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Fire Service Funding – disappointment with poor policy, but greater clarity welcomed

29 Apr 2016

Continuing to tax only those people who pay insurance to fund the fire service is blatantly unfair and well out of step with best policy practice internationally, the Insurance Council of New Zealand said in response to today’s new funding arrangements for the fire service. 

Insured people will pay about $300 million in tax above what they do now to fund the changes.  “This is not good for hard working kiwis who do the right thing by taking out insurance to protect their property” Chief Executive Tim Grafton said. 

“We’re naturally disappointed the Government only wants to tax people who take out insurance and allow those who don’t insure to be free-loaders,” said Grafton. 

“There had been an option that was supported by officials to remove the tax from insured drivers and apply it to the annual licensing fee or ‘rego’, so all road users paid.  Instead, the Government has expanded the tax on motor insurance to third party insurance on the misguided basis that this will reduce avoidance”.   

“The real problem that is not tackled is that it still leaves the 10% of drivers who do not insure themselves not paying to fund the fire service.  Had they been serious about reducing avoidance completely, then the rego provided the solution.  On top of that, as we advised Ministers last month, the motor insurance sector faces significant change due to technological and disruptive influences.  This will likely lead to insurance product changes that will almost certainly have significant impacts on funding available to fund the fire service.” 

“The rego was the right vehicle to collect the tax because it will be around for as long as ACC payments for funding the cost of road accidents continue.  There are no plans to disband this system, yet motor insurance disruption will occur much sooner.” 

On the positive side, some improvements have been made to a flawed system.  We welcome the greater clarity provided by applying the tax to all insurance policies for damage to property.  This will simplify the administration and limit avoidance. 

“This should also mean that contributions are made by central and local government authorities who take out insurance cover.  That will make the system fairer as will the decision for the Crown to contribute $10 million toward non-fire activities.  

“We also welcome the move to align the tax payments with the GST cycle which should also reduce compliance costs”.

 

Published 29 April 2016