Charge of the Fire Brigade – Critics call for reform of their lopsided fire services levy systems after the latest round of rises and new insurance taxes
Insurance & Risk Professional, February 2009
Victorian horse breeder Rod Harrison thinks the Country Fire Authority (CFA) does a good job, but like many insurance-buyers is not happy about paying for the service when uninsured residents don’t.
Two years ago, Mr Harrison was burning off a section of his Bullengarook property when fire took hold in a dry creek bed. Overgrown blackberry bushes fuelled the flames and Mr Harrison decided to call on the help of the CFA. Three fire engines soon arrived to douse the flames.
Though a section of fencing was destroyed, Mr Harrison attributes the limited damage to the quick response of the fire services. He didn’t lodge a claim on his insurance policy but, given his own experience, doesn’t begrudge the fact that part of his premium goes toward the fire services. He just thinks there are better ways to pay for the service.
“If the main way this fire business is financed is through insurance then if people don’t insure they’re getting it for nothing,” he told Insurance & Risk Professional. “The Government could do it some other way.”
Unfortunately for insurance-buyers like Mr Harrison, the governments of New South Wales, Victoria and Tasmania show no sign of reducing their reliance on insurance tax income.
Quite the opposite, in fact. On December 15 Victoria lifted the fire services levy on rural commercial policies from 58% to 63%. The five percentage point hike was the only change to fire services levies charged on insurance-buyers, but a considerable levy remains in place among other insurance lines in NSW and Victoria.
The latest levy means commercial policyholders in rural Victoria will now pay $197.23 for every $100 of basic premium, given the cascading effect of the additional fire services levy, goods and services tax (GST) and stamp duty charges.
Commercial insurance-buyers in rural Victoria now pay almost $1 in tax for every $1 of insurance premium. Insurance tax is a cash cow to state governments, with Australian Bureau of Statistics figures showing insurance stamp duty was worth a collective $2.86 billion to state governments in 2006/07. Fire services levies bring the total to more than $3.7 billion.
Opposition Liberal party spokesmen in New South Wales and Victoria told Insurance & Risk Professional it is time for Australian Labor Party-led state governments to stop leaning so heavily on the insurance industry for income.
Victorian Shadow Treasurer Kim Wells described the latest fire services levy hike as “grossly unfair”.
“The Brumby government continues to kick those who choose to insure,” he said. “At the stroke of a pen they continue to ratchet up the fire services levy. We all expect our fire services to be well maintained and provided for, but the Government needs to be looking at the way this is funded.
“The Liberals and Nationals are currently consulting widely right across Victoria and we are looking at a fairer system,” he said.
Despite the fact that Liberal Party politicians in both states did nothing to address the problem when they were last in power, both claim they would do something about it if only they could.
“For businesses to invest in Victoria and provide jobs, they need certainty to plan for the long term, and they need less tax, not more,” Mr Wells said.
NSW Shadow Minister for Financial Management Greg Pearce was more circumspect when Insurance & Risk Professional called, saying the NSW Liberal Party has not yet formulated a concrete policy on insurance taxes.
“I’m aware of the duplication and the GST issues and fire levy issues,” he said. “Clearly there does need to be work in that area and some of these taxes need to be looked at.”
Despite angry and sustained opposition to the taxes from the insurance industry and elected representatives, state governments appear unmoved. Victorian Treasurer John Lenders previously told Insurance & Risk Professional he believes the fire services levy is the most equitable form of fire service funding available.
NSW Emergency Services Minister Tony Kelly meanwhile imposed a new State Emergency Service (SES) levy on premiums just weeks after his government’s own economic regulator produced a report that was heavily critical of insurance taxes.
The NSW Government has since ratified the new SES levy. The legislation was included in the State Revenue and Other Legislation Amendment (Budget Measures) Bill and has passed both chambers of the NSW Parliament.
The levy will begin from July 1, and is expected to raise $39 million a year.
Insurers will be required to disclose the SES levy separately from the existing fire services levy, which is expected to cost insurers in NSW a further $20 million in information technology costs.
NIBA has campaigned long and hard for the abolition of unfair insurance taxes, and Chief Executive Noel Pettersen has slammed the latest imposts in letters to the relevant ministers in NSW and Victoria.
In a letter to the Victorian Treasurer Mr Pettersen says the fire services levy is “inequitable and badly in need of reform. Victoria takes more in taxes and charges on insurance premiums than anywhere else in the world.”
The latest round of levies will also do nothing to improve the findings of Insurance Council of Australia research that 26% of small and medium-sized businesses do not have any form of general insurance. Among sole traders the figure rises to 40%.
Although insurance-buyers might be disappointed at the prospect of higher insurance levies – if they notice – there was some good news at year’s end in the form of a stamp duty refund opportunity for NSW commercial insurance-buyers.
Marsh Australia informed clients that some may be eligible for stamp duty refunds based on a recent decision by the NSW Supreme Court. In the case of Qantas Airways v Chief Commissioner of State Revenue, the court ruled that an anomaly in the Duties Act means stamp duty is not payable by foreign insurers which are not licensed as general insurers under the Insurance Act 1973.
Companies may be entitled to a refund of stamp duty paid on premiums placed with relevant offshore insurers for a five-year period that ended on June 20, 2006. On that date provisions critical to the Qantas case were amended. [See full report, page 124]
It’s a minor matter in a difficult campaign, but brokers hope the endgame may finally be in sight for rising insurance taxes after the release in December of a consultation paper by the panel charged with conducting the Federal Government’s tax review.
The paper is intended to stimulate discussion on how taxation is levied at local government, state and federal level and reveals widespread criticism of insurance taxes among the initial submissions.
Submissions slam governments for exacerbating the problem by providing emergency relief funds to uninsured people, and say the fire services levy worsens the effect of stamp duty on insurance premiums.
The consultation paper notes there is significant support for comprehensive reform of general state taxation. The panel will take further supplementary submissions until May, ahead of a final report due in December.