“Let’s go back and start again with the Fire Service Levy”

“Let’s go back and start again with the Fire Service Levy” | Insurance Business

“Let’s go back and start again with the Fire Service Levy”

Last year, the Insurance Council of New Zealand (ICNZ) advised MPs that taxing insurance policies to pay for Fire and Emergency New Zealand (FENZ) was unfair, costly, complex and eventually unsustainable. The previous Government ploughed on regardless.

Barely a year after the Act was passed, it now needs amending. No real surprise. What we have is a convoluted legal contraption devised to fund FENZ that’s worthy of Heath Robinson, a cartoonist who became famous for drawing complex machines to achieve simple objectives.

For the past 12 months, ICNZ, insurers, FENZ and officials advising the Minister have worked together constructively to try to make the current Act work in the simplest, least costly way. It’s that work that has uncovered the need to change the Act so soon.

A number of ‘fixes’ are needed. One is to define commercial property properly, as the current wording omitted to apply the levy to any commercial property that was not a building. Oops.

There’s also the task of disentangling ride-on lawn mowers and golf-carts, which have traditionally been caught under contents policies, from being classified as motor vehicles and levied at a different rate from what is classed as property.

Staying with property definitions, the Act defines residential property with reference to the Building Act. House insurance, of course, picks up structures such as utility supplies, appurtenant structures, swimming-pools and much else, but none of these are included in the Building Act’s definition of ‘residential property’. So, more work is needed there.

Version 2.0 of this odd-looking tax machine won’t be passed into law until well into the first half of 2019. That creates a major problem. It will be impossible for insurers to make the system changes they need to make in time for when the Act stipulates the new levy system must come into force: July 01, 2019.

So, the Act will need to put the implementation date out to at least July 01, 2020 or possibly July 01, 2021. This allows three months for specification and solutions planning for IT systems, seven months for multiple system builds, and two months for testing so the product can be with brokers to market in April 2020 in advance of the July 01 renewals.

If this sounds circular and complex, that’s because it is. It’s also expensive. System change costs will run to tens of millions of dollars. And to what end? To fund FENZ the same amount they currently receive but by a different route.

And that route is coming under pressure to be more convoluted as a range of interest groups lobby to be exempted from the tax. If that happens, it will be interesting to see the fair basis for it.

But there is a simple way forward: Do nothing, because more than enough revenue is being collected to fund FENZ and it would save everyone a lot of time and cost.

There is an opportunity for the Minister of Internal Affairs, Tracey Martin of New Zealand First – the only party to oppose the funding of FENZ through insurance – to call a halt on everything and use the time to order her own review of how to best fund FENZ.

The previous Government ruled the fairest and most efficient funding options, general taxation and the rateable base, out of scope from its public consultation on how to fund FENZ. This Government could transition over a decade to a fairer system given the constraints it faces in making a sudden shift. After all, politics is the art of compromise.

It’s far better to go back and start again from first principles than stubbornly try to drive a square peg into a round hole.