Victorian Premier John Brumby announced this morning that the State will abolish the insurance industry-based fire services levy ("FSL").

Speaking in Melbourne this morning in an official response to the 2009 Bushfires Royal Commission recommendations, he said the Government will heed the Commission’s Recommendation 64 to replace the insurance-based levy with a property-based charge.

The new system is scheduled to be in place by 1 July 2012. The favoured method of FSL collection – most probably through local government property rates – will be announced in a government white paper in February.

The move is a victory for the general insurance industry, which has fought for some 20 years to have the levy dropped as it distorts property insurance premiums and, in many cases, makes insurance unaffordable.Mr Brumby says his government will also introduce concessions for low-income earners.

Treasurer John Lenders says the Government’s ongoing FSL review will “determine the best model for the new levy”.

Speaking shortly after Mr Brumby announced the move, Mr Lenders said the reform “will ensure that our fire services are funded more sustainably, while also taking the squeeze off the cost of property insurance”. Further, that the existing green paper process and the Royal Commission “provided the Government with enough evidence to move to a property levy. However, the Royal Commission was silent on the fine details of how the levy would operate and our government will work through how such a levy would be applied. We want to ensure that the necessary funds are raised to sustain our crucial fire services".

The Government started the process to determine the best model for the new levy by today releasing a set of policy principles that a new model would need to satisfy. The new model would be:

  • a progressive property-based levy;
  • provide the same level of funding as the existing FSL;
  • collect no more revenue than would be collected under the current model; and
  • provide a 50% concession to low income-earners.

A spokesman says the State Government will embark on “a period of thorough consultation to determine the best model and options”.

The new system will be fully in place on 1 July 2012 “to honour an undertaking made during the existing review process to the people of Victoria and the insurance industry that the transition would be as simple and easy as possible”. The spokesman said the Government “will also take steps to ensure that the insurers pass on the full benefit from having the FSL removed from premiums”.