NZ Fire and Emergency proposes 13% levy hike to cover shortfall

Fire and Emergency New Zealand has proposed a 12.8% increase in the levy on insurance policies to cover a funding shortfall caused by salary increases flowing from a collective wages agreement with firefighters.

“We have previously considered whether expenditure reductions could be used to meet the costs of settlement, cover the funding shortfall and maintain cash reserves, however, we do not consider this to be realistic,” a consultation paper on the levy increase says.

Reducing capital expenditure would require cuts of at least $NZ48.8 million ($45.3 million) each year, which represents 55% of the annual capital program, it says.

Fire and Emergency proposes the levy increase would apply for two financial years starting July 1 2024. The levy is currently operating under transitional arrangements ahead of a new system and further adjustments that will take effect in July 2026.

Insurance Council of New Zealand (ICNZ) CEO Tim Grafton says on LinkedIn that Fire and Emergency “sneaked out” the levy consultation on the eve of Easter, and that during a holiday period it had provided just 14 business days for submissions.

“Wonder how hard they have looked to make efficiency gains,” he says. “We’ll be asking questions like this.”

Fire and Emergency says the Government has acknowledged the funding issue and will provide a $NZ75.4 million ($70 million) loan to be repaid over ten years.

The loan ensures short-term funding, but Fire and Emergency says it still needs additional money to repay the Government and meet projected deficits, and deferring levy increases would mean requiring another loan and lead to future issues.

“The recommended approach is therefore one of increasing the transitional levy now to smooth out the impacts across the years and ensure minimum cash reserves are maintained,” it says.

Levies on property and motor vehicle insurance provide 97% of Fire and Emergency’s revenue. It also receives a $NZ10 million ($9.3 million) Crown contribution towards the public good component of services provided.

Fire and Emergency in December reached a wages settlement with the New Zealand Professional Firefighters Union and says the increases will also have a flow-on effect across other staff.

The settlement includes provisions to jointly consider issues of concern, such as fleet, equipment, and frontline staffing levels, and these will all result in increased costs that can’t be met within existing funding levels, the consultation paper says.

Before the settlement, Fire and Emergency expected small financial surpluses through to 2026/27. Following the deal, it has flagged deficits across the five-year period, including a net deficit of $NZ40.1 million ($37.2 million) next financial year and $NZ53.3 million ($49.5 million) in fiscal 2025.

Submissions on the proposed levy increase close on May 2. Details are available here.