The NSW government has warned its nominal insurer workers’ compensation scheme will “plunge further into deficit” without reforms around liability and entitlements for psychological injury.

Treasurer Daniel Mookhey told a parliamentary inquiry today the scheme’s finances have worsened since his last update in March, when it held 85c for every dollar it expects to pay in future claims.

Finalisation of December valuations shows the scheme now holds 82c for every $1 expected.

“Fast deterioration has real implications for sustainability of the scheme,” he said in his opening statement to the review.

“Put simply, you can have the best workers’ compensation scheme in the world on paper. If it has no money, it helps no one. Absent reform, I expect the scheme to plunge further into deficit when the scheme is revalued in six weeks.”

Mr Mookhey told the parliamentary review the government’s draft law to reform liability and psychological injury entitlements is a “first step” to addressing the financial challenges.

About 50% of mental injury claims remain open after a year, while 91% of physical injury claims are resolved within 13 weeks. 

The average cost of a psychological injury claim has soared from $146,000 in 2019 to $288,542 last year.

“These costs have increased the premiums for businesses by 8% annually for three years. Without reform, even claim-free businesses will see a 36% rise by 2027-28,” Mr Mookhey said.

“These costs are, in turn, having very real consequences on their financial viability and our economy. These facts demand reform.”

He told the parliamentary inquiry into proposed changes to workers’ compensation laws that the Treasury Managed Fund’s finances have also worsened. The fund provides workers’ compensation cover for more than 379,000 state government workers and 161,000 volunteers. 

He says the forthcoming budget will report another $2.6 billion in write-downs.

“As the TMF continues to deteriorate, the pressure for cash injections grows,” Mr Mookhey said.

“Since I became Treasurer, the government has authorised an additional $1.2 billion in cash injections to keep the public insurer funded. 

“I will not be authorising any further injections. Not until parliament decides its collective response to a scheme that most acknowledge is failing.”

The government’s draft Workers Compensation Legislation Amendment Bill 2025 covers areas such as thresholds for accessing long-term payments and early intervention powers to support rehabilitation.