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Time to change fire funding NIBA tells VIC Committee

Victoria needs to follow most other States and take a new approach to the system of funding fire services if it is to meet the principles of sound taxation -- efficiency, equity, simplicity and transparency -- the National Insurance Brokers Association (NIBA) told a Parliamentary Committee today.

NIBA told the Victorian Parliament’s Economic Development and Infrastructure Committee’s inquiry into State Government Taxation and Debt that the current system of funding through a Fire Services Levy (FSL) on insurance policies is inequitable and drives normally prudent people away from insurance.

At least 30% of the homes destroyed by the Black Saturday bushfires in Victoria were uninsured.

NIBA’s submission, to a sitting of the Committee in Sydney, pointed out that GST and State stamp duty are applied one after the other on top of the FSL.

For example, the rate of FSL for Victorian country commercial insurance is 84 % of the basic premium. When GST and stamp duty are applied the total taxes and charges are a staggering 123% of the basic premium.

“Not only do the uninsured risk financial ruin and are a potential burden on the Government but they do not make the appropriate contribution towards funding the fire services.

“It is NIBA’s view that a completely new approach to funding fire services in Victoria is required.

 A far larger base of contributors than simply insurance policyholders is required. “Consideration should be given to taking an approach similar to that operating in Queensland, South Australia, Western Australia or the ACT where all property owners are levied irrespective of whether or not they have adequate insurance,” NIBA’s submission said.

A raft of public inquiries had been critical of insurance taxes because they performed poorly against the standard principles of a well-designed tax system -- efficiency, equity, simplicity and transparency. These included:

• The 2008 NSW Independent Pricing and Regulatory Tribunal’s Review of State Taxation concluded that: “Insurance duty and fire services funding contributions are the least efficient State taxes.”
• The 2001 Victorian State Business Tax Review found that: “The conclusion of studies (by groups including the Productivity Commission, The Heads of Treasuries State Taxes Working Group, comprising representatives of all state and territory Treasuries; and Access Economics) is that stamp duties and transaction taxes are among the most distortionary of all taxes available to the states. The Committee believes that …… abolishing them now would nurture business activity and growth.”

The submission noted that taxation on insurance is being considered by the Commonwealth’s Review of Australia’s Future Tax System (AFTS). Dr Ken Henry, the Chair of the Committee and head of the Commonwealth Treasury in a speech on 15 October referred to insurance taxes as “bad taxes” and indicated that a tax on a broader base would be more efficient, equitable and transparent.

“NIBA believes that it is appropriate for the Committee to recommend, as many public inquires have before it, that Victoria introduce a more equitable method of funding fire services and that State taxes on insurance be abolished,” the submission said.

ENDS

For further information contact NIBA CEO, Noel Pettersen on 02 9459 4305 or 0417 248-712 or go to www.niba.com.au/tax

NIBA is an independent industry association representing 500 firms and more than 2600 intermediaries, who handle almost 90% of the commercial insurance transacted in Australia. Brokers play a major role in insurance distribution, handling $10 billion in premiums annually and placing around half of Australia’s total insurance business.