8 September, 2012

In brief

• The Victorian government has responded to recommendations by the Bushfire Royal Commission concerning the funding of Victoria’s fire services by introducing the Fire Services Property Levy Bill (“Bill“) into Parliament.
• The Bill proposes significant changes to the existing funding regime by replacing insurance-based funding with a single levy imposed on property owners to apply from 1 July 2013.

Existing regime and Royal Commission

Victoria’s fire services are currently funded by financial contributions from insurance companies, the State Government and metropolitan councils.

Insurance companies recover their cost of the contribution by imposing a fire services levy on insurance premiums.

How insurance companies recover their costs from policy holders is at their discretion. The existing levy (and applicable tax on tax) imposed on businesses can be as much as 100% of the value of the underlying insurance premium.

The Bushfire Royal Commission found this system lacked transparency and discouraged some owners from insuring, or fully insuring, their property due to the additional cost the levy imposed on premiums.

New property-based levy

The insurance-based fire services levy will be abolished and replaced with a single property-based levy from 1 July 2013.

Key features of the proposed changes are:

• Councils will collect the Fire Services Property Levy directly through rates notices and remit it to the State Revenue Office (“SRO“). The SRO will monitor collection.
• The Fire Services Property Levy, imposed on owners, will apply to real property (land and buildings) in Victoria that is leviable land. The levy will include a fixed component of $100 a year for residential properties and $200 for commercial, industrial, primary production public benefit and vacant properties. The fixed component will be CPI adjusted yearly.
• On top of the fixed component, there will also be a variable charge assessed on the capital improved property value used for rating purposes.
• The variable rate will be set by 31 May each year. It is intended to cover 87.5% of the Metropolitan Fire Brigade (“MFB“) budget and 77.5% of the Country Fire Authority (“CFA“) budget. Different rates could be levied for different land but not intended to be based on bushfire risk. A different levy rate may be determined to apply to land serviced by the MFB or serviced by the CFA.
• Effective removal of the associated GST and stamp duty costs compared with the existing insurance based levy.
• There will be a number of exemptions, eg Commonwealth and certain State land.
• The levy will be able to be paid in four instalments.

Transition period

The Fire Services Levy Monitor (part of the Essential Services Commission) is being established to oversee the transition to the new system. The Monitor will administer supplementary consumer laws (eg insurance premium adjustments) and ensure there are effective dispute management processes in place.