New modelling released today at the Financial Services Council’s (FSC) annual conference makes a detailed economic case for removing Fringe Benefit Tax (FBT) from employer-provided group insurance. The proposal has the numbers. It also has a documented trail of government resistance – and an equity dimension that complicates the industry’s framing. Brokers need to understand all three.
The FSC commissioned the New Zealand Institute of Economic Research (NZIER) to model the impact of removing FBT across group life, health, trauma, total and permanent disability, and income protection insurance. The report estimates total economic benefits of $408.7 million against a cost to government of between $210.7 million and $234.5 million in foregone revenue – a net benefit of between $174.3 million and $198 million.
The projection most relevant to brokers is the estimated market expansion: removing FBT from group private health insurance alone is modelled to bring approximately 201,408 additional policyholders into employer-sponsored cover. That figure is derived from Southern Cross Health Insurance’s estimate that 143,000 additional members would join if FBT were removed, scaled to reflect its 71% market share. That projected growth would land in an already-strained market. FSC industry data shows four million life insurance covers across New Zealand against a population of 5.35 million as of March 31, 2026, with annual life insurance premiums reaching $3.31 billion – up 2.7% year-on-year – even as cover numbers fell across several key products.
The regulatory record on this proposal is explicit. A Ministry of Health aide-mémoire, prepared ahead of a July 2025 meeting between Health Minister Simeon Brown and Southern Cross, documents that Treasury and Inland Revenue do not support changes to FBT rates related to private health insurance, with Inland Revenue advising that an exemption would materially erode the integrity of the broad personal income tax base and create equity concerns for people receiving salary or paying for private health insurance outside of an employer-based scheme. The policy carries a high fiscal cost that will need to be traded off against other government priorities, and it is unclear how much of the intended offset would occur.
When Inland Revenue launched public consultation on FBT reform proposals in 2025, Revenue Minister Simon Watts stated the proposals had been designed to be broadly fiscally neutral, as changes would focus on enhancing the integrity of the tax system. A proposal costing between $210.7 million and $234.5 million does not fit that frame. Budget 2026’s FBT changes simplified motor vehicle rules – health and life insurance premiums were not addressed. No specific public ministerial response to the FSC’s July 30 manifesto on FBT had been identified at the time of publication.
The Ministry of Health document raises a distributional concern that the FSC’s economic modelling does not directly address – and that brokers will likely encounter if employer clients raise it. Māori (23%), Pacific peoples (21%), disabled people (21%), people aged over 75 (21%), and people living in the most deprived neighbourhoods (17%) were significantly less likely to have private health insurance compared with European/Other New Zealanders (38%) and those in the least deprived neighbourhoods (50%). Groups less likely to hold private insurance generally have higher health needs, and their household financial resources, the costs of premiums, or pre-existing conditions not being covered can be barriers to taking up health insurance.
The aide-mémoire goes further, stating that although private health insurance can support greater health system capacity, public subsidies for it are generally low value, as many policyholders would pay for private insurance without public subsidies, and those with high health needs are unlikely to afford premiums with a subsidy or be offered coverage. This is the sharpest version of the counterargument: FBT removal may expand cover among those who were close to taking it up anyway, while leaving those with the greatest need unchanged.
The NZIER report provides two tools for employer conversations that do not depend on legislative change. The first is the per-employee cost of uninsured staff: NZIER estimates annual costs of absenteeism, presenteeism, and staff turnover at between $9,281 and $14,081 per employee, based on an average gross annual salary of $90,688 in the September 2025 quarter and an average absenteeism rate of 6.7 days per year.
The second is the medical cost escalation context. Employee medical plan costs in New Zealand are forecast to rise 18% in 2026, according to Aon’s 2026 Global Medical Trend Rates Report – nearly double the Asia-Pacific regional average of 11.3% and above the global average of 9.8%. Medical insurance premiums across New Zealand doubled from $1.6 billion to $3.3 billion between 2015 and 2025, despite membership holding steady at roughly 1.4 million people, with many individual policies seeing increases of 20% to 30% in 2025 alone, according to Westpac Economics.
The Ministry of Health’s document also confirms that around half of large employers – those with over 50 employees, who account for around 50% of all employees – provide some option of subsidised health insurance to employees. The growth opportunity sits in the other half of large employers and the SME segment – where the premium affordability barrier is highest and where the employer cost argument is potentially most persuasive.
The FSC’s proposal enters a contested political space three months before a general election. The economic modelling provides a net benefit case. The government’s own advisers have previously assessed the same proposal as fiscally costly and likely to benefit those who least need the subsidy. Whether any party adopts a commitment to remove FBT from group insurance before November 7 remains to be seen.
For brokers, neither outcome changes the underlying commercial logic. Group scheme demand is growing independently of any tax change, driven by public waitlist pressure, medical cost inflation, and a documented underinsurance gap. The NZIER numbers give brokers a framework. The regulatory record gives them the counterargument their clients will hear. Both are worth knowing.
