Fire and Emergency New Zealand (FENZ) could see New Zealanders pay an extra 40% (an $80 million increase) on their insurance fire levy from July. In addition to being given the onerous task of collecting the levy, insurers and brokers have been notified that they will be liable for shortfall penalties.
These new duties and penalties have angered insurance industry professionals interviewed by Insurance Business, who unanimously feel the tax is unfair, inefficient and misguided and that Internal Affairs Minister Peter Dunne “misses the point,” – something he had previously said about critics.
Auckland barrister Veronica Cress commented that this type of political rhetoric is unhelpful when the FENZ Act raises so many serious legal and economic issues. She added that from a legal point of view the liabilities and penalties that insurers and intermediaries will be exposed to during the levy-collection process are particularly concerning.
“Shortfall penalties of between 20% and 100% can be imposed if you get it wrong. The starting point under the act is that insurers and intermediaries are jointly and severally liable with policyholders to pay these,” she elaborated.
“This is clearly unjust when the policyholder is the taxpayer with the underlying obligation to pay the levy.”
She further pointed out that in addition, the “levy avoidance” provisions in the act are based on general income tax definitions that are notoriously broad and difficult to apply without assistance from the courts.
“These anti-avoidance provisions are unlikely to achieve the ‘certainty’ that the act states is one of its purposes,” she noted. “The whole levy regime in part three of the act needs to be looked at further. It is a minefield of legal and economic issues that are bound to blow up before the next general election on September 23, 2017.”
According to Frederick Chow, of Pulsar Insurance Agency, people with home, contents and car insurance will, from July 01, have to start paying 39%, or up to around $38.37 more, over the year to fund FENZ.
“This will mean in general people will be required to pay about $30 more on house insurance and another $6 to $8 on contents with GST,” he said. “This increase is said to be necessary to form FENZ, which from July 01 will bring together the New Zealand Fire Service, National Rural Fire Authority, and 38 other rural fire authorities.”
Chow elaborated that currently people pay a levy of 7.6 cents for every $100 of residential property and contents they insure.
“From July 01 this will be increased to 10.6 cents, and capped at $21.20 for contents and $106 for property,” he explained. “Currently these are capped at $15.20 and $76.”
The same increase will apply to non-residential property, and the limit will remain uncapped.
He added that car owners with insurance will have to pay a flat levy of $8.45 over the year for every car they insure – an increase from $6.08. “But at least it’s under $10!” he exclaimed.
“But really, a 40% increase – that’s hefty and hard to stomach,” he added. “I mean a standard building will cost $3,000 more a year to insure – you figure! And many will blame insurers for the increase.”
Chow said his company will be sending out newsletters a month in advance to warn clients of the increase and how it is calculated.
Insurance Business will follow up with some more comment on this hotly contested reform package in the next few days.
Related stories:
FENZ – Why the race is on to comply
Controversial FENZ’s trajectory assured
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