30 August 2011

MELBOURNE:- Massive hikes to the Fire Services Levy are a very poor way to fund bushfire preparations, says Prosper Australia.

“While this move may appear sensible, if insurance premiums in fire-prone areas rise to the $1,000 mentioned in the Herald Sun, many homeowners will see it as too expensive and skip it,” Prosper Australia Campaign Manager David Collyer said today.

The FSL, a charge added to fire insurance, funds Victoria’s Metropolitan Fire Brigade and Country Fire Authority. But the FSL gives a free ride to uninsured property owners who 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 of homeowners.

“Expensive fire insurance will deter homeowners from buying this essential protection.

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

Prosper criticised the Baillieu government’s proposal at the time because it sought to base the property charge on Capital Improved Value – the combined value of land and buildings. Worse, its Green Paper said: “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.

“That is not where the tax base lives,” Collyer said. “Like all amenities, the benefit of the fire service is capitalized into land values. Put 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 highly skilled firefighters available to fight fires at a moment’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 more for a large house over a small cottage is a disincentive to building. Meanwhile, both enjoy an identical level of protection.

“The natural tax base for this property service is land,” Collyer said. “The Victorian government should remove the owner-occupier land tax exemption and adjust other land tax rates to meet this necessary and life-saving expenditure on fire fighting.” ENDS