The Victorian Government’s fire services levy (“FSL”) on insurance premiums may remain, but the industry has scored a small victory in its battle against the controversial tax. Legislation introduced to impose an additional levy on large businesses, has been abandoned more than 2 years after it was rushed through Parliament.

The plan was to increase the FSL on policyholders whose property policy had a total insured valued greater than $50 million, to take effect from 1 July 2007. It was adopted after an independent panel described as “completely unworkable” a previous policy to tax those with policy deductibles of $10,000 or more.

The Victorians’ backdown on changes to the FSL – which it refused to abolish after a 2004 internal report recommended retaining a tax on insurance products – has given the insurance sector renewed vigour to protest against what it sees as an inequitable burden.

NIBA CEO Noel Pettersen describes the decision as a victory for commonsense. “NIBA has consistently argued to the Victorian Government that the changes to the fire services levy were cosmetic, costly and of little overall benefit”, he said. “To redistribute about $2 million in a funding pot of $856 million would have cost the industry about $5.5 million in implementation costs and $300,000 in ongoing compliance costs. There was no benefit to the community at all”.

Allianz Australia GM Corporate Affairs Nicholas Scofield says taxes in Victoria are already among the highest in the world. “Cumulative taxes on property insurance in Victoria can reach around 80%, largely as a result of the unfair and inefficient FSL. The proposed new FSL class would have raised property insurance taxes for large businesses even further. From a tax policy point of view, the FSL is about as bad a tax you can get. The Victorian Government should be looking to get rid of the FSL rather than making it worse”.

Mr Pettersen says the insurance sector sees the backdown as an opening to lobby for abolition of the FSL. “Instead of continually tweaking a fire brigade funding system that is out-moded and flawed, the Victorian Government should adopt the recommendations of its own 2001 business tax review – as well as those of the HIH Royal Commission – and abolish the FSL system altogether. This is an antiquated tax that most other States have dropped in favour of community-based funding systems”.

The WA Government replaced its FSL with a broader tax in 2002, following South Australia’s lead in 1999.