums will keep mounting, your doctors will be in a situation where they cannot afford to practice.

JONES:

Correct.

TREASURER:

Now, it is a tough thing to say to a victim or a plaintiff, you have suffered an injury, you can get some compensation but we are going to have to limit it. It is a tough thing to say but that is going to have to be said.

JONES:

Okay. The Treasurer is with us and is going to stay with us. We'll take the news shortly. Treasurer, I will just ask you, because you rightly said you can't go into bat for UMP and rescue insurance companies but I'm going to be asking you how it is that we've rescued a bit of Rio Tinto and a bit of Mitsubishi in recent times. We don't quite know who's rescued and who's not. But the news next at half past seven.

BREAK

JONES:

I'm back with the Treasurer. It's 23 to eight. Just before we go onto something else. While we were talking there during the news, you made the point that it is a source of some mystery, is it not, that Dr John Quayle has not been heard of in the last couple of days?

TREASURER:

Well, I was taking the call from, I think the chairman of the Orthopaedic Association earlier, and we were able to give him some assurances. But I think it is important that doctors also seek assurances

from the people that were running UMP and AMIL. Let us not forget that this was a company which was functioning for and on behalf of doctors, taking their premiums for a very long period of time and offering them indemnity. The doctors are now told that that company is to go into provisional liquidation. Now, if I were a doctor that had been paying my premium to that company, I would want some questions answered, wouldn't you? From the people that were running it.

JONES:

From a fellow who said stay with us, everything is terrific. On 28 March.

TREASURER:

Well, you know, I think ...I want to make this point. That from the Government's point of view, we will step in and we will guarantee the doctors. But I want to make this point to doctors as well. I think the doctors should be asking their own organisations and their own directors some of these questions.

JONES:

They are the architects of the problem.

TREASURER:

They were running the company and what did they know about it? What assurances were they giving and why were they giving them? And I think that is only fair. We would be doing that if you were a shareholder in Ansett, you would want to know the answer to those questions. If you were a shareholder in HIH, you would want to know the answer to those questions. I do not think the doctors should move on without satisfying themselves that they were being told all of the details and that their affairs were being properly looked after. At the end of the day, the poor old taxpayer is going to step in here.

JONES:

Talking about moving on. You have already provided $35 million to UMP. The question would have to be asked, why do, why do Mitsubishi get 50 million and 85 - 35 from the South Australian Labor Government? Rio Tinto get 125, but we suddenly say, oh well, listen, UMP, we do not. Who gets and who does not? What are the rules?

TREASURER:

Well, the reason why the Government is stepping in in UMP is because the Australian public needs medical services. This is a situation where, regardless of who was at fault, the Government has to step in to ensure that doctors are indemnified ...

JONES:

Mitsubishi?

TREASURER:

... so that people's operations can be done. In relation to Mitsubishi, the amount that has been offered by the federal Government I think is 35, from memory.

JONES:

One of you is 50, the other is 35.

TREASURER:

And it is in 2004. And it is on the condition that Mitsubishi come to Australia and set up a new R&D headquarters where it is gearing investment - ie we will put some money on the table if you match us and bring more money. And I think in the circumstances where Mitsubishi has those tough conditions on it, if it complies with those conditions, then the assistance will be worth it.

JONES:

Rio Tinto is pretty hard up for money. They get 125 million.

TREASURER:

Well, Rio Tinto was a situation where Rio Tinto had invented a new technology called HIsmelt, which is to bring iron ore up to a higher stage of value added production. We did not want to see that technology go outside Australia and so we were prepared to offer assistance to keep it inside Australia.

JONES:

Okay. Well that is about 200 million. The reason I am asking you this is that at the end of March ...

TREASURER:

And that is not until over a long period of time, Alan.

JONES:

But globally it is a couple of hundred million. At the end of last year, November 28, in fact, the Social and Community Services Employees' State Award, known as SACS, decided to increase salaries by about 6½ per cent for these poor people who help disabled, physically and intellectually disabled, people. Now 240 of these group homes are talking about the fact that they have no alternative but to close their gates and throw these people onto the streets or into the care of their parents, come June, because the Commonwealth Government has not forked up. A letter to me from Bob Carr, when I asked the Premier here what the story was, he said to me, "The independent umpire has decided what the workers in this area are rightfully due. My Government has accepted that decision. We immediately fulfilled our responsibility to meet our share of the increases arising from the changes. This will cost New South Wales $116 million over three years. Commonwealth funding of the salary increases is estimated at 68.8. This is only 37 per cent of the total funding required -considerably less than our share which we are committed to paying. Thus far the Commonwealth has simply refused to fulfil its responsibility to fund their part of what are jointly administered programmes. We have allocated 116 million over three years. They have allocated nothing." Are you going to see these places close?

TREASURER:

No, because we have actually adhered to our agreement. Whatever Mr Carr says, we have an agreement called the Commonwealth State Disability Agreement. It sets down in that Agreement how the Commonwealth will contribute in relation to wage claims. The Commonwealth has observed it. I do not know where Mr Carr gets this claim about 37 per cent from.

JONES:

Well, how do you, how have you contributed to this amount? 116 million they have contributed. You are up for 68.8. You say, oh well, we have indexed all the grants for the States. That is your argument.

TREASURER:

To cover wage increases and paid it in full. We entered into a five year agreement.

JONES:

But they were already under-funded, these outfits, and they have had increases in workers' compensation, in public liability and everything. That money is eaten up. These are not spendthrift people.

TREASURER:

No.

JONES:

They are looking after intellectually disabled.

TREASURER:

Look, I have absolutely every sympathy for the people that are being helped.

JONES:

Well, they want a Mitsubishi. They want 68 million.

TREASURER:

Well, let me tell you. This year we increased our funding from 141 million to 165 million for New South Wales. I do not think Mr Carr told you that.

JONES:

Look, I am aware of all of that.

TREASURER:

And that was under the Commonwealth State Disability Agreement.

JONES:

But you have got Mums and Dads listening to you who ring me in tears, what is to happen to my son on 30 June? And shouldn't you be sitting down with the State Government and saying we have got to work this out? We cannot put these people through this daily torture.

TREASURER:

Look, absolutely. And I can tell these people that the Commonwealth has observed its Agreement in full.

JONES:

But what does it matter if we are 68 million short?

TREASURER:

We will sit down with the State Government and we are currently negotiating the Commonwealth State Disability Agreement, and we will sit down and we will make sure that the States also observe their obligations.

JONES:

This is true in Western Australia. I mean thousands of mentally and, intellectually and physically disabled people. As I speak to you, they know I am talking to you, they in their droves are listening to this programme, and they are in tears worrying what happens to their children. When is someone going to, we talk about asylum seekers, we have got a Senate inquiry into a certain incident, maritime incident, who is going to stand up and rise in the Parliament in defence of these poor people?

TREASURER:

Well, let me say to you, Alan, our Government absolutely believes and cares for those people. And that is why over a period of, I think, five years, we have observed all of the agreements, and increased funding, and increased carers' allowance, and indexed the disability pension. That is why we introduced a GST which will this year, hang on, which will this year pay to the Government of New South Wales $8133 million. And you know what that is for, inter alia? Wage claims.

JONES:

Treasurer.

TREASURER:

Now we have sat down and we have negotiated all of these agreements. We are observing them to the letter. Absolutely to the letter.

JONES:

But it means nothing. These people are already under-funded.

TREASURER:

Now, now ...

JONES:

There are 63 per cent fewer beds in hospitals across this country for people who are mentally ill than there were 10 years ago. 63 per cent fewer. We cannot stand by and see these people sleeping under the bridges, being thrown into jail, being tied as they are in the Adelaide hospital to beds in emergency departments , because they belong to the public. And these people have got to be chained because they cannot be controlled. Where is Government, if not for these people?

TREASURER:

Well, look, the point that you raise, and I saw this in the newspapers during the week, that the closure

of psychiatric beds has led to a lot of people who otherwise would have been cared for out in the community. Alan, my view, I wonder if it was the right decision. When I read that story, I wondered if it was the right decision.

I am not qualified to say whether it was. For whatever reason, the State administrations, the people that were running these psychiatric hospitals, no doubt on very good advice, decided to close them. That being the case, we have to now live with the consequences. But I want to say to you, that the Commonwealth Government, through its supported accommodation programmes, through its disability pension programmes, through the Commonwealth State Disability Agreement, is not only funding these, but increasing them, year by year.

JONES:

The base was already inadequate.

TREASURER:

And the New South Wales Government says, well we need more money for wage claims. You know what the Commonwealth did? It introduced a GST ...

JONES:

Treasurer.

TREASURER:

... to put them on a firm financial footing. Now you say to me, why can't you get together and to make sure that all this gets out to the people (inaudible). I think it's a good point.

JONES:

But you have increased them.

TREASURER:

(Inaudible)

JONES:

But the base was inadequate. You say you give 125 million to Rio Tinto because they have got a research project and we do not want it lost to Australia. We do not want these people who cannot carry placards, cannot appear on the talkback segment of this programme, to argue their case, surely we are not going to abandon them.

TREASURER:

Absolutely.

JONES:

You are not going to abandon Rio Tinto.

TREASURER:

No.

JONES:

Well what commitment ... How do we get the 68 million by June 30?

TREASURER:

Well, you said that somebody has got to keep the pressure on the State Governments in relation to this, and I understand that Senator Amanda Vanstone is negotiating with the State Governments to keep the pressure on.

JONES:

But self-funded retirees say the same thing. You made a promise in the last Budget that all sorts of benefits would be made available to self-funded retirees. You would fund 60, the States would fund 40. The 40 has not come from the States and the self-funded retirees are saying to me, well, you made a promise in the Budget and have not honoured it. Where are we?

TREASURER:

I know, I know, and there you go. We put the 60 per cent on the table and the States say, "We will not match it."

JONES:

Well why make a promise and build expectations that cannot be delivered 12 months on?

TREASURER:

Well, the promise that we made is that we are going to set aside all of this money to pay 60 per cent of benefits, which we are prepared to do as we speak. The State Government said, oh, no, no, no, we will not join you in that.

JONES:

So the self-fund retirees just whistle do they?

TREASURER:

Well, what, we just let the State Governments walk away, do we? We just say, well we do not expect anything from them?

JONES:

No, someone should be discussing ...Instead of a certain maritime incident, someone should be on the table saying how do we deliver to self-fund retirees?

TREASURER:

Good point. So who is discussing a certain maritime incident? The Labor Party in the Senate.

JONES:

Well, I am not.

TREASURER:

The Labor Party in the Senate, right? Why are they discussing a certain maritime incident? Well, they do not want to discuss the fact that the New South Wales Carr Government is not putting 40 per cent on the table for self-funded retirees. They would rather discuss all of these other things. I absolutely agree with you.

JONES:

Okay. You have got to go. I am in trouble because you have got to go. And I thank you for your time. There is one final thing I would just ask you to take aboard. Nancy Bird Walton is one of the great aviation pioneers. She raised a point on this programme the other day, because it is becoming critical, about the selling of Sydney Airport. Why wouldn't we do a public float of Sydney Airport and allow the public an opportunity to buy it, rather than sell it to overseas interests or to the highest bidder? It is a valid point, isn't it?

TREASURER:

Well, I think in relation ... You have people who sit down and work out the best terms and conditions on selling these things, and I think in this case they have recommended a trade sale. Now, in respect of other things, there have been widespread privatisation. The Commonwealth Bank was one. Telstra was one. But the advisers say in a situation like this, the best way of doing it, maximising, probably for maximising value to the taxpayer, is a trade sale.

JONES:

Kingsford Smith Airport, part of our history, part of our heritage. Not a bad point, though?

TREASURER:

Yes. Look, it is a fair point and it can be argued either way. This was the way the Melbourne and Brisbane airports were done, of course, Alan.

JONES:

You have got to go. The 68.8 - you do not mind if I keep asking you, on behalf of disabled people, where we are going to find it?

TREASURER:

Absolutely. And I give you this assurance that we will stay on the New South Wales Government. You know this is a New South Wales problem.

JONES:

Well, Mr Carr says it is your problem. He said it to me.

TREASURER:

But hang on, hang on. We are a Commonwealth Government. Responsibility for services in Queensland, South Australia, Western Australia, Victoria and Tasmania. This is a problem in New South Wales.

JONES:

Sure. But is also a problem in Western Australia. In Western Australia, the Commonwealth are

saying we have indexed the funds and there is no other funds.

TREASURER:

That is right. That is right. (inaudible) as between all of the States and that is why we (inaudible). We will stay on the back of the Carr Government, I can assure you of that.

JONES:

If they do not pay?

TREASURER:

I can assure you we will stay on (inaudible)

JONES:

But if they do not pay, what happens on 30 June?

TREASURER:

Look, Alan, I am not going to sit around here and say, oh, we will just let the State Governments default, you know, on whether it be involvement in UMP ...

JONES:

Well, someone has got to resolve it.

TREASURER:

Or whether it be involvement in SACS.

JONES:

Someone has got to resolve it.

TREASURER:

Or whether it be involvement in insurance tort law reform. We will just sit around and we won't expect them to do. We are going to stay on their backs in all of these areas. On tort law reform, we are going to stay on their backs. On UMP-AMIL, we are going to stay on their back. On SACS, we will stay on their back. And we will do that on behalf of all of the people that are affected.

JONES:

Okay. Well, we will talk again soon. Thank you very much for your time.

© Commonwealth of Australia 2000