Replenishing EQC would be funded by homeowners through insurance policies, as all taxpayers are already paying quake costs, English says

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.”