The horrific bushfires that have caused such widespread damage in the southern states particularly in Victoria, during February 2009 demonstrate the need for fully funded and highly trained fire and civil defence services. The human cost and the monetary cost to the economy to do otherwise is enormous.

No doubt, and with some justification, there will be calls for additional funding from the Country and Rural Fire Brigades but it is no longer appropriate that the majority of the funding be borne by those prudent enough to insure. It must be borne equally by all those that benefit from the services.

The position in Victoria is that 75% of the funding comes via the insurance industry which is forced to charge a fire services levy. 12.5% comes from the State Government and 12.5% from Local Authorities, who pass this on in their property rates. Some individual brigades also run charity events to raise funds.

When you look at the level of impost on the insurance industry you would be forgiven for thinking it was a charge on alcohol or tobacco products. Again using rural Victoria as an example, if you own a business and wish to insure your business assets and/or protect your business income with interruption insurance, then for each $100 of premium (including terrorism levy) you pay nearly double due to taxation. Below is a table showing the calculation on commercial property. 

Tax Rate
Tax on Tax
Base Premium
Fire Service Levy
Goods & Services Tax
Stamp Duty


You do not have to have a PhD in economics to know that if you double the cost of any service you reduce the demand for the service will reduce. The concern I have is when I visit business owners after a major event is that more often than not I find that they are grossly under insured and the saving they thought they were making in their business expense has had the effect of providing inadequate protection for their livelihood and that of their employees. The recently published “An Assessment of the Economic and Social Impacts of the 2007 Pasha Storm” estimated that 1,170 employees lost their job as their employers’ businesses failed following the Newcastle storm. Clearly the level of taxation on insurance contributes significantly to this contributor to this problem. I am sure a study of the Black Saturday fires will show similar findings.
This flies in the face of John Lock’s (1681) position that “Government has no other end but the preservation of property”. I take this one step further and suggest that the primary role of government is to encourage and protect business, and safeguard the ongoing growth of the economy.

Unlike the alcohol or tobacco industries that place a strain on government particularly in the health sector; insurance assists the Australian economy paying out an average of $58 million every business day (over $14 billion annually). With the level of taxation on insurance the state governments of New South Wales, Victoria and Tasmania are failing miserably in their primary role and it is time to change!

I question how many people stayed behind to fight the fires because they felt they had no other choice because they were uninsured. As it currently stands in Victoria, NSW and Tasmania the fire service is provided for free to those home and business owners that insure. In theory those that are uninsured are charged for the service. The political reality is that after a natural disaster such as these Black Saturday fires the fire services will not seek recovery. Who could blame them!

The entire community benefits from the fire service, the SES and other Civil Defence Authorities. The cost to fund this should not be left to an archaic, unfair and inefficient system such as the fire service levy. The more enlightened states of Queensland, South Australia and Western Australia have moved the bulk of their funding to property taxes where everyone, whether they be owner or tenant, contributes. In the aftermath of the fires there will be much soul searching by the fire authorities and government and I encourage all of us in the insurance industry in NSW, Victoria and Tasmania to contact your local politician to urge them to rethink the whole funding mechanism. Lets make it fair!

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Dr Allan Manning (LMI Group)