By Alex Tarrant
Government may triple households’ EQC levies in order to get the fund back to NZ$6 billion over the next nine years, Prime Minister John Key said today.
Speaking on National Radio this morning, Key said an increase in the EQC levy was his favoured option to get the fund back to a stronger position in case any future natural disasters that may occur around New Zealand.
The fund has been hit by the major earthquake to hit Canterbury on September 4, and the latest deadly quake on Tuesday last week.
“The advice we’ve had is if we leave it [the EQC levy] at the current, approximately, NZ$60 per household, it will take to 2025 for the fund to be restored to NZ$6 billion. That’s too slow,” Key said on Morning Report.
“If we treble the fund [levy], it will take about nine years for it to rebuilt to around about NZ$6 billion,” he said.
“So that seems to be a [possibility] which is potentially affordable for people, recognising it’s very difficult financial conditions at the moment.
“I think pretty much all New Zealanders recognise we need to club together here and help and rebuild that fund so we have a high level of comfort so that if some other natural disaster occurs around New Zealand, we’re in a position to be able to afford it,” Key said.
NZ$20 billion for both quakes?
Meanwhile on TVNZ’s Breakfast show this morning, Key speculated the total cost of the two quakes could be NZ$20 billion.
There were a couple of different parts to paying for the quake costs.
“No one knows what the earthquake’s going to cost, but let’s just say we said the first one was NZ$6 or NZ$7 billion, and the second one was NZ$13 billion – let’s just say it’s NZ$20 billion for the two earthquakes,” Key said.
“We have a number of things. We have EQC – that fund, you pay in NZ$60, roughly, for your household. That had NZ$6.4 billion in it.
“And the way to think about it is that is like the excess that you pay. So if you have a crash in your car and you pay the first NZ$500 for instance, EQC’s the same. You get [government pays first] a billion and a half dollars for every incident you have that’s major.
“We’ve had two and we can take a little bit more out, so that’s NZ$4 billion,” Key said.
“We have NZ$5 billion worth of reinsurance – that’s the big international reinsurance companies, so that’s NZ$9 billion, and we have about another NZ$5 or NZ$6 billion that comes from private insurers probably,” he said.
“So the question is how we pay for the other NZ$5 billion, and that’s over a period of time.”
Although government had not had any advice on the impact of the latest quake on the May Budget, a back-of-the-envelope calculation showed it would have a substantial impact, Key said.
“Two areas: One, the revenue will be reduced. We get revenue from tax, economic activity is down, less revenue coming in,” he said.
“Second thing is – and this is the immediate outgoing – the sort of package we’re announcing today, and other packages, they’ll run into the hundreds of millions of dollars over time. So that costs us money that was unexpected.
“At the moment, if we go and build a road – for instance a local road in Auckland – the taxpayer pays half and the city pays half. We can’t expect Christchurch to meet its half of a complete rebuild, there are a lot of infrastructure costs there,” Key said.
18 Comments
“At the moment, if we go and build a road – for instance a local road in Auckland – the taxpayer pays half and the city pays half. We can’t expect Christchurch to meet its half of a complete rebuild, there are a lot of infrastructure costs there,” Key said.
And where are the insurance companies in this John? Running for the hills i bet! It's time for insurers and their shareholders to step up yet again as they should. THIS is what insurance is for. Do not let them off the hook of their promised responsibilities
If the increase was spread over the 9 years it wouldn't be so bad but a immediate increase would not be acceptable.
Can anybody explain why when funds pour out from here because of the ETS scheme the money could not be diverted for a limited period to serve our needs rather than those of people abroad?
I know the Greens will be dismayed but as we seem to be the only country that has indeed done something shouldn't we be looking to help our own in need first and that is not by adding further to the tax burdon. When the ETS tax was introduced things were very different in NZ, to simply see the Government collecting money to give it out abroad when our own people are in such dire straits is frankly immoral.
The question I ask is this let us suppose ETS was to have started 1 March 2011 ? would the Government have still ploughed ahead with it when Christchurch is in tatters, when the talk is about raising more taxes would they have still shipped out our money? If the answer is no then divert it now, if the answer is yes then shame on them (and I will see you in the polling station)
They will impose new taxes regardless of what happens now or in the future. The EQC fund is just a government subsidy for insurance firms. The ETS is a government subsidy for big business pollution. Kiwisaver is a government subsidy for the investment fund industry. This is how MP's and elites make themselves rich via public taxpayer money. They become shareholders or owners of these companies themselves either prior or post public service and walla! Gravy Train! tooot tooot..............
Well said Justice, absolutely true. I live in ChCh and my house, although still standing, will have to be demolished because the ground underneath it has been so badly damaged due to liquefaction. What really pisses me off is that JK has now sent the begging bowl out to the rest of the world, yet his Gov't has just bought 34 brand new BMW limousines for $200,000 each and they will spend the vast majority of the time just parked up with a chauffeur reading the newspaper.
What has come out of this earthquake as far as I am concerned is that the vast majority of NZ'ers are lions led by donkeys at both national and local level.
Wasn't asking who they were, was asking who owned them, and was alluding to guess who .. the 4 banks, but I guess that doesn't include AIG (or AMP for that matter who is almost considered a bank in AU) but includes just about all the rest, and while axa is independent, it soon won't be, cos one of those 4 and AMP are competing to take it over.
I think our Mr Key has an idea that all households pay to the EQC....somebody forgot to tell him those who have no insurance pay nout....but they expect the help etc in troubled times...and they enjoy the facilities and infrastructure put right in any fix.
Wake up John....the EQC levy is needed we know that and lifting it is one way to refill the pool of loot...but it's time you shifted the burden from those who take out insurance to those who pay rates...a simple little law change...make it gst free....why not John?.....why not.
You also pay EQC levies on contents insurance. Are you suggesting that this should be wiped as well, and the burden put on ratepayers? This seems very unfair, as possessions are claimable in an earthquake. Surely the far majority of people who pay rates, also have insurance on the property as well, so I can't really see much difference where the cash is taken. Unless I'm missing something?
RDee makes a very large assumption in saying:- "the majority of people who pay rates, also have insurance on their property as well". Try working on the basis that up to 40% are not insured. If you like I can give you details of a recent disaster not too far away where the percentage was 50%. In addition the issue of un-insurance was widely covered at the time of the September 4 2010 quake and the figures being tossed around indicated it was very close to 50% if not greater. But then that's the problem isn't it. There are no reliable official figures available. But it is substantial. And see wolly's comment 4 posts up. He is correct. 50% of property owners are not paying full-freight. But it is a huge pool of potential funding that should be tapped first before looking for other levies. In the US if you're not insured and your house catches fire the fire-brigade will let it burn while protecting the adjacent properties.
Why in a timely manner exactly? Surely the fund was a joke to begin with if it's totally depleted after 2 average ( and they were average for head of population) sized earthquakes?
Private insurance should cover all costs as every government and council and homeowner/business should have it and most do! So..........what's the hurry exactly?
This is why the EQC is a joke. It's just a subsidy for private insurers to make bigger profits while the taxpayers act as backstop against severe losses!
"This is why the EQC is a joke. It's just a subsidy for private insurers to make bigger profits while the taxpayers act as backstop against severe losses!"
I think the EQC sheme has work as designed, what we seem to forget is that rather than a subsidy to insurance companies, it has enabled the price of earthquake insurance to be "socialised" and charged a flat fee across the entire country. so it is a subsidy from auckland / northland to welly, canty hawkes bay and bop.
If the insurance companies were to work with the EQ on a real risk basis, then a lot of NZ would be getting charged more than $60 EQC levies. (Check out what commerical EQ insurance cost of the high EQ areas)
The tax payers (aka EQC shareholders) do act as the backstop but this is only once the reinsurance cap is exceeded and the EQC funds are exhausted. Even after 2 major EQ in one year the EQC fund is still in place. Given that the EQ fund is largely made up of NZ Government Stock, i'm not sure if this investment is wise, but time will tell, if the EQC can liquidate that assest for a good return. (Should be able to do this, but it depends if the EQC need any for-ex for materials and labour)
I think that EQC levies should rise to $120 pa (inc GST) and then look to raise the EQC Coverage to 150k for dwelling and 30k for contents and look to reduce the reinsurance excess for the next 9 years as the fund recovers.
This would also mean that insurers would be expected to pass on a reduction in their profits as they would effectively would reduce their own reinsurance costs, and allow the social scheme to return a larger dividend to the government.
I do agree the government has made a couple of big moral hazzard calls with the accomodation allowance and effectly bailing an insurer out of a jam with the tax payer scheme.
Absolutly EQC has worked as it kinda should have.
But lets not forget, in regards neg coments, we the majority are no longer on a level playing field. They the bankers can sell naked shorts on anything I the small individual private investor can not even short there banks with the stock! TWO sets of rules!
The small capitalist or business owner has to compete with protected monopolies, vested interests scams lies etc etc basically its how Mussolini coined it, the merger of state, corporate and banking sectors.
Didn't our fore fathers head off to fight this type of thing?
Lest we forget eh?
The EQC model in NZ was widely discussed as the ideal model by the Australian press when the floods hit Queensland. They are very similar in that they are events that will cause significant damage and everyone knows that they will happen on a "regular" basis (i.e. 1 in a hundred years or similar).
Without EQC, people that have insurance cover would be experiencing the same as those affected by floods in Queensland. A large proportion have since discovered that their insurance policy didn't cover flooding or have lawyers for the insurers arguing that they didn't insure that type of flood event in the fine print.
Another concern if this was put into private insurers hands is what happens when there is mismanagement of funds and an insurer collapses, the money disappears, never to be seen again.
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