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Burning policyholders’ pockets
NIBA Backgrounder, February 2006

Insured people and businesses in Victoria, New South Wales and Tasmania are paying the highest tax rates in the world for their insurance policies, and one of the major contributors to this is a tax called the fire services levy (FSL).

Policyholders in these states are forced to pay an extra tax on top of insurance premiums, but people and businesses that choose not to take out cover are not required to pay a cent for the use of fire services.

The FSL system as it stands means people in these states who are prudent enough to insure their assets are effectively footing the bill for their region’s fire services.

All other state and territories have abolished the inequitable system, realising that the cost of fire services should be equally shared by ratepayers – not just those who choose to insure.

Businesses in country areas of Victoria are charged a massive 50% extra on top of their base premiums for FSL. That is without adding an extra 10% for General Services Tax and 10% for stamp duty.

A small business in country Victoria with a base premium of $100 will be charged an additional $81.50 in taxes.

FSL taxes are substantially higher for country-based businesses than city companies. This situation is particularly ironic, considering rural fire services are less likely to make it to country properties to extinguish fires than city properties.

Homeowners pay less FSL tax than businesses, but the amount is still substantial.

On a base premium of $100, Victorian and New South Wales homeowners pay additional $19 and $15 respectively in FSL taxes.

The New South Wales and Victorian Governments have conducted studies into the effectiveness of the system, and while aspects of the studies unearth the unfairness of FSL taxes, both governments have chosen to uphold the tax. In fact, both governments have chosen to go a step further and increase the tax.

FSL taxes are viewed as a politically difficult issue, and governments are reluctant to change the system because it will mean spreading the cost of fire services to all ratepayers.

Industry studies also show FSL taxes act as a disincentive for people and businesses to protect themselves. Any tax that adds to the cost of insurance cover means less people can afford to protect themselves.