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.