Fire tax puts heat on too few
The Age
Wednesday August 19, 2009
Emergency service funding should be more equitable, writes Allan Manning. FOR the year to June 30, 2008, the Australian general insurance industry paid out $23 billion in claims, which equated to 2.7 per cent of the Australian economy for the same period.The results are not yet posted for the year to June 30, 2009, but with the Victorian bushfires and storms and floods in Queensland and NSW, this figure will have increased considerably, particularly when combined with the contraction of our economy in the wake of the global financial crisis.Even at 2008 levels, the claims paid out by the insurance industry equate to $2 per day for every man, woman and child in Australia.Clearly, any country that wants a strong, healthy economy needs a strong, vibrant insurance industry.We all witnessed the disruption to Australian business and the economy in general with the collapse of the HIH Insurance Group at the start of the decade.With this background, you would expect that a responsible government working to protect the assets and livelihood of its constituents would work with the industry.Thousands of buildings were destroyed in the bushfires, yet more than 30 per cent were not insured and a high percentage of those that were insured were under-insured.A question that remains unanswered is: how many of those that perished in the fires stayed to protect their home and contents due to the fact they were uninsured?You would expect a responsible government to work with the insurance industry to look at ways of making insurance more affordable so more people have adequate protection.Clearly, from a government point of view €” be it state or federal €” the insurance industry is not putting a strain on resources in the way alcohol or tobacco does, particularly in the health sector.With this background, the Victorian Government, in its wisdom, has just increased the fire service tax to 84 per cent of the insurance premium for those living outside the Metropolitan Fire Brigade district.And it doesn't end there.The premium and fire service tax attract 10 per cent GST and then a further 10 per cent State Government stamp duty. This all takes a $100 premium charged by the insurer €” out of which it pays claims, salaries, rent and other overheads €” to a huge $222.62, of which $122.62 goes to government; $18.64 of that amount being tax on tax. The table above spells it out.Australia needs strong, well-resourced emergency services. As a community we all benefit. The cost should be shared fairly among us. It should not be left only to the prudent and risk averse who insure. The more enlightened states of Queensland, South Australia and Western Australia realised years ago the folly of taxing insurance to fund these all-important services.I strongly urge the Victorian Government to do the same, for all our sakes. If not, we will see more people cancelling their insurance or reducing cover. This will only force the fire tax rate higher, increasing the costs to those that remain insured; or, worse still, a reduction in services.Either way, Victorians will be the losers.Dr Allan Manning is managing director of insurance advisers, LMI Group.
© 2009 The Age