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'Broken' Vic workers' compo scheme set for an overhaul

An overhaul of Victoria's workers' compensation scheme is on the cards after the government, business groups and unions conceded it has become unsustainable.

WorkCover premiums for businesses in Victoria are the second lowest in the country, with the gap between the annual cost of claims and collected premiums creating a $1.1 billion shortfall.

The Andrews government on Tuesday confirmed it was working with businesses and workers to reform what it described as a "fundamentally broken" scheme that was no longer fit for purpose.

WorkSafe Minister Danny Pearson said WorkCover costs have increased three-fold since 2010, while average premiums have fallen.

"There's no silver bullet here," he told reporters.

"Raising premiums alone will not be enough, but we need to work in a very constructive and collaborative way to make sure we get the balance right."

Victoria's workers' compensation scheme was opened in 1986 to largely deal with physical injuries but access has since been expanded to include mental health claims.

If the scheme remains unchanged, mental health is expected to account for about 19 per cent of claims and 50 per cent of costs by next year.

More Victorians are also spending longer on the scheme, with the number of those on payments for more than 130 weeks growing from about 4500 in 2016 to nearly 8500.

Before the November election, the Andrews government was forecasting a return to surplus of just under $900 million in 2025/26.

Mr Pearson said Labor remains committed to delivering it despite the forecast shortfall.

Taxpayers have topped up the scheme with an extra $1.2 billion in funding to offset rising costs over the past three COVID-disrupted financial years, keeping premiums for businesses at 1.272 per cent of their payroll.

While refusing to entertain what changes could look like, including the possibility of restricting eligibility criteria, Premier Daniel Andrews said the government would no longer prop up the scheme.

"I'm not taking money from hospitals and schools to prop up a WorkCover scheme that's not sustainable," Mr Andrews said.

In question time, Opposition Leader John Pesutto said the Andrews government had failed workers so badly they risked having their entitlements cut.

Victorian Chamber of Commerce and Industry chief executive Paul Guerra said the peak body recognised the current system is not sustainable and changes were needed.

"While we'd like to see additional costs to business minimised, we recognise that the ongoing viability of the system is paramount," he said in a statement.

A Victorian Trades Hall Council spokeswoman said the union was open to new thinking, but premium increases would be required.

"The most important consideration should be supporting injured workers," she said.

In a statement, Shine Lawyers special counsel Thomas Bradley urged the government to raise premiums and address insurers' delay tactics instead of reducing compensation for injured workers.