ICNZ, NZIER argue Fire Service Levy an unfair burden on insurers, say Fire Service should instead be funded by local government levy on property

The Insurance Council of New Zealand (ICNZ) is pushing for change to the way the Fire Service is funded, arguing the existing Fire Service Levy unfairly places the burden on insurers rather than the Government for the provision of a public good.

ICNZ, the lobby group for insurers, commissioned the New Zealand Institute of Economic Research (NZIER) to identify alternatives to the existing levy on insurance to fund the New Zealand Fire Service. The levy is applied at 7.6 cents per $100 of premiums on insured property.

"Not only is the levy unfair, it is also an inefficient means of tax collection with the burden of collection placed unfairly on insurers and not the government. Efficient taxes that fund public good services should have a low cost to collect and should ensure as broad a base as possible pays the tax. The fire service levy fails on both counts," ICNZ says.

Instead, New Zealand should "seize the opportunity" to adopt international best practise that's fair and efficient, and provides sustainable funding for the Fire Service. ICNZ says options include a levy collected on property by local councils via rates.

"This would be very difficult for property owners to avoid or minimise their payments to fund the Fire Service.This ensures all property owners pay their fair share and it is a collection system that is already in place and works well. It would also be far simpler and a low cost system to administer with the levy set as a flat rate providing predictability for the year ahead. Local authorities should be paid for collecting this on behalf of the Government," ICNZ says.

It also suggests the Government could provide a grant for work carried out by the Fire Service such as in civil emergencies. Furthermore, the Fire Service Levy applied to motor vehicles should be shifted to car registration to cover "the true cost" of Fire Service attendance at accidents where the sole focus is to save life. 

"The significant drop in ACC costs applied to motor vehicle registration next year provides the right opportunity to make this change at that time." ICNZ says.

In its summary report NZIER notes the first New Zealand fire brigades were formed by insurance companies to reduce their exposure to risk. However, over time the insurance industry role was phased out as first local government, and then central government in 1976, took on responsibility for the provision and funding of urban fire services.

"The Fire Services Levy in its current form was introduced as a 'temporary fix' in 1993. A number of factors have contributed to the breakdown of the historical link between fire insurance and fire services, including the change in scope of fire services to include a full range of non-fire emergency services and the increased focus of fire-fighters on preservation of life rather than preservation of property," NZIER says.

Australian states are moving from insurance-based levies to property-based levies to fund their fire and emergency services.

Tax funding the best option

NZIER says its analysis suggests the best option for New Zealand is having the Fire Service funded entirely from general taxation. The next best option is to apply a mixed model that includes some general taxation combined with levies on rateable values of property.

"As a second best we recommend a mixed funding model. This would involve a move from a fire insurance base to a property base (for commercial buildings and household dwellings) with levies collected through local authority rates, and to an equivalent base for light motor vehicles with levies collected through vehicle registration, including: flat fees on domestic property collected through rates, variable levies on the full rateable value of commercial property collected through rates, a flat levy on light motor vehicles collected as part of motor vehicle registration, an increasing share of public funding provided over time to cover non-fire and non-vehicle related emergency services, the Crown share of costs for the protection of state property, and other commercial property," says NZIER.

It says changes could be phased in over time.

ICNZ argues the Fire Service Levy provides incentives for commercial organisations to minimise payments. And the levy doesn't give the Fire Service a predictable and sustainable source of income. 

"Internationally, the levy is out of step with best practise and should be changed," says ICNZ.

"The Fire Service provides a public good - it does not discriminate who it responds to. Those who under-insure, do not insure or legitimately minimise their levy payments receive fire services regardless. About one in 20 motorists do not insure their vehicles and almost one in five don’t insure the contents of their house."

"The Fire Service’s prime focus in a fire is to save life not property.  These days most of the Fire Service’s activities are directed to other emergency responses, not putting out fires. This means that despite being called a ‘Fire’ Service, the flimsy rationale for linking the Fire Service Levy to insurance premiums on property is more remote now than it ever has been," ICNZ adds.

See ICNZ's statement here, and NZIER's summary report is here.