Dr Ken Henry agrees with me on the FSL

In my opinion it was a no brainer.  The fire service levy (FSL) was wrong and its time to remove it!  Thank you Dr Henry.  Below is an part of what he had to say about the FSL.

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 Chapter E: Enhancing social and market outcomes 

E8. Rationalising other taxes

E8–1 Insurance taxes

Insurance taxes in Australia are levied by the States. All States impose duties on general insurance premiums with the 2008–09 rates ranging from 7.5 per cent to 11 per cent.

Providers of certain insurance products are levied to help fund the provision of emergency services. In NSW 73.7 per cent of the cost of providing the NSW Fire Brigades and the Rural Fire Service is recovered from insurers, while in Victoria 75 per cent of the cost of providing the Melbourne Fire and Emergency Services and 77.5 per cent of the Country Fire Authority is recovered from insurers. Tasmania has a hybrid funding system for fire services, including an insurance fire levy paid by commercial property owners and levied on specified forms of commercial property insurance at various rates.

Insurance taxes can lead to under-insurance

That the fire services levy is applied to insurance premiums in an ad valorem manner results in, all else being equal, those properties with a higher fire risk paying a higher fire services levy (as their insurance premiums would be higher to cover their fire risk). Partially funding the fire services in such a way could be considered fair as it means that those people more likely to need fire services contribute more to their funding, while some government funding contributes to the public benefit of fire services.

However, as noted above, the higher tax on insurance generally leads to a reduction in the number of people insured and will spread the burden of funding such service over less people than desirable. The levy also does not tax motor vehicles, despite that motor vehicle owners, in Victoria, receive around 15 per cent of the benefits of fire services (Victorian Government 2009). Funding fire services in this way also means that people with little fire risk but either higher other risks (which will not call on fire services) or higher value assets contribute more to fire services which they are relatively less likely to use.

Additionally, the uninsured do not contribute to the funding of these services. While there may be mechanisms, such as in Victoria, to recover the cost of fire services provided to the uninsured, in practice it is businesses, rather than individuals, which are charged in Victoria (Victorian Government 2009). Further, those under-insuring face no such charges. Because cost recovery is somewhat limited, and the fact that fewer people insure due to the levy, those insured are likely to bear a higher burden for funding fire services. While consistently applying cost recovery may be seen as more equitable, it would present a risk that the non-insured would not call the fire brigade to avoid the charge, which increases the risk of damage to other properties. This highlights the public good characteristics of fire services.

Findings

Australia has high taxes on insurance, both in comparison to other countries and to the way that other products and industries are taxed. Specific taxes on insurance add to the cost of insurance premiums and can lead to under-insurance or non-insurance.

Low-income earners are more likely than high-income earners to abandon insurance in response to higher premiums. The result is that they bear more risk themselves, although they are less well-placed to do so than people with higher incomes.

Reform directions — 

abolish specific taxes on insurance

Recommendation 79:

All specific taxes on insurance products, including the fire services levy, should be abolished. Insurance products should be treated like most other services consumed within Australia and be subject to only one broad-based tax on consumption.

There is little justification for levying specific taxes on insurance products. Rather than correcting a market failure, insurance taxes can add to existing problems in the insurance market. The revenue from insurance taxes should be replaced by revenue from a more efficient and equitable tax.

If governments wish to provide incentives for people to consider the fire risks when deciding where to live, other mechanisms — such as a risk adjusted charge on property — may be more appropriate. However, it is not necessary that these charges should be set to exactly match the costs of providing fire services. In fact, it may be undesirable particularly where the cost of providing fire services varies significantly from year to year.