Government reverses course on fire levies
The Government has decided to reverse one of the most significant changes it had made to the way in which fire service levies are imposed in New Zealand. Unusually, this change of direction has occurred not in the consultation stage or before a select committee, but after the relevant legislation was passed into law and shortly before it was due to come into effect.
In our view, the Government is to be commended for acknowledging the unintended consequences of the change and abandoning it, rather than trying to salvage it with complex carve-outs and other measures, which might have been more politically expedient but would have been risky and inefficient.
The Fire and Emergency New Zealand Act 2017 made a fundamental change to the fire and emergency service levy regime which funds most of the cost of New Zealand’s fire and emergency service. Previously, the levy was imposed only upon the value of the interest insured (not the premium) under contracts of fire insurance. The change transitioned it, after a transition period, to a levy on the interest insured by all contracts of insurance against physical loss or damage, whether or not fire was one of the risks insured.
The thinking behind this change was that New Zealand’s fire and emergency services, whose funding is derived almost entirely from the levy, increasingly do much more than extinguish fires. They assist in responding to a range of insured perils such as accidents, floods, earthquakes and the like, although they cannot normally prevent damage from those perils in the way they might do in case of fire. There was also a desire to increase the overall levy take so that services could be improved.
The devil lay in the detail. When the new levy regime was originally proposed, a number of exemptions were made for specified classes of property and levies for some other types of property, such as residential property, were capped. The reason for this was that some types of property, such as pipelines on the sea floor, drains and tunnels, may be of high value but may not need to be insured against fire and are as unlikely to benefit from emergency services. After rounds of consultation, the list was amended several times. That did not resolve all of the issues that were identified, however. In addition, the Government struggled to confirm the magnitude of the likely change in the levy take, because private property values are confidential and there is no register that records the value of the interests insured.
As a result of increasing concern about the way in which the new regime was to work, while the Act was passed into law, the date upon which the changes were to come into effect was repeatedly delayed while efforts were made to understand the effects that it would bring about. The date on which the changes were to occur was further delayed to 1 July 2024 by the enactment of the Fire and Emergency New Zealand (Levy) Amendment Act 2019.
Finally, in late 2021, the Government acknowledged that there were insurmountable difficulties in understanding the likely impact of the changes because of the confidential nature of insurance arrangements. On 8 December 2021, it announced a proposal that, in effect, reverts to the previous regime, under which the Fire and Emergency Levy will be charged only on fire insurance instead of on all policies for property loss or damage.
An Amendment Bill to make these changes is due to be introduced this year. Following this, public consultation will be undertaken before any change to revert to the original levy regime is made. Insurers will no doubt follow the process with interest as some complexities arising from the exemption regime will remain.