Following an earlier paper on the Fire Service Levy (“FSL”), I was asked if there had been much of a change in the Fire Service Levy on business in rural Victoria over the past few years.
The answer is yes! From March 2006 when the FSL tax rate was 40%, it has now increased to 68%. This is an increase of 70% in just over 3 years!
My records go back to 2002 for the Victorian Metropolitan rates and since then they have gone from 27% to 51% an increase of nearly 88%!
How is this justified? The answer is it cannot be, in any logical analysis.
With the latest FSL increase and the triple taxation rate, it takes the cost of a $100 base premium, which already includes a terrorism levy, to $203.28 with a tax on tax component of $15.28. This is more than double the base remium.
Victoria needs well-funded fire and emergency services. We saw this clearly in the ‘Black Saturday’ bushfires. Who funds the fire service in rural Victoria? The FSL paid by the insuring public accounts for 77.25% and the Victorian State Government 12.5%.
The fire services attend a fire whether or not the home or business owner has insurance. It is available to everyone, so why should only those prudent enough to insure contribute to the service?
As anyone who understands basic economics will tell you, if you increase the cost of a product or service, the demand for that service falls. Governments must know this, as they claim to tax alcohol and tobacco to reduce consumption, not merely as a money grab.
Yet government keeps increasing the taxation on insurance more and more. We see the end result as mass non-insurance, with around 30% of homes un-insured and an even higher figure for home contents, and again, around 30% of business without insurance. The rate of under-insurance is even worse. Voters and the Australian economy suffer due to this obscene level of taxation.
The situation will only get worse as more and more people reduce their insurance due to the ever increasing taxation component, coupled with the effect of the recession on values and profits.
I have repeatedly asked the governments of Victoria, New South Wales and Tasmania to follow the lead of the more enlightened Australian States, and spread the cost of providing the vital fire services across the community. The best way to do this would be via a modest levy included with property rates.
So why do some governments tax insurance? The true answer is that it is a hidden tax. Few people understand it and it does not affect the voting patterns. Just like the politicians in the United Kingdom, it is time for ours to show some honesty, stop hiding behind smoke and mirrors and understand that the current system is unacceptable.
What the current system does is bring enormous hardship to those who can no longer afford adequate insurance when they are confronted with a fire, storm or other insurable peril. This in turn brings business failure and loss of jobs and damages the entire Australian economy. Worse still, it can lead to death and injury as people stay and try and protect their property when they have no insurance.
If politicians were honest and did what they claim to be doing, ie. assisting the recovery of the Australian economy, they would immediately remove taxes on insurance.