Opinion: Fire Service reforms will add costs not reduce them

The Fire Service is being reformed and a bill is in the final stages of being passed in Parliament. It amalgamates the urban and rural fire services into one organisation to be more efficient.

But the emperor has no clothes. Using the government's own figures, the total cost of the new entity, Fire and Emergency New Zealand, will shoot up by $80 million each year. The burden of these costs will fall on only those who insure for property.

The changes on July 1 will see a 40% increase in fire levy rates on insurance policies. For residential insurance-holders the fire levy only applies to the first $100,000 of cover, so the increase will be a maximum of $36.20 per annum. However, because the cap does not apply to non-residential property the average levy paid will be substantially larger.  

The reforms will result in additional government revenue of $80 million. This figure accounts for the $115 million increase from the insurance levy minus the $35 million of rural fire rates and charges that are abolished. Efficiency is one of the objectives of the reforms, so why is the government taxing an additional $80 million each year?

The government's projections estimate there will not be any efficiency gains until the fifth year and even then the gains will only be $48 million. This only amounts to 12% of the increase in revenue over that same period.

Peter Dunne is the minister responsible for the reform and has time and again touted his bill as a gain in efficiency. So where is it?

The bill entrenches current problems and creates new ones.

Higher costs of centralisation
Rural and urban fire will become centralised under one funding system, when there are numerous examples overseas that show that centralisation is accompanied with significantly higher costs. Right now New Zealanders pay only $86 per person to fund the fire service, compared to $293 in Tasmania – a state with a similar fire climate to New Zealand but a centralised urban and rural service.

Mr Dunne claims the apparent efficiencies will come after a "transitional" period. Only in February he said the reform “will take a year or two in terms of transition.” However, official documents show that there are no significant efficiency gains in the next five years. It does not add up, Mr Dunne.

Given the experience in Australia, and the government's projected jump in costs, he is expecting the public to take a leap of faith that some efficiency will eventuate one day long after his retirement. If a public sector reform cannot deliver claimed efficiencies within five years, it is never going to.

Furthermore, there are issues of fairness.

Fire services are a public good. Since 1906 the Fire Service has been universally available to all New Zealanders. Before then, the Fire Service was run by insurance companies to mitigate loss. Fire fighters would only respond to save houses that had a red rock outside showing the owners had fire insurance cover.

Now the government is again putting the burden of funding the fire service on those who take out insurance. Not only are the insured subsidising the non-insured, the new levy does not discriminate by risk. High-risk users such as forestry and agriculture, even when they do insure, are subject to the same rate of levy as low-risk users. The bill is likely to see the forestry sector get a 38% cut in fire-protection costs.

Most countries are moving toward property levies collected by local government to fund fire services. This ensures those who benefit from the fire service pay for it. Mr Dunne has missed a great opportunity to modernise the funding system and equitably charge those users who benefit from the fire service. Instead he has doubled-down on an out-dated funding model.

Maybe Mr Dunne knows his claims about efficiency haven’t borne out. But with the emperor now standing naked, and with the new funding model unfair, it’s time the proposed reforms were shelved.

Mac Mckenna is an economist at the New Zealand Taxpayers' Union, which has published Bomb Fire: Briefing paper on reforms to the fire service and the costs.