Victoria’s latest review of fire services funding has again been scheduled around a state election

The insurance industry has welcomed a Victorian Government review of fire services funding, but its curious timing has raised fears of another whitewash. In late October, Treasurer John Lenders announced a review to determine whether the “current funding mechanism is the most appropriate funding model for Victoria’s fire fighting organisations”.


The review comes in the wake of the Black Saturday bush-fires, which killed 173 people and destroyed 2029 homes. An estimated 30% of those properties had no insurance cover.


In the aftermath of the disaster the fire services levy (FSL) for commercial customers in rural Victoria soared to 84% of the base premium, generating anger among insurance brokers and farmers.


Homeowners in country Victoria don’t fully escape the burden, paying 31% of their base insurance premium. In urban Melbourne, commercial policy-holders pay a 50% premium while homeowners pay 20%.


In step with similar systems in New South Wales and Tasmania, those payments make up the majority of the annual fire services funding budget in Victoria (see panel opposite).


The insurance industry’s long-standing opposition to that funding system rests on a simple premise: why should people who buy insurance fund the fire services on behalf of those who don’t, when each enjoy equal benefit?


The Victorian Government acknowledges these concerns in a green paper canvassing seven potential options, including a pledge to look at consolidated revenue or property rates as an alternative funding base.


Mr Lenders told State Parliament in November he is “keen for a genuine community discussion beyond party politics and [does] not want to see it hijacked by vested political or industry interests”.


Stake holders must wait until June of next year before making submissions to the review. From August, the State Government will consider feedback and findings, including the results of the Federal Government’s Henry tax review and the final report of the Victorian Bushfires Royal Commission.


A subsequent white paper will be released within six months of the royal commission final report – putting it on track for delivery in February 2011.


Overshadowing all of this is the fact Victoria will go to the polls on November 27 next year, right in the middle of the white paper drafting process.


The 15-month timeline does not sit well with Victorian Farmers Federation (VFF) President Andrew Broad.


“Country people are entitled to know where this government stands on funding the fire service,” he said. “If the answer is maintaining the status quo or just another review that pushes this issue beyond the 2010 election, it’s simply not good enough.”


He says a “huge volume” of similar reviews have already concluded the FSL should be scrapped. 


“The last thing that Victoria needs is more paper-pushing on this failed fire tax,” he said. “The FSL, together with other taxes, more than doubles the cost of insurance for rural businesses.”


LMI Group founder and Chief Executive Allan Manning is an outspoken critic of the fire services levy, and has written a number of influential papers on the topic.


“A tax included in the rates spreads the cost of the emergency services most equitably and in the least costly form across all the community,” he wrote recently. “That is the simple, cost-effective and fair solution.”


Dr Manning is not impressed by Mr Lenders’ green paper, accusing the State Government of “over-complicating” the issue.


“It’s simple,” he told Insurance News. “We need to share the load among the whole community.”


He fears the timing of the review will dissuade public debate, with the issue likely to be overshadowed by the state election and the Government able to say it’s not a subject it can discuss during the campaign.


Dr Manning’s recommendations are in line with wider industry demands for reform in NSW, Victoria and Tasmania to reflect more equitable schemes like the property-based collection systems of Queensland, South Australia, Western Australia and the Australian Capital Territory.


Former Insurance Council of Australia (ICA) Manager Southern Region Peter Jamvold says there are obstacles to other states joining the fold.


“Due to the multiplier effect the Government is able to say it is increasing funding when the majority of funding in fact comes from insurance policyholders.


“The current fire services funding scheme is off-balance sheet,” he said. “The Government has consistently set major budget increases for the Country Fire Authority and Metropolitan Fire and Emergency Services Board each year over the past 10 years or so, because it is the insurance industry, not government, that has to provide the bulk of the funds.


“Unfortunately, it is the rural policyholder, in particular, who ultimately carries the cost.”


Mr Jamvold says “the government would materially assist the quality of the current review if it were to release for public scrutiny and debate the detailed critique of the 2002/03 review provided by ICA to the then Treasurer, Mr Brumby”.


For his part, Mr Lenders has pledged to “build” on the previous review by the Department of Treasury and Finance in 2003 – a review which is hardly a fond memory for the insurance industry.


Announced on November 1 2002, just 30 days out from the state election that saw Labor returned to office, the review was seen as an encouraging signal for a softer position on the FSL.


The 2003 review examined the three Australian funding models – the NSW and Victorian systems using an insurance-based levy, property-based collection and financing through consolidated revenue. It found the FSL ensured those with a high level of fire risk paid an appropriate amount for the fire services that protect their properties from the risk of bushfire.


Determined lobbying against the levy, particularly in the regions, came to little. Insurance critics argued the 2003 report lacked quantitative analysis and claimed the outcome was predetermined.


Mr Jamvold is unequivocal in his views on the Government’s sincerity.


“The mistake I made was thinking they would undertake a proper review and would arrive at the conclusion there had to be revision,” he told Insurance News. “Instead the 2003 review and report were strongly biased in favour of maintaining the existing funding system.


“Considering it involved the work of skilled economists, the report was so bad I can only assume they were directed to find no change was required.”


The insurance industry will hope that history doesn’t repeat itself this time around.