Fire and Emergency New Zealand Bill

I will just quickly recap, because it has been a week, or 2 weeks. This is addressing Part 3, clauses 69 to 72, and perhaps beyond. This bill introduces a new insurance levy payment system, which will fund the new Fire and Emergency New Zealand, so this is a pretty important part of the bill. I was acknowledging, and Labour acknowledges, the concerns raised by significant stakeholders about that new levy system and the impact it would have on them.

Serious concerns were raised by museums throughout the country. I think I was focusing on the Otago Museum, which gave quite a powerful submission.

💬 Hon Ruth Dyson: Why is that? Why would you be doing that?

Because it is one of the best—if not the best—museums in the country. I am not just being parochial here, for a minute. The key point that it made in its submission was that if this bill remained in the form that went to the select committee, its levy would increase by 300 percent. With its insurance costs already at 3 to 6 percent of operating expenditure, such an increase would have a significant impact on the overall operations of the museum. I do not think we should just look at the Otago Museum; we should also consider other museums and what the other museums said. Museums Aotearoa also appeared before the select committee. One of its comments was that an increased levy was likely to impose significant financial hardship generally on museums and galleries, which would need to be passed on to the communities of support. This provided an incentive to declare a low value and could lead to underinsurance. That is a really significant phrase, really, for us to consider as a country about our cultural heritage. It would also make the option of no insurance or self-insurance more tempting, especially in the case of volunteer organisations.

There are many more things I could point out about these submissions, but, thankfully, the select committee did take this seriously. There were amending clauses and there was an acknowledgment of concerns about the levy. I do have a question for the Minister, so I will get to it as quickly as possible. The committee said: “We were aware of concerns about the levy being broadened to cover insurance on physical loss or damage.” Those concerns included the relationship between FENZ services and the types of risk covered, the levy payable and resulting costs, and disproportionate increases in levy costs relative to risks. “Under the bill, the levy cost based on a fully insured collection could increase substantially. The increased cost of the levy would seem disproportionate to some policyholders’ need to call on FENZ services, their potential to benefit from the services, or their ability to fund the higher cost. It has suggested that the levy could be waived or capped in the case of public gallery or museum collections, but could apply to their buildings or other property. We would like to see consideration given to this approach in the regulations proposed to be developed under this legislation.” Then it noted under clause 106 of the bill, which is in Part 3, “for FENZ to publicly consult on the making of levy exemptions, and we consider that this would facilitate better public understanding of the potential benefits and consequences of the new levy regime.”

I have a question for the Minister. On 29 March the Minister released a media release on the levy rates for fire and emergency services. He was talking about the public consultation that had been undertaken in November 2016. He used a phrase, and then he announced a range of levy rates that would come into effect from 1 July this year. He said: “Some commercial and public entities will face larger increases, though the new legislation will allow for certain measures to address affordability and fairness concerns that were raised during the consultation process.” I just want to know what that means. It sort of feels like code for something.

I also note that I have seen a questionnaire that was sent to various entities, museum collections, and heritage buildings regarding the levy payments and asking their views on how that should work. They were asked whether they preferred a formula-based approach or a “by agreement” approach to determine the amount of relief for individual policyholders. The response that I have seen here—and I understand that that reflects a number of responses by entities—was that they preferred a “by agreement” approach. I guess I am asking the Minister what that phrase meant, how he sees that playing out, and is this comfort for the museum collections around the country that they are not going to be forced into a situation in which they underinsure or not insure at all as a result of this legislation? I know that they seem to think that the committee has listened to them. The commentary on this bill seems to reflect that, but it still seems a little bit insubstantial in terms of what that actually means. I hope the Minister can clear that up for us tonight.

I rise on behalf of New Zealand First to speak to Part 3 of the proposed Fire and Emergency New Zealand Bill being rushed through at some pace to make sure that it is implemented by 1 July this year. It gives me a certain amount of pride, if you like, to be part of the only party that is actually opposing it. I have to say it is a bit of a surprise, particularly because after 17 reviews in 24 years, that this is the best that we can actually come up with as a Government to make changes to what is very widely considered outdated, clunky, and not fit for purpose legislation. The amalgamation of the fire and emergency rural volunteers and urban fire service is one thing, but the funding model that was implemented in 1993 to implement a levy charge was only ever introduced as a temporary measure. Yet here we are now in 2017, and where the world has moved away from levy charges, we have put levy charges in on steroids. I can see the Minister checking to see whether it was actually implemented in 1993. It looks like he is getting the nod of approval; it was, in fact, 1993.

The first of a number of questions we have for the Minister asks what consideration the Minister and the department have actually given to the 96 percent of submissions that have come out strongly opposing this levy the way it has been proposed in this bill. Question No. 2 asks what other funding models were actually considered, as opposed to a levy on the Fire Service, other than collecting a levy on insurers themselves. Question 3 asks why the Minister did not opt out for funding from the general fund, as strongly proposed by a number of those submissions, because that makes more sense than what is actually being proposed currently.

The Fire Service plays an incredibly important role in our communities for the volunteer sectors and for the goodwill that it does but, as part of this bill, as I turn to page 60 and clause 75, it is now intended that the Fire Service will be a collection agency. If it is a collection agency that is trying to collect money from people, and resources are being taken away from the operation that it is designed to do for public service and public good—to put out fires, to go to car crashes, and to attend emergencies—why is it now being imposed upon to collect funds? We have a department called Inland Revenue to collect funds. Why are we not putting the ownership of collection into the organisation that has been set up purely to collect those funds? It does not make any sense that we are putting a charge on to a public good organisation to collect those funds. If time, money, and resource have to be put into collecting funds from some of those people and they do not pay up, what is its alternative? Will it not give the service? It does not make sense to make the Fire Service a collection agency for those people who refuse to pay those levies. That is point No. 1.

The major point is: how is charging a levy, unrestricted on certain sectors—and I am talking about the commercial sector—going to be a fair and equitable approach when it comes to funding the Fire Service model? There are clearly a number of areas within our communities and society that will not be paying insurance and will underfund themselves for insurance for the purposes of negating, or minimising, their input of costs to the fire levy department. Where does that leave the Fire Service if you have got situations where buildings are underfunded? How is the Minister justifying a fire levy, uncapped for the commercial sector, for an example, that is going to benefit the service and the businesses themselves?

In Part 3, clause 69, the purpose of this part is (a) “a stable source of funding”. If you are expecting people to pay a levy, and call that stable in so far as they will be doing everything that they possibly can to minimise the payments that they have, then surely that would create some instability with the very thing that they are trying to achieve in clause 69(a): “a stable source of funding to support FENZ”. That undermines the very first statement. In 69(b), the “universal, so that FENZ’s costs are generally shared among all”, but we know there are a number of people who will use the services of the Fire Service, and, particularly—I mean, we have seen it right now in Edgecumbe, where the Fire Service is still pumping out water, looking after the streets. Who is paying for its services? What happens when we have a weather system come through and we have got trees that fall on to power lines and, of course, we have got to send in the Fire Service to sort it out? We have got people who need to be picked up and put in the back of ambulances who are over 150 kilograms. Of course, we call the Fire Service. Who is paying for that? This absolutely undermines the universal approach that they are trying to create.

Of course, in clause 69(c) we talk about equitability, “so that policyholders should generally pay a levy at a level commensurate with their use of” the service. Part 3 also goes on to talk about predictability, and in paragraph (d) of clause 69 it says “so that policyholders and levy payers are able to predict the amounts that they will need to pay” to Fire and Emergency New Zealand (FENZ). With the property prices skyrocketing at the moment, those property prices are going through the roof, and insurances uncapped in the commercial sector will obviously follow the same suit and will be expected to be passed on without any cap.

If you look at the funding model, which is completely flawed in this, it comes back to why we are not funding out of the general pool. Why are we going down this levy, user-pays—some users pay, because not all users will pay, of course—way of thinking? If you look at the commercial sector that will pay over half of the entire amount that will be collected, with a 40 percent increase in the total income coming in from the levy service, this does not make any sense, and we are very stunned to be the only party that is strongly opposing this. Many of the parties are generally, and genuinely, giving lip service to a policy that is absolutely flawed.

We at New Zealand First were very excited at the prospect of an overhaul of the Fire Service in New Zealand, and we are extremely disappointed in a number of aspects of this bill—these are just two that we have pointed out. In recap, if we could get some questions answered in regard to the amount of effort and energy that the Minister of Internal Affairs gave to the submitters, with their strong opposition to this funding model—that is point No. 1; what other funding models were considered, and why the general fund for the funding of this Fire Service was not put as a priority, because it does not look like it ever was, in any readings that we have done; and why the Minister did not opt for that fund as a priority for this. If we could get some answers on that and give some clarity to New Zealanders who are paying close attention to this bill, then that might actually allay some of our fears. However, where it sits at the moment, we are very concerned as this moves through the House. We are very concerned that it is being fully supported by all parties in this House, except for New Zealand First, and unless something can change drastically, we would have some opposition to it.

We have put a Supplementary Order Paper in to make some amendments. With this going through, we hope that they get some support. They are very minor and slightly technical, but they will make a difference to some of those people who are captured in this levy service. This is in particular to Supplementary Order Paper 265 and clause 70, and it is talking about removing the liability insurance, the bailee insurance, and the contract of travel insurance. In the event that you get some travel insurance and you are going off overseas, the only very small window in which you may require the Fire Service is while catching a taxi from your house to the airport, because the rest of the time your travel insurance is covering you while you are overseas. To be paying the levy in that period does not make any sense; neither does it make sense with the bailee insurance or with the liability insurance. We would hope that that would get the support in the Committee to go through. Thank you.

I want to take this opportunity, while the Minister of Internal Affairs is in the chair, to ask a few questions around an element of the bill that has, essentially, been left via the proposed Act between consultation between the Minister and those affected by the transitional levy. In particular, I will be coming at these questions from the perspective of those who are in the museum or the gallery space, who have made strong representations around elements of this legislation, and for good reason. I am sure that there has been, to a certain degree, a shared view across this House around not wishing to unduly impact on those bodies, but, to a certain extent, once this legislation is passed we lose the ability to have oversight over some of those elements of the legislation, because it will be left to a consultation process.

So I want to take this opportunity to ask some questions of the Minister, because I know organisations have been asked around, for instance, who should qualify for transitional levy relief and what kind of formula should apply to them. The question I want to ask is: will there be a discretionary element to the formula that has been proposed for the transitional levy? If so, will we use that opportunity to take into account whether the insured party is a public or private entity, or, rather, whether or not those entities’ sources of funding are public sources of funding? Will we be using that formula to differentiate between those entities that might, for instance, receive council or Government funding—because, otherwise, we may be creating a money-go-round of sorts in dealing with those organisations.

The other question I have is whether or not the qualification for relief will be the very high threshold that has been set out in the consultation that has gone out, because, if so, who are we actually intending would be covered by that, given how high the threshold is?

My next question is: if there is some discretion in the way that the formula will be applied, would a publicly funded entity that may be captured by this levy be able to have the ability to catch up in its public funding in order to cover the cost of the levy? The reason I ask that is that if you take an organisation like, for instance, the Museum of Transport and Technology (MOTAT), its funding formula means that it might be hit with a levy before it is even able to make application for its public funding to catch up with the cost of that levy. Will that be built into the application—or the timing, at least, of the way that levy will apply to it? Better yet, could we actually just factor in that it is a publicly funded organisation and apply the rules differently to it? A strong sense I get from those organisations that will be in a similar boat to MOTAT is whether or not we could focus on a by-agreement approach rather than a much more strict formulaic approach.

I would also like to hear from the Minister whether or not he is considering the exemption of publicly funded buildings of national significance more generally, or heritage buildings more generally, as well. I know museum collections have been discussed.

Those are some of the questions that I wanted to ask. We do already have transparency, and I thank the Minister for that, around levy rates for house and contents and car insurance, but for commercial and public entities that are facing larger increases, we still do not have enough certainty, necessarily, around them. I would really like to take this opportunity to put those questions to the Minister, because I know he has approached this absolutely with good faith, as have the organisations that have come before the select committee, but they are in a period of flux at the moment. It would be good to use this opportunity.

In Part 3, about the levy, I thought I would start off by just commenting on some of the other contributions if I can. It is my understanding that we have got to the point of having a system of levies because Cabinet made a decision around what, I understand, was advice that it should come out of general taxation funding, and that that was not an option. So they landed on having a system of levies.

I want to refer to the submission made by the Insurance Council of New Zealand. It had a number of concerns. In particular it had concerns around the complexities of collecting this levy. It had issues around the compliance costs to the insurer. The council had issues around the fact that, in its view, Fire and Emergency New Zealand lacked independence and is potentially conflicted because it is responsible for the collection of the levy and then it is spending the levy. It would be like a Government department collecting its own taxation so it can spend it directly. Of course, we do not allow that to happen. I felt the issues that the insurance companies and the Insurance Council of New Zealand raised on behalf of its members were valid arguments. So I think it is important for me to express in this debate what their point of view was.

I also reflect upon the many submissions that were made by museums in particular, and my colleagues have already expressed that. I wanted to draw that further and include also a group that we did not get submissions from, and that is marae. A lot of marae have within them valuable taonga, and they have valuable carvings—irreplaceable carvings. So if a museum had to pay a levy based on the value of its collection, a marae, in the same way, would have to pay a levy based on the valuation of its contents. I would also bring in Churches as well. I think there are a number of areas that we probably did not explore widely enough through the select committee process.

I give credit to museums that throughout the country put forward their point of view around the impact high levies would have on their ability to provide the service that they provide. They made some, I thought, compelling arguments, saying things like: “Well, it costs the same amount of money to put out a painting that is on fire that has a multimillion-dollar value as it does for one that is of lesser value.” How do you reconcile that? So we were pleased that there is within the bill a regime of exemptions. I think that there will be some nervousness out there around whether those particular museums and others like them, as I have already stated—

I feel I should take this opportunity to respond to a number of the questions that have been raised. Some are of considerably more substance and knowledge than others, but I will endeavour to cover the full sweep.

My starting point is to go back to the fact that the Fire Service, as currently constituted, has been funded by an insurance levy for time immemorial. When we took the proposals before Cabinet a couple of years ago I actually put three options to Cabinet at that stage: one was to continue with the current system, one was to shift it to local body rates, and the other was general taxation. Cabinet chose to stick with the status quo. I would just say that, given that the levy that we foreshadowed a couple of weeks ago will raise about $534 million, it would be a very brave Government of any stripe that would say: “We are going to take another $534 million on to the taxpayer’s direct account to fund fire and emergency services.” I welcome anyone running that political argument.

Starting from there and bearing in mind also that a couple of years ago there was a Supreme Court decision about levy avoidance and evasion and the need for some clarification in the legislation, the construction of the provisions that are contained in Part 3 started to take shape. Over the period, both through the select committee process and through the process leading to the setting of the levy for 2017-18, there has been a substantial range of consultation, and that will continue. We have worked closely with the Insurance Council even though we have a disagreement on the policy principle, but we have worked closely with it regarding the implementation.

The messages that members have raised regarding the museums and galleries sector and other entities that face a substantial increase in levy payments—we are working our way through. There will be a further round of consultation when it comes to setting the levy rate beyond 2017-18. I am sure members would understand that it is not really appropriate for me tonight to go into details about what might happen while we are still working our way through a process. I do not want to give institutions unfair or false hope that somehow all this is going to be resolved for them. Because the other side of the question is that we are changing the nature of the funding arrangement. At the moment the fire service levy funds fire. This is shifting the whole basis of the funding of the operation to funding material loss, because it is a fire and emergency service. So the breadth of cover is increasing, and we need to work our way very carefully through that.

Can I simply say that the suggestion that Fire and Emergency New Zealand will be turned into a collection agency is blatantly wrong. The levy system sees the levy collected by the insurance companies and that will continue.

Can I also say with regard to Mr Clayton Mitchell’s amendment, Supplementary Order Paper (SOP) 265, that there is actually no need for this amendment, because if a contract of insurance of the type that his SOP describes does not insure property then it will not be subject to a levy, therefore no exemption will be necessary. In fact, the situation that he described is dealt with through clause 104 of the bill, where types of insurance can be exempted through regulation if that is deemed to be appropriate. So SOP 265 is unnecessary because the provision is already contained in clause 104 of the bill.

Can I indicate again to the Committee that this is a process where we are listening very carefully. We are funding a new service. We are trying to fund it as equitably as possible. I heard a suggestion earlier on with regard to the civil emergency currently occurring in the Bay of Plenty that a number of people were getting assistance that they might not be otherwise entitled to. I doubt there would be any member in this Chamber who would really be prepared to go out there and say—because effectively what was being argued was that we need to have a user-pays fire and emergency service. It works on a universal basis and that has been the principle ever since fire services were established in New Zealand on a metropolitan basis back in the 1880s, and it will continue to be the principle into the future.

Can I just conclude by saying that we are cognisant of the issues that have been raised. We are working our way through them. But because this is a broader service, in terms of its coverage, than is currently the case, there will be some increases. We are seeking to mitigate the impact of those to the greatest extent possible, while ensuring that we provide the range of coverage that is going to be needed.

I just wanted a chance to reply to the Minister’s comments with regard to some of the questions that have been outlined today, and, really, the lack of an assurance that we have just been given in terms of a reason for, or even an answer to, some of the questions that have been asked by Adrian Rurawhe and by New Zealand First.

The fact that the Minister has just said that the levy for the Fire Service is collected on a universal basis, as opposed to user-pays, does not stack up, because the funding is being collected as a user-pays service. The fact is that if you are getting insurance, and that money that you are going to be paying as a levy, as part of that insurance, is going towards funding the operation, then that is clearly supporting the user-pays service. To suggest that the insurance companies themselves will be collecting on behalf of the Fire Service—and yet in clause 75 it is being set up primarily to make sure that those people within the Fire Service are making sure that money is coming in. It means they are creating a new tranche, a new branch, within the Fire Service to collect those funds and make sure those funds are paid.

There is no credible answer that the Minister has given us that gives New Zealand First any comfort, moving forward with this bill. The fact that he talks about clause 104, which would somehow exempt our Supplementary Order Paper 265 (SOP) from being implemented, does not stack up either. In fact there have been a number of media examples of this, and I can probably pull something out—a rabbit out of a hat, as it is sometimes referred to. Last week the New Zealand Herald stated: “Anyone with insurance may end up paying more tax to help fund New Zealand’s emergency services, including people paying for travel insurance, despite there being no direct benefit, an insurance group has warned.”

This is from the Insurance Council of New Zealand, and a number of other groups are seriously concerned about this. This SOP that we are putting forward specifically ensures that people who get bailee insurance, public liability insurance, and travel insurance will not somehow be captured by this. Whether clause 104 may or may not exempt them from paying that, the fact is this ensures that they do not.

We do not support this bill. I can say that strongly because I do not think the full consideration of international standards that we have looked at, of reports that are talking about the problems of dealing with this situation—using a levy system to fund an emergency service provider does not work. We would hope that in the twelfth hour of this bill going through the House we would see other parties opposing this bill, because it does not do what it sets out to do. There is more than enough evidence suggesting that.

We hope that we get support for our SOP. I think it is a very small token of effort by the Opposition to say: “Well, let’s at least not make the levy payable by those bailees, public liability insurance, and travel insurance.” It is very small in the scheme of things. But the reality is that what this funding model is going to create is an imbalance of funding coming from a certain sector, the levy-paying sector. I am specifically talking about the uncapped commercial levies. You have got caps on all the other sectors—residential, and all your contents insurance, and your cars—but no cap on your commercial levies. They are going to be fitting the bill for this, and it is going to be a user-pays system that will be transferred on to those people leasing those premises. It is completely inequitable.

In thinking about driving this, the answer the Minister has given, that he was steered strongly by Cabinet to suggest it wants to keep it as a levy-based system—we are not suggesting in any one moment that this should be levied on to a new taxation. But why is the Government not standing up and putting it into the general taxation fund, as opposed to this nonsense, which is a levy-based system? Thank you.

I move, That the question be now put.

Motion agreed to.

The question was put that the amendments set out on Supplementary Order Paper 262 in the name of the Hon Peter Dunne, and the following amendment in his name, to Part 3 be agreed to:

in clause 84(1), after “entered”, insert “into”.

We move to Adrian Rurawhe’s consequential amendments to Part 3, inserting “Services” and changing the name “FENZ” to “FESENZ”. These are out of order as they are contingent on an amendment already negatived.

The question was put that the amendment set out on Supplementary Order Paper 265 in the name of Clayton Mitchell to clause 70 be agreed to.