Compulsory Earthquake Commission levy to treble from February in move to rebuild National Disaster Fund after Christchurch quakes

Compulsory Earthquake Commission levy to treble from February in move to rebuild National Disaster Fund after Christchurch quakes

The compulsory Earthquake Commission levy is to treble to 15 cents per NZ$100 of insured value from February next year, as the first step in a 30 year plan to rebuild the National Disaster Fund, which was wiped out by the Canterbury earthquakes.

Finance Minister Bill English announced the change this morning at a media lock-up for release of the Crown accounts to June 30, which showed a massive blow-out in the Budget deficit as a result of costs that the government is bearing because of the quakes.

The increase is estimated to cost the average insured homeowner some NZ$137.80 a year, or NZ$2.65 a week, with the cap on total EQC charges rising from NZ$69 a year to NZ$207 a year.

The move will also immediately reduce the up-front cash shortfall to the government from earthquake costs from NZ$1.2 billion to NZ$490 million.

The cash shortfall had previously been estimated at NZ$500 million, but a High Court decision requiring the EQC to make payments on multiple disasters in one year had increased that sum by an estimated NZ$380 million. An allowance for future non-Canterbury claims had also added NZ$330 million, which had not previously been calculated, said English.

The impact of this immediate change will be visible when the Pre-election Fiscal Update is released on Oct. 25, as required by the Fiscal Responsibility Act.

The EQC Natural Disaster Fund cannot fail, even if it has insufficient funds, because it is guaranteed by the government, but the NZ$6 billion collected in the fund was more than wiped out by total claims estimated at NZ$11.7 billion.

While reinsurance payments of NZ$4.2 billion and earnings in the EQC fund reduced the gap between claims and the size of the fund, some NZ$1.1 billion of insurance costs remain unfunded.

English said the new levies were fair because insured homeowners gained the benefit of EQC cover and should not be subsidised by non-home-owning taxpayers.

The Green Party has advocated a temporary quake levy to meet the extraordinary costs of the quakes. They would enable EQC to “rebuild the National Disaster Fund to its pre-earthquake level of NZ$6 billion in about 30 years” and would also allow the EQC to cover its running costs, which have normally been subsidised out of the fund’s earnings.

However, the levy increase is not the last word on future preparation for earthquakes, with English due to take a paper to Cabinet for a complete review of the EQC in coming months, with the exact timing depending on “getting more issues resolved on the ground in Canterbury,” English said.

'No more hikes until review complete'

Speaking to media in Parliament later on Tuesday, English said the increase in the EQC levy was an interim step, with the government needing to reflect EQC’s higher operating costs, including higher reinsurance costs. There would be no further change in the levy until the government had undertaken a full review of EQC, which could be a year or two away before being finalised.

“We’ve got to pick up the short-fall in the natural disaster fund and get on with rebuilding that fund,” English said.

The cost of recapitalising the fund should fall on homeowners, who were the beneficiaries of it, he said.

“It’s a relatively small increase per week, but this is just part of the wider community sharing the ongoing costs of the earthquake. So it will put a bit more pressure particularly on some homeowners who are fully stretched on servicing their mortgages, but we think in the circumstances, in order to sure up the EQC’s finances, it’s an extra bit that households will be able to handle.”

The government needed to review the EQC model following the pressure from the Christchurch disaster. The top priority was clarifying EQC’s current coverage so that insurers and homeowners got a fair deal from the legislation.

“We’re spending a lot of time trying to make sure right now that the current legislation is fully understood," English said.

Asked about the aim to get the fund back to NZ$6 billion in 30 years time, given inflation over that period would eat into that sum, English said the government would have choices over time on what to do with the fund. But the review would have to take place first.

“It’s a unique scheme internationally, we’re learning a lot from how it applies in Christchurch, and we want the benefit of that experience to be applied to the future structure of it,” he said.

The current legislation had some uncertainties and anomalies in it which needed to be dealt with, English said.

“It doesn’t cover everything – that’s illustrated by the fact the government is effectively topping up the insurance coverage with hundreds of millions of taxpayers’ dollars. Those are all issues that we would take into account in the future. But what that would look like, I wouldn’t want to pre-judge,” he said.

(Updates with video, comments from press conference, additional reporting by Alex Tarrant)

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17 Comments

income tax rates down,gst up,EQC up, wages up ? - nup

This makes a mockery of every government/planning document which states we are following a path towards "resilience" and "sustainability" in relation to our built environment.

If we were, each individual property would be separately risk assessed for flood and earthquake hazard - and levies/premiums would be based on that risk assessment.

Individual behaviours/preferences would then change over time.  Construction technique for houses would alter, the geographic citing preferences of development would alter, subdivision design criteria would alter, and so on.  A flat rate EQC levy does nothing - absolutely nothing - to improve or strengthen our hazard resilience.  In fact quite the opposite, it encourages us to repeat our mistakes over and over.

 

 

 

Spot on Kate - no deterrent to folk building on the edge of cliffs, on reclaimed marsh or hell, even on an erupting volcano. Just socialise the losses when these idiot decisions then get destroyed by plate techtonics.

The need to intervene in terms of flood control would diminish over time as well.  And greater use of rain collection and greywater recycling would become built in to subdivision design and existing property upgrades to mitigate flood/stormwater runoff risk etc.

Take Auckland's stormwater problem for example;

http://www.nzherald.co.nz/politics/news/article.cfm?c_id=280&objectid=10754846 

The blow out in terms of EQC flood payouts will only get worse and worse as we delay necessary infrastructure upgrade to maintain present mitigation standards.

It's time to assess risk properly and start dealing with the realities of our deteriorating economic situation.

Kate,

As it is set up now, the responsibility of individual risk assessment is passed onto the private insurance company. If EQC were to do as you suggest, it would be duplication of the risk assessment process.

The private sector risk assessment I would assume includes a metric that acknowledges EQCs liability for structural damage to the present cap ($100,000 I think?) - and so it would follow that actual hazard risk is not properly reflected in private insurance cover pricing. 

 

 

The most well developed and sophisicated risk assessment tools and systems that exist do not reside with governments.  Pricing for risk includes all relevant metrics, including the EQC metric and without prejudice or political constraint.

If you accept the premise that EQC (government) interference in the market place has resulted in mispriced risk it is hard to see how that creates any conclusion for more government interference.  Quite the reverse.

There are some daft things going on.  I know of someone with a house that has been damaged.  It's going to be repaired by first removing all the brick cladding, then lifting the house, fixing the foundation, putting the house down again, then re-cladding it in brick.  My suggestion was that the owner might consider re-cladding in something other than brick - perhaps something a little more earthquake resilient.  Alas, no, it turns out that if there are bricks on the house now, then they must (according to policy written somewhere, by, someome who hasn't really thought about it too much) put bricks on there as the repair.

I would have thought surely you would have the option of a cheaper non-brick alternative that's still permanent, or, if you want to contribute some $$$, a pricier non-brick.

 

Why do we need an EQC at all? Surely, the system put in place in the past has been shown to be flawed in the current circumstances? Leave all insurance of private and public property up to the commercial insurance market. That will see properties/infrastructure etc. rated on a more individual basis and the risk/reward of building  versus whatever insurance is available will determine the building outcome .If it turns out some, or all, of New Zealand is 'uninsurable', then I don't see it as the Governments place to step into the breach. Property prices will adjust to reflect that eventuality.

I would agree. 

The government needs that $6 billion as an asset on its books.

Interest-free student loans are shown as an asset too . Even though we all know that much of it will never be paid back . They ought to be on the liabilties side of the ledger , as the tax-payer is on the hook for the interest payments that the government must pay to the banks , who loan the money to them .

.... if a bank or any other company mis-represented it's balance sheet in this way the directors would be charged with fraud ....... well not in NZ , of course ... but in any country whose judicial system wasn't a complete farce .

National ...... Labour ......who to vote for in November ? ..   kiwis are totally screwed ! ..... the only option left is the " hail Mary " throw , everyone vote Greens ! .... yup , you read that right . Everyone boycott both National & Labour , and head holus-bolus into a Greens government .

.... there is no other way to teach National & Labour a long overdue lesson .

Loans are still recorded as assets on balance sheets - even if they are impaired or written down.

Borrowings are in point of fact (and correctly) listed on the liability side of the ledger:

http://www.treasury.govt.nz/downloads/pdfs/fsgnz-11mths-may11.pdf

 

These account treatments would not alter if you elected a Green party government.

Agree GBH, vote for parties other than Labour or National i.e. avoid supporting those who are jointly responsible for our culture of entitlement and relentless incompetence.

It will never get back up there - or anywhere near there.  Events are not only increasing in frequency but in cost/magnitude as well given both inflation and increasing resource scarcity (including labour scarcity as our general population ages).

Put simply, the government can't afford to rebuild after a major catostrophic event in hazard prone areas, and the private sector won't be willing to.

 

 

 

 

 

Interesting isn't it , that the cap on the new EQC levy rises to just 50 % above what the average householder pays . If EQC had insufficient funds in the past , it appears to me that the average Kiwi homeowner has been paying more than their " fair share " ..... and that Bill English's rich mates have been subsidised by the less wealthy homeowners ..

.... business as usual at NZ Inc .

Scrap the stoopid EQC !

 

The Eathquake component is only part of the bill....my current EQC costs for instance are about $5 a month, so they will go to $15,......hardly a killer rise.....part of the cost of living in a an earthquake prone country.....Of course the re-insurance EQ part will rise more....that looks like $10~$15 more a month...so my present monthly bill of about $30ish gets to $50....

I would assume most "poor" ppl wont be in homes that need $1000 in insurance...I have a pretty std sized 3bedroom house  and its < half that right now and im not "poor"....these rises will take it to about 2/3rds....noticable....but not significant.

Also many poor ppl are going to be renting so they wont be paying EQC levy directly......

Far more likely that they are (already) skipping on car insurance....

regards