Ending the Fire Services Levy – almost excellent

At the moment, Victoria’s Metropolitan Fire Brigade and Country Fire Authority are funded by the Fire Services Levy, a charge added to fire insurance.

But the FSL gives a free ride to uninsured property owners – they don’t pay for the level of fire cover provided.

Free riders increase the cost on other property owners.  Estimates of this non‐insurance vary from as little as 4 per cent to almost 30 per cent.

Expensive fire insurance deters homeowners from buying protection.  Then the uninsured risk disaster if their home is destroyed.

The government proposes replacing the FSL with a property charge – eliminating the free rider benefits and making fire insurance much cheaper.  This is eminently sensible and deserves support.

As always, the devil is in the detail.

The government wants to base the property charge on Capital Improved Value – the combined value of land and buildings. Worse, its Green Paper says: “The component of CIV that relates to the value of the underlying land would need to be removed.”

Fire services protect buildings.  They give citizens the confidence to build – and to build bigger and better.  But that is not where the tax base lives.

Like all amenities, the benefit of the fire service is capitalized into land values.  To put it another way, a quality fire service raises land prices regardless of whether a building is put up or not.

The overwhelming cost in fire fighting is the ‘stand by’ expense – of having a team of trained professionals available to fight fires at a minute’s notice 24 hours a day.  In the end, the cost differential of extinguishing a fire in a large house versus a small one is tiny.

A property levy that charges extra for a four bedroom two bathroom house over a simple two bedroom cottage is a disincentive to building. Meanwhile, both enjoy an identical level of protection.

The natural tax base for this property service is land.  The Victorian government should lift the owner-occupier land tax exemption and adjust other land tax rates to meet this necessary cost.

Victorians can anticipate a simple direct charge of $100 per property – effectively a poll tax that heavily subsidizes rural living North East of Melbourne, one of the most fire-prone areas in the world.  Residents there are more likely to need firefighting and ought pay more.

On another note: The government insists the property charge must raise no more revenue than the existing system. The 2009 Victorian Bushfires Royal Commission said our fire services need better equipment, better training and better leadership.  These things cost real money. Without them, the next dry summer will predictably result in tragedy and deaths.  Insisting the new cost be no more than the old might be good politics, but does nothing to prepare for the next big fire season – the one starting 1 November.

Leave a Reply

*
*

https://prosper.org.au/2010/08/31/ending-the-fire-services-levy-almost-excellent/