The Victorian Government is planning an overhaul of the state workers’ compensation scheme, which it says was designed decades ago and is no longer fit for purpose.

The government says it’s working with business, union and other groups to look at options for the scheme, which trades as WorkSafe Victoria, to ensure its sustainability.

“The WorkCover scheme is fundamentally broken,” a spokesman said. “The scheme is no longer fit for purpose and does not meet the modern needs of those it was originally designed to assist more than 30 years ago.”

WorkSafe reported a net profit of $43 million last financial year, its first positive net result since 2017/18, but the Performance from Insurance Operations was a deficit of $1.6 billion.

The annual report noted a growing gap between premium revenue collected and the annual cost of claims, with the State Government providing an operating grant of $450 million, while holding the average premium rate at 1.27% of payroll.

Increases in mental health claims are adding to stresses on the scheme. The annual report notes that mental injuries also often take longer to resolve and require more services and supports.

The Victorian Chamber of Commerce and Industry says it recognises that the current system is not sustainable and adjustments need to be made to ensure its viability.

“The Government has been consulting with us in good faith to ensure the business position is taken into account,” CEO Paul Guerra said. “While we’d like to see additional costs to business minimised, we recognise that the ongoing viability of the system is paramount.”