NZ Government Could Face Hundred Billion-Dollar Compensation Bill for Abuse in State Care

A fearful child. (Tinnakorn/Depositphotos)

New Zealand has become the latest country to reveal widespread abuse of people in state and faith-based care institutions dating back decades.

The government, which is set to issue a formal apology, now faces the prospect of potentially paying billions of dollars in compensation to those affected—while already facing a $13.4 billion budget deficit.

The UK, Ireland, Canada, and Australia have all conducted similar exercises in 2017/18 with broadly similar outcomes. Still, the New Zealand Royal Commission of Inquiry’s estimate of the number of victims is the first attempt to quantify the extent of such abuse.

Its 3,000-page report finds that an estimated 655,000 people passed through state and faith-based care from 1950 to 2019 and that between 17 and 39 percent (114,000 to 256,000) had been abused and/or neglected.

Between 2018 and 2023, it heard accounts of abuse from more than 2,000 survivors, which it calls “both compelling and credible.”

“The true number will never be fully known as records of the most vulnerable people ... were never created or were lost and, in some cases, destroyed,” the Commission said.

Type and frequency of abuse in state and faith-based care in NZ, as described by survivors. (NZ Royal Commission of Inquiry)

The total amount of incidents across all categories of abuse is higher than the number of accounts received, which indicates that most survivors who spoke to the Inquiry experienced multiple types of abuse or neglect while they were in care.

In some cases, the abuse amounted to torture, the Commission acknowledged.

According to survivors’ accounts, the decade with the highest rates of abuse and neglect was in the 1970s, followed by the 1980s, and then the 1960s.

The worst institutions were boarding schools, both faith-based and not, with as many as 45 percent of people sent to one experiencing one or more forms of abuse.

The estimated prevalence of abuse across different care settings compared to the total population. (NZ Royal Commission into Abuse in Care)

Most faith-based groups criticised in the report have accepted the findings and have made or signalled their intention to make apologies to those affected.

However, Jehovah’s Witnesses went to court in an attempt to suppress parts of the report that were about them. The Court of Appeal recently rejected that application.

Calls for National Overhaul

Commissioners Judge Coral Shaw, Andrew Erueti, and Paul Gibson described the facts uncovered by their inquiry as “a national disgrace.”

They called for widespread law reform, an overhaul of the country’s care system, and urgent implementation of the Commission’s recommended redress scheme.

Their 138 recommendations include establishing a specialist investigation unit, an independent Care Safe Agency to oversee the system, and a Ministry for the Care System to lead the implementation of reforms.

“These gross violations occurred at the same time as Aotearoa New Zealand was promoting itself, internationally and domestically, as a bastion of human rights and as a safe, fair country to grow up as a child in a loving family. If this injustice is not addressed, it will remain a stain on our national character forever,” they said.

The Commission released an interim report—presented to the previous Labour government in December 2021—that included a number of recommendations.

However, little progress had been made on implementing them, leading the Commissioners to describe survivors as facing a “second or third-class system” compared with Australia.

“An apology is hollow without change,” they said. “With urgency, state and faith-based institutions must implement the inquiry’s 2021 recommended [redress] scheme. There must be no further delay.”

Prime Minister Christopher Luxon acknowledged “unimaginable” abuse had occurred at various institutions and made particular reference to the “torture” that had taken place at Lake Alice Psychiatric Hospital during a press conference before the release of the report.

Later in Parliament, with survivors watching from the public gallery, he said: “The State is now standing here beside you, accountable and ready to take action... I know this acknowledgement feels hollow without the recognition that comes with redress.

“I regret that that is not something that we can give you today, but it is a priority for the government in the coming months.”

Difficulties Around Providing Compensation

Minister Erica Stanford, who is leading the government’s response to the inquiry, said it was prioritising decisions on redress for the survivors.

“What I can commit to them is that we will engage with the Royal Commission’s report and recommendations in good faith, with careful consideration, and provide more clarity by November,” she told Parliament.

Providing compensation to so many victims will be a delicate balancing act for the government.

In New Zealand, civil litigation for personal harm is barred, and people instead receive fixed compensation from the Accident Compensation Corporation (ACC) scheme, funded by levies on employers and workers.

But it is notoriously difficult to obtain ACC compensation for mental distress, and in previous instances of widespread harm—such as the Christchurch mosque massacre—the government of the day has had to legislate very narrow exemptions to that restriction.

The Commission’s report noted that survivors have received little to no financial compensation from the ACC scheme in the past and recommended law changes to allow them to seek redress through the courts.

Currently, survivors of abuse and neglect in care can receive up to $25,000 (US$14,700) from the government, but the payout depends on the length of time they spent in care. This is based on the Ministry of Social Development’s view that the longer a person spends in state care, the more likely it is that they were harmed repeatedly.

But the Commission found that formula was seriously flawed, saying, “There is a risk that survivors who have spent a long time in care and experienced lower-level abuse will receive more (even substantially) than survivors who have spent a short time in care yet suffered higher-level abuse (such as multiple rapes).”

In Australia, the Australian Royal Commission into Institutional Responses to Child Sex Abuse brought about law reform allowing survivors to lodge civil claims, resulting in significant compensation awards.

In 2023, Australian juries awarded abuse survivors compensation of $5.9 million and $3.3 million. In 2021 and 2022, payouts to survivors were $2.6 million, $1.5 million, and $1.9 million.

Assuming that the level of abuse was consistent across state and private sector institutions, meaning an estimated 150,000 people abused in state care, compensation awards around the $2 million mark would see the government facing around $300 billion in claims unless it can find an alternative acceptable to survivors, their families, and the wider public.