NSW workers’ compensation premiums will have to rise by up to 28% if the WorkCover scheme is not reformed, according to a State Government issues paper.

Finance and Services Minister Greg Pearce says the scheme had a $4 billion deficit at December 31 and will become unviable without reform.

“With premiums in NSW already between 20% and 60% higher than in Victoria and Queensland, any increase would only drive more businesses and more jobs interstate,” he said.

The paper says the NSW scheme “is a broken system that does not produce good outcomes for injured workers, and without significant improvements it is not financially sustainable”.

A parliamentary committee will consider several recommendations, such as allowing claims under the Civil Liability Act provisions on negligence, which could improve insurers’ and employers’ ability to defend claims.

Other recommendations are:

• Improved benefits for severely injured workers;
• Removing coverage for journeys over which employers have little control;
• Stopping nervous shock claims from relatives of a worker who dies or is severely injured;
• Simplifying definitions of earnings;
• Earlier “step down”, or reductions in payments;
• Work capacity testing and a cap on weekly payments, to encourage people to return to work;
• Reducing lump sum compensation for pain and suffering;
• Capping medical benefits;
• Excluding heart attack/stroke unless work is a significant contributor.

The paper says the insurance arrangements offered to businesses do not reflect the risk, and red tape makes the system difficult to navigate.

Payments to people who can no longer work are barely above the poverty line while there is not enough encouragement for people who can return to work.

The scheme covers 3 million workers with 269,562 policies. The paper says the scheme is one of the nation’s most generous benefit systems.

The average rate is 1.68% of wages compared with 1.338% in Victoria and 1.42% in Queensland.