Fact or Furphy

The role of government is to safeguard the ongoing growth of the economy – FACT

Two of the primary roles of government is to encourage and protect business, and safeguard the ongoing growth of the economy.

The ever-increasing burden of taxation on insurance acts against both these roles. It is simply bad policy and it needs immediate change with the removal of double and triple taxation and the reallocation of Fire Service Levy to rates and not insurance in those states that have not already made the change. Those State Governments that have removed the Fire Service Levy from insurance are to be congratulated but at the same time encouraged to remove the unfair Stamp Duty on policies issued in their state.

“Government has no other end but the preservation of property” John Locke (1681)

"The government's view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it." Ronald Reagan (1984)

This site is an attack on Australian Fire Brigades – Furphy

The various Fire Brigades around Australia provide a vital service to the Australian community. They are made up of dedicated men and women who literally risk their lives protecting the people and assets that make up Australia.

The various brigades require adequate funding to carry out this important work, however, what is being questioned or challenged by this site is the fact that in three states in Australia the major source of funding for the Fire Brigades is a Fire Service Levy imposed upon the insurance industry. This tax is inequitable in that those prudent individuals who insure and particularly those who insure fully pay for the service and those who do not insure contribute nothing and those who under insure pay only a proportion of their fair share.

In New South Wales, Victoria and Tasmania the fire brigades do have a right to impose a charge upon an individual or business when there is no insurance in place. In these states where the brigades obtain the majority of their funding through the Fire Service Levy, the brigades do not take into account the level of insurance. Even if a company or person insured only 10% of the value of the assets they would receive the full fire brigade service in fighting the fire at no cost. In cases where there is no insurance and the brigade does have the right to issue a fee for the fighting of the fire, what so often happens is that after a family lose their home and contents and are uninsured, the brigades realise that it is pointless forwarding such a family an invoice. It would never be paid and it may create bad publicity for a bad system.

Fire Service Levy is not a Tax – Furphy

This is a claim made by several politicians most recently by the State Treasurer for Victoria. It is this sort of nonsense statement that causes the general public to distrust politicians.

The Macquarie definition of a levy is:

1. raising or collecting, as of money or troops, by authority or force. 2. that which is raised as a tax assessment or a body of troops – verb 3. to make a levy of; collect (taxes, contributions etc) 4. to impose (a tax) to levy a duty on imported wines. 5. to raise or enlist (troops etc) for service. 6. to start or make (war etc) – verb (i) 7. to make a levy 8. Law to seize or attach property by judicial order. (The Macquarie Dictionary revised 3rd Edition, edited by Delbridge A., Bernard J. R. L., Blair D., Peters P. and Yallop., 2001 The Macquarie Library Pty Ltd, Sydney, page 1096.)

There is absolutely no doubt that a Fire Service Levy is a indirect tax on insurance. What most people do not realise is that GST is paid on the Fire Service Levy and then Stamp Duty is paid on the GST and the Fire Service Levy creating a huge win fall to the State Governments with taxes on taxes.

The Fire Service Levy is an equitable tax – Furphy

There are several places throughout this website where the inequity of the Fire Service Levy has been outlined.

If you insure your business assets under a Commercial Business Pack or an ISR you pay a base premium calculated on the risk. If you chose to insure flood as an optional extra you would be charged an additional premium and you would be charged a Fire Service Levy on the total premium including the flood component. You are therefore paying an additional Fire Service Levy on a peril that has nothing to do with fire. Flood is not the only such peril.

It gets worse. If your premises were flooded and the fire brigade were to attend your premises to pump the basement out, the brigade in many jurisdictions would be entitled to charge you for the service as the component for which the Fire Service Levy is paid only covers the fighting of fires and does not cover ancillary services such as cleaning up chemical spills or pumping out flooded out basements. Where is the equity in this?

The same applies under your Home Policy where the more benefits you obtain such as breakage of glass, burglary etc. attracts a higher premium, upon which you pay a Fire Service Levy. The whole system is inequitable in the extreme.

The imposition of high taxes on insurance does not affect the take up of insurance – Furphy

Anyone who has done Economics 101 understands the effect of price on demand. As price increases demand falls. Government must realise that when the cost of insurance is increased by up to 86% by taxes then the amount of insurance the community purchases falls significantly.

An ICA report on non insurance and under insurance in the home and small business portfolio published in October 2002 showed that in 1998 – 1999 1 in 4 households where uninsured and 68% of tenants did not insure contents. Of those insured 27% under insured their buildings and 45% under insured their contents.

This same report also showed that at 30 June 2000 70% of all registered small businesses employing up to 20 persons had no insurance at all and those small businesses that were insured 43% were under insured for property.

The situation has got worse since the introduction of GST on 30 June 2000 which has not only increased the price of insurance by the amount of the GST but has created a triple insurance situation in three states. In the Canberra bushfires of 2003 it was reported that 1 in 3 homes were not insured. A recent survey carried out by Prof. Allan Manning showed that only around 15% of all small businesses in Australia take out Business Interruption insurance. Business Interruption is yet another type of insurance policy that attracts Fire Service Levy, (NSW, Victoria and Tasmania only) Stamp Duty, GST and Terrorism levies.

We all should appreciate that the effect of under insurance can be devastating. The ICA suggests that 70% of uninsured or under insured business would suffer a major loss by events such as fire within the 1st year following the loss. The impact on the community of a business failure extends beyond the owner and the immediate employees to suppliers creditors and others associated with the business. In country towns in particular the forced closure of a business can have even more effects adversely impacting the whole local economy.

The ICA report on non insurance and under insurances available on the ICA website at www.ica.com.au.

Fire Brigades assist Insurers and it is only fair that they should pay – Furphy

The underwriting of insurance is based on risk: the higher the risk the higher the premium rate. The fact that a property is protected by a Fire Brigade reduces the risk in the eyes of the underwriter and a lower premium is charged. By definition, if the rate charged to an individual already takes into account the benefit provided by the Brigade, therefore there is no benefit to the Insurer as the premium already reflects the benefit, with this benefit by way of a cheaper premium having been passed on to the Insured.


The funding of Fire Service Levy by Insurers is a hang up from the past – Fact

The first Fire Brigades were introduced in the United Kingdom following the Great Fire of London in 1666. Insurers created and funded their own Fire Brigades to reduce the risk of such a catastrophic event.

As an aside, it is yet another furphy that these Brigades only attended fires involving one of their insured policyholders. These private fire brigades protected the community as a whole.

This situation was adopted in Australia and as late as the 19th Century Insurers owned and operated private fire brigades around Australia. These were brought under State Government control by legislation at various times, however, the funding of these now public Brigades continued to be funded by the impost of a Fire Service Levy against Insurers who in turn had to pass the cost on to policyholders.

Seeing the equity in this the Queensland Government eliminated Fire Service Levies against Insurers progressively through 1984 and 1985. South Australia did the same in late 1999 and Western Australia from 1 July 2003. Similarly the Northern Territory and the Australian Capital Territory do not charge Fire Service Levies. It is only New South Wales, Victoria and Tasmania that still adopt the completely inappropriate method of funding.

Fire Service Levy discriminates against the poorer members of the community – Fact

It is self evident that higher prices caused by large tax rates depresses demand of a product. It is the poorer members of the community who are the most effected. The same poor members of the community have the lowest financial capacity to recover following a major disaster, which is not insured.

FSL tax is inefficient – Fact

The Fire Service Levy has a tax base limited to those persons and organisations which take out property insurance. The base is further reduced in reality by under insurance. The limitations are completely unnecessary and result from poor scheme design and certainly not from a specific demand for equity, economic efficiency and transparency.

Insurance in some states is taxed like alcohol and tobacco. In Victoria and New South Wales in particular insurance joins alcohol and tobacco as products attracting penal levels of taxation. The high tax rates on insurance constitute a serious and unnecessary cost to business activity and an unfair imposition on families.

Fire Service Levy also applies to contract works insurance, the tax also increases the cost of new homes, which again is an unfair burden on younger Australians and is contributing to the unaffordability of housing to many Australians.

Fire Service Levy is a user based tax - Furphy

The Fire Brigade not only attend the fighting of fires at insured property. Around 16% of fires are grass or rubbish fires where there is no property involved and therefore no Fire Service Levy is recovered. The Fire Brigade also carry out emergency rescue services for road accidents. There is no Fire Service Levy charged to motorists. The whole system is simply unfair and requires a major review.

The current system’s taxation is completely transparent - Furphy

Most people in the community and even many in the insurance industry simply do not realise just how much taxation we are all paying and the particular heavy burden of tax on tax in respect of insurance.

In NSW it is even worse. The NSW State Government legislated to impose an additional levy following the collapse of HIH Insurance. This levy known as Insurance Protection Tax. The disclosure of the levy against policy holders is not permitted by legislation to be shown on a customer’s invoice. You can decide whether there is any difference between legislating to hide additional State Government taxation and hiding other costs along with the transport charges of Australian wheat exports? What I am sure we can all agree on is that it definitely not transparent.

Some argue that the State Governments like to have the fire brigade budgets off balance sheet so to speak and not be subject to the normal rigours of parliamentary scrutiny. What is clear is that the fire brigade budgets in Victoria in particular have been increasing far greater than any of the more scrutinised government departments.