Time to Re-think the Funding of Fire and Civil Defence Authorities in New South Wales

The terrible bushfires that have caused such widespread damage in the Eastern states, particularly in New South Wales during October 2013, demonstrate the need for fully funded and highly trained fire and civil defence services. Both the human and monetary cost to the economy that results from devastation such as this, means that to do otherwise would be negligent in the extreme.

No doubt and with some justification, there will be calls for additional funding from the New South Wales Fire Service,  but it is no longer appropriate that the majority of the funding be born by those prudent enough to insure. It must be borne equally by all those that benefit from the services.

The position in New South Wales is that funding currently comes from three sources, with the bulk of funding (73.7 per cent) provided by “tax on insurance” companies, while the remainder of the funds are provided by local governments (11.7 per cent) and the State Government (14.6 per cent). Of course the local authorities pass their proportion on via property rates. In addition, some individual brigades also run charity events to raise funds.

When you look at the level of impost on the insurance industry, you would be forgiven for thinking it was a charge on alcohol or tobacco products. Again, using New South Wale as as an example, if you own a business and wish to insure your business assets and/or protect your business income with interruption insurance, then for each $100 of premium (including terrorism levy) you pay nearly double due to taxation. Below is a table showing the calculation on commercial property.

Tax on business insurance in NSW as at 19 October 2013

You do not have to have a PhD in economics to know that if you double the cost of any service, you reduce the demand for the service. It is heartbreaking to me as I assess home and business claims following bushfires, that there is such gross under insurance. Worse still, many have no insurance. In the case of a business, the saving that they thought they were making in a business expense has had the effect of providing inadequate protection for their livelihood and that of their employees. The report “An Assessment of the Economic and Social Impacts of the 2007 Pasha Storm” estimated that 1,170 employees lost their job as their employers’ businesses failed following the Newcastle storm. It is, of course, equally shattering for home owners.

Clearly the level of taxation on insurance contributes significantly to this problem. I am sure a study of the New South Wales bushfires will show similar findings.

This all flies in the face of John Lock’s (1681) position that “Government has no other end but the preservation of property”. I take this one step further and suggest that the primary role of government is to encourage and protect business, and safeguard the ongoing growth of the economy.

Unlike the alcohol or tobacco industries that place a strain on the government  of $76 million every business day (over $19 billion annually). With the bushfires, as well as the storms and floods in Queensland already this year, this figure will rise. On the other hand, the level of taxation on insurance means that the State Government of New South Wales is failing miserably in their primary role and it is time to change!

The entire community benefits from the Fire Services, the SES and other Civil Defence Authorities. The cost to fund this should not be left to an archaic, unfair and inefficient system, developed ironically after the Great Fire of London in 1666 as a fire service levy payable on insurance.

The more enlightened states of Queensland, South Australia, Victoria and Western Australia have moved the bulk of their funding to property taxes where everyone, whether they be the owner or tenant, contributes. In the aftermath of the fires there will be much soul searching by the fire authorities and government and I urge that the methodology for funding be included in any review.