The cost of rebuilding the EQC's disaster fund is likely to be borne by homeowners through levies paid on their insurance policies, according to Finance Minister Bill English.
The NZ$6 billion fund will be wiped out following new estimates from EQC showing it faced NZ$7.1 billion in costs from the Christchurch earthquakes. The blowout means the government would have to step in to cover the extra NZ$1 billion or so in costs above the fund's value.
The EQC fund covered insured homeowners for up to NZ$100,000 (plus GST) for their property and another NZ$20,000 for contents in the event of a natural disaster damaging their home. It was funded through a NZ$60 levy paid by homeowners when they took out fire insurance policies, with the levy now expected to at least triple following the quakes due to the costs faced by EQC.
The NZ$7.1 billion cost to EQC announced last Tuesday meant the government was now facing an estimated NZ$12.9 billion bill from the earthquakes, taking into account its NZ$5.5 billion set aside in Budget 2011 for quake-related costs, and extra costs from the likes of ACC, English said last week.
That was before a High Court ruling that the EQC would be liable to pay thousands more claims, which in a worst-case scenario could cost up to NZ$1 billion.
In Question Time in Parliament today, Green Party co-leader Russel Norman asked English whether the government would reconsider the Green Party's proposal for a special 'earthquake levy' to be placed on income earners earning more than NZ$48,000 a year, following the EQC cost blowout and the High Court ruling.
“Does he recall telling this House on June 16 this year that, had the costs of the earthquake been larger, raising an earthquake levy is something he could have looked at, and now given that the costs are in the order of NZ$13 [billion] or possibly NZ$14 billion will he now look at it?” Norman asked English in Question Time.
English ruled out an additional tax on incomes, but said EQC levy hikes were likely.
“The government made the decision, which it stands by, that an increase in taxes at the time of a significant earthquake and a recession would not have been helpful for the economy,” English said.
The government was facing two layers of costs from the earthquakes, English said.
“One [cost] is the general government contribution, for instance, to the purchase of homes in the red-zone, and those are over and above any insurance claims and those are being financed by borrowing, because that spreads the cost across all taxpayers," English said in relation to the NZ$5.5 billion fund.
“The insurance-related costs, which are the ones that are now looking significantly larger, have always been financed by the EQC levy, and it’s of course possible in the future that those levies would increase, because I think any increase in insurance costs should fall on those who benefit from it, and that is the insured party,” he said.
English said liability for the earthquakes cost fell into two camps: one for taxpayers generally; and another for homeowners with insurance.
“The general contribution of government to the earthquake recovery is funded through debt – that cost is therefore spread across all New Zealanders. But costs related to insurance, in the government’s view, should fall on those who are insured," he said.
“Now that the EQC fund is likely to be cleaned out, then of course it’s quite possible EQC levies will be considerable higher, and those would be borne by home owners.”
5 Comments
Nick, the reasoning is that in other earthquake-prone places where earthquake insurance is left entirely to the market, it's difficult to obtain and expensive, with the result that many people don't have any insurance at all against earthquake damage - eg California.
Market purists would say, then they will have to live with the consequences if an earthquake strikes. But the political reality is that it would be extraordinarily difficult for the Government in practice to stand by and say tough, you should have done and paid whatever you had to to get insurance cover.
And if the Government's going to have to pay anyway, it might as well collect the premiums so as to be sure it has the money.
Not to say that EQC's perfect, but it would be difficult to point to evidence that we'd have been better off without it under the circumstances.
Nick I think Janine Stark touched on this some time ago, EQC acutally only have to pay out for the smallest sq M' under the zoning plan in that area. What Government has come in and done is pay GV for the whole section, and GV for the whole house. Some houses may not be insured for full replacement, so when they go to the insurance companeis to claim back they may find themsleves with a large diference in what they have paid out, and what they will be able to receive back.
Also as they classed the two main quakes as seperate events, EQC have to pay out the first $240K, (100 house 20 contents) if the house was damaged in both, which a large number were, so the insurance companies will only cover over this amnt.
But one thing for sure, $60 a year will be no more.
Regarding EQC liability for land you are partially correct, but note if they write the land off (i.e.deem it irrepairable) they pay according to the area you state (less an excess) at MARKET VALUE. For some this would work out better than RV for the land, e.g. our neighbour who has a townhouse on a cross-lease.
LVs, as part of an RV, are a very poor approximation of pre-quake market value. Allthough Capital Values may have generally declined a bit since Aug 2007, I am unconvinced that LVs have done the same in Chch over that time, and also the LVs on Rating Valuations done in 2007 were all over the place. My attitude is, if the Crown is going to (forcibly) take your land, they should pay market value for it, and I don't mean post-quake market value. If they are not prepared to do this, residents should have the right to stay put. And if anyone out there believes the Crown won't forcibly acquire properties in the Red Zones, I am happy to forward emails from CERA that point very strongly to this happening to those who pass on the Government offers. Like the mafia's "offers one can't refuse", these "agreements" are being formed under duress.
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