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An election in the air… The Victorian Government wants to raise its fire services levy to pay for a union deal no one else wants. And it’s delaying a controversial new insurance tax, too
Insurance & Risk Professional, April 2006

Victoria has put the brakes on enacting its controversial State Emergency Service Act because it’s too complex – or perhaps too close to the November election. But while it has stalled the contentious law for collecting levies on insurance that doesn’t exist, the Government of Premier Steve Bracks is allegedly ignoring the advice of its experts by planning an increase in the number of fire-fighting personnel in Melbourne – causing a cost blow-out of about 10% in the fire services levy (FSL).

Victoria has had the world’s highest taxes on insurance premiums for years, with the Government deriving 75% of its fire services funding from the FSL, which is imposed on all property policies.

The insurance industry continues to argue against taxes on insurance. Because of the way they are arranged, even relatively low – and, to the public, unremarkable – rises in stamp duty can have a savage impact on premiums. The recent rise in stamp duty on premiums imposed by New South Wales, from 5% to 9%, has caused concern among many brokers, who say the cumulative impact is pushing up the total cost of insurance, even as premiums are falling. One broker told Insurance & Risk Professional his smaller commercial clients are asking him to advise which non-statutory cover they can best do without.

“The stamp duty can add $500 to the premium,” the broker said. “Smaller businesses can’t easily afford that. The cover they have is prudent and pretty minimalist already. I’m meant to be advising them on how to properly cover their assets, not how to raise their levels of non-insurance. It’s very discouraging.”

The Victorian Government has been negotiating with the United Firefighters Union on a new enterprise bargaining agreement. It’s understood part of this agreement involves a deal to raise staffing levels.

The Insurance Council of Australia (ICA) says the Government is planning a 10% rise in the Melbourne Metropolitan Fire Brigade (MFB) budget for 2006/07 to meet the cost of a new 4% enterprise agreement and a “significant expansion” in fire-fighting staff.

ICA alleges the MFB board and management do not want the staff increase. It is not required for expanding programs, improving operational safety or boosting efficiency.

Peter Jamvold, ICA’s Group Manager Southern Division, has written to Mr Bracks warning him against raising staff levels and the budget – and therefore the fire services levy – saying the MFB board and management have argued strongly against the increase in staff.

He says the last time the MFB board resisted a Government-imposed increase in staff was in 2003/04. It was ignored, with the MFB budget growing by 22.5%.

Mr Jamvold told Mr Bracks the “persistent lack of economic restraint” obvious in setting MFB budgets has caused an average 10% annual compound rate of increase in funding since 1999.

The Municipal Association of Victoria (MAV) is also critical of the likely increase in the FSL as a consequence of the new enterprise bargaining agreement. It says this agreement will bring the cumulative increase in this tax to 97% since 1999/2000.

The association has written two letters to the Premier and has made representations to State Treasurer John Brumby and Police and Emergency Services Minister Tim Holding seeking a reduction in the levy, as well as more consultation with local government on the effect of the enterprise bargaining negotiations.

The Bracks Government is likely to ignore the association, ICA and the MFB board. Commentators say it is already in the early stages of preparing for an election due on November 25.

That may be why the Government has backed away from enacting its State Emergency Service Act, which requires insurers to report the notional premium for property policies with deductibles of $10,000 or more.

Originally due for implementation on July 1, the legislation was pushed through the parliamentary process late last year without consultation with the business or insurance industries.

The legislation is expected to raise millions of dollars in additional revenue for the Government, which may be why the implementation has been delayed by 12 months.

The Government says the Act has been delayed due to the difficulty of determining how a notional premium can be calculated – a fact that NIBA and ICA warned about when they first became aware of the Government’s efforts to force the legislation through in conditions of some secrecy.

The legislation cannot come into force until a formula has been developed, and an actuary has not been appointed to prepare the calculation method. The new target date for recruitment of a suitable actuary was the end of March.

The Government also says the delay will allow time for “full consultation with stakeholders”.

Mr Jamvold told Insurance & Risk Professional the Office of the Victorian Emergency Services Commissioner informed him of the delay. The commissioner is responsible for preparing regulations specifying the method for calculating notional premium on commercial deductibles.

Mr Jamvold says the legislation means the proportion of FSL contributed by commercial insurers will increase.

“This was one of the recommendations from the State Treasury’s report into fire services funding in 2003 – the Fire Services Funding Review. It’s a nonsense recommendation introduced into the legislation without consultation in the first place.”

He says the legislation will not be very popular with big businesses and commercial insurers.

“The election will be held on November 25, and it’s not going to be favourable for the Victorian Government to introduce a higher level of tax on commercial insurers before that date.”