VictorianFireServices

PropertyLevy
OptionsPaper
June2011

ii
VictorianFireServicesPropertyLevy
OptionsPaper,June2011

TheSecretary
DepartmentofTreasuryandFinance
1TreasuryPlace
MelbourneVictoria3002
Australia
Telephone:+61396515111
Facsimile:+61396515298
www.dtf.vic.gov.au

AuthorisedbytheVictorianGovernment
1TreasuryPlace,Melbourne,3002

CopyrightStateofVictoria2011
Thisbookiscopyright.Nopartmaybereproducedbyanyprocessexceptinaccordancewith
theprovisionsoftheCopyrightAct1968.
ISBN9781921831461
PublishedJune2011.

Ifyouwouldliketoreceivethispublicationinanaccessibleformatpleasetelephone
96510909oremailmailto:information@dtf.vic.gov.au
ThisdocumentisalsoavailableinPDFformatatwww.dtf.vic.gov.au

VictorianFireServicesPropertyLevy
OptionsPaper,June2011 iii

Contents
1. Treasurersforeword ........................................................................................1
2. ExecutiveSummary...........................................................................................2
3. Introduction ......................................................................................................3
3.1 Previousreviews..........................................................................................................................3
3.2 Thefireservices ...........................................................................................................................3
3.2.1 MFESBandCFAgeographicalcoverage .........................................................................4
4. Fireservicesfundingarrangements..................................................................6
4.1 Currentfundingarrangements....................................................................................................6
4.2 TheinsuranceFireServicesLevy .................................................................................................6
4.3 Problemswiththecurrentfundingmodel ..................................................................................7
4.3.1 Overcollection ...............................................................................................................7
4.3.2 Underinsuranceandnoninsurance..............................................................................7
4.3.3 Ownersofsimilarassetscanmakesignificantlydifferentcontributions ......................8
4.3.4 Someassetownerspaytoomuchforfireservices........................................................8
4.3.5 Fireriskandresidentialinsurancepremiums ................................................................9
4.4 Alternatefundingmodels............................................................................................................9
5. Propertybasedfireserviceslevy ....................................................................12
5.1 Propertycharge ......................................................................................................................... 12
5.2 Principles....................................................................................................................................12
5.2.1 Efficiency ......................................................................................................................12
5.2.2 Equity............................................................................................................................12
5.2.3 Sustainabilityandrevenuestability .............................................................................12
5.2.4 Transparencyandsimplicity.........................................................................................13
5.2.5 Administrationandcompliancecosts ..........................................................................13
6. Levydesign......................................................................................................14
6.1 Fundingrequirements ...............................................................................................................14
6.2 Taxbase .....................................................................................................................................15
6.2.1 Personalpropertyandmotorvehicles.........................................................................15
6.2.2 Nonrateableproperty .................................................................................................16
6.3 Valuationbase ........................................................................................................................... 16
6.4 Revisionofthefundingrequirementandlevy ..........................................................................17
6.5 Fixedandvariablecharge..........................................................................................................18
6.6 MFESBandCFA..........................................................................................................................19
6.7 Differentialratesbypropertytype............................................................................................20
6.8 Concessions ...............................................................................................................................21
6.8.1 Eligibilityforaconcession ............................................................................................21
6.8.2 Rateofconcession........................................................................................................21
6.8.3 Targetingtheconcession..............................................................................................21
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VictorianFireServicesPropertyLevy
OptionsPaper,June2011

6.8.4 Interactionofconcessionandcollectionagency .........................................................22

6.9 Collectionagency.......................................................................................................................22
6.9.1 Localcouncil .................................................................................................................22
6.9.2 StateRevenueOffice....................................................................................................23
6.10 Transitionalarrangements.........................................................................................................23
6.10.1 Taperingmodel ............................................................................................................24
6.10.2 Decouplingmodel ........................................................................................................24
6.11 Monitoring.................................................................................................................................24
7. Nextsteps .......................................................................................................26
7.1 Consultation...............................................................................................................................26
7.2 Timeline .....................................................................................................................................26

VictorianFireServicesPropertyLevy
OptionsPaper,June2011 1

1. Treasurersforeword
InFebruary2009,Victoriawasdevastatedbybushfires.Atthistime,concernswereraised
abouttheoperationoftheFireServicesLevy(FSL).TheVictorianBushfiresRoyal
Commission(theRoyalCommission)subsequentlyrecommendedthattheStatereplacethe
FireServicesLevywithapropertybasedlevyandintroduceconcessionsforlowincome
earners(Recommendation64).
TheVictorianGovernmentwillintroduceafairerandmoreequitablenewpropertybased
levytoreplacetheexistingFireServicesLevy.Thecurrentinsurancebasedmodelis
inequitableandlackstransparency.ThenewlevywillensurethatallVictorianproperty
ownerspayafaircontributiontoourfireservices.
EnsuringVictoriasfireservicescontinuetooperateequitablyandwithsufficientresources
willbethefocusofthedesignofthenewlevy.
Thisoptionspaperoutlinesarangeoflevydesignandimplementationissuesfromthe
mostappropriatetaxbaseonwhichtoapplythepropertylevy,tothemosteffectiveand
efficientmethodtotransitionfromtheinsurancebasedmodeltoapropertybasedmodel.
TheGovernmentoffersallVictorianstheopportunitytocommentontheoptionsforthe
designofthenewfireserviceslevy.Apublicconsultationprocesswillbeundertakentoseek
feedback,andresponseswillbeconsideredinfinalisingthedesignandimplementationof
thenewlevyandtransitionprocess.
Thisoptionspaperisthefirststageindeliveringthissignificantreformofthefundingof
Victoriasfireservices.

KIMWELLSMP
Treasurer

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VictorianFireServicesPropertyLevy
OptionsPaper,June2011

2. ExecutiveSummary
TheannualbudgetsofVictoriasfireservicesaremainlyfundedbyfinancialcontributions
frominsurancecompanies,theStateGovernmentandmetropolitancouncils.TheStateand
CommonwealthGovernmentsprovideadditionalfundingintheeventofmajorfires.
InsurancecompaniesrecoverthecostoftheircontributionsbyimposingaFireServicesLevy
(FSL)oninsurancepremiums.
ThisoptionspapersetsouttheGovernmentsproposaltoreplacethecurrentfundingmodel
withanewpropertybasedfireserviceslevy,andinvitescommunityinputregardingkey
elementsofthenewpropertylevy.TheGovernmentwelcomesviewsonthefollowing
proposalsforthedesignofthenewlevy:
Imposethelevyonrealproperty,includingnonrateableproperty,propertyownedby
localcouncilsandpotentiallytheStateGovernment.
Setthefireservicespropertylevyannuallytoensurethefireservicesareadequately
funded.
Thefireservicespropertylevybecomprisedofafixedcomponentandanadvalorem
chargeassessedonthevalueofproperty.
AconcessionbeprovidedtoHealthCareCardholders,DepartmentofVeteransAffairs
goldcardholdersandPensionerConcessionCardholders.
Thefireservicespropertylevybecollectedbylocalcouncils,withsupportfor
implementationandadministration.
Thetaperingapproachbeadoptedtophaseouttheinsurancecontributionspriortothe
introductionofthepropertylevy.
TheEssentialServicesCommissionbeappointedtoindependentlymonitortheFSL
transitionprocessandreleaseareportonwhetherornotinsurancecompanieshave
passedonsavingstopolicyholders.
Inanumberofotherareasthereisaneedtochoosebetweendifferentoptionsforkey
elementsofthelevy.TheGovernmentseeksfeedbackonthefollowingissues:
Whichcomponentsofthestatutorycontributionsmodelshouldbereplacedbya
propertylevy.
Whetherthepropertylevyshouldbeassessedonthesitevalue,improvementsvalueof
realpropertyoronthecapitalimprovedvalue.
Therespectivecostsandbenefitsofasinglestatewidelevyandseparateleviesforareas
servedbytheCFAandMFESB.
Thepotentialfordifferentpropertylevyratesfordifferentpropertytypes.
Howtheamountofanyconcessionshouldbedetermined.

VictorianFireServicesPropertyLevy
OptionsPaper,June2011 3

3. Introduction
3.1 Previousreviews
Victoriasmovetoapropertybasedlevyisconsistentwithrecentreforminotherstatesand
territories.TheAustralianCapitalTerritory(200607),WesternAustralia(2003),South
Australia(1999)andQueensland(1985)haveintroducedfundingsystemsforfireservices
thatrequirepropertyownerstocontributeviaalevyonproperty.Tasmanialevies
residentialpropertyowners,whileretaininganinsurancebasedlevyonbusinesses.
In2003,DTFreleasedAReviewofVictorianFireServicesFundingArrangementscomparing
andevaluatingvariousfundingoptions.TheGovernmentofthedaydecidedtoretainthe
currentfireservicesfundingmodel,subjecttosomeminorchanges.
In2009,theFireservicesandthenoninsuredGreenPaperwasreleased,invitingpublic
commentregardingthefundingofVictoriasfireservicesandproposingaDTFpilotstudy
intothelevelofinsuranceinVictoria.Publicsubmissionsoverwhelminglysupporteda
propertybasedfundingmodel.
InMay2010,theAustraliasFutureTaxSystemreviewwasreleased.Itrecommendedthat
allspecifictaxesoninsuranceproducts,includingtheFSLimposedbyinsurancecompanies,
shouldbeabolished,advisingthatinsuranceproductsshouldbetreatedlikemostother
servicesconsumedwithinAustraliaandbesubjecttoonlyonebroadbasedtaxon
consumption.
InJuly2010,theRoyalCommissionrecommendedthatthecurrentinsurancebasedfunding
modelbereplaced,onthegroundsthatit:
isinequitablesincethecommunitywidebenefitsprovidedbythefireservicesare
fundedbyinsuredpropertyownersonly;and
lackstransparency,asthereisnodirectorwellunderstoodlinkbetweeninsurance
companycontributionstothefirebrigadesandtheFSLpaidbyinsuredpropertyowners.
TheRoyalCommissiondidnotprescribethedesignofthepropertybasedfundingmodel
butsuggestedthattheStatecouldbenefitfromtheexperienceofotherstatesand
territories.
TheRoyalCommissionwasconcernedthatchangingtoapropertybasedmodelmight
createproblemsforsomeuninsuredpropertyownerswithlowincomes.Thisgroupwould
findthemselvespayingthenewlevy,withoutacompensatingreductionintheirinsurance
costs.Assuch,theRoyalCommissionrecommendedconcessionsforlowincomeearners.
3.2 Thefireservices
TherearethreeauthoritiesresponsiblefortheprovisionoffireservicesthroughoutVictoria,
theMetropolitanFireandEmergencyServicesBoard(MFESB),theCountryFireAuthority
(CFA)andtheDepartmentofSustainabilityandEnvironment(DSE).
TheMFESBandCFAundertakearangeofactivitiesthatsupportthreemainobjectives:
fireorhazardprevention;
fireorhazardextinguishment;and
fireorhazardcontainment.

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VictorianFireServicesPropertyLevy
OptionsPaper,June2011

TheMFESBandCFAalsorespondtoamyriadofotheremergencyincidentsincluding:
floods;
searchandrescue;
roadaccidentrescue;
emergencymedicalresponse;and
industrialandhazardousmaterialsincidents.
TheMFESBandCFAalsodevelopfiresafetyproceduresandcounterterrorismstrategies,
providecommunitysafetyprograms,conductfiresafetybuildinginspectionsandinspect
andmaintainequipment.
DSEhasstatutoryresponsibilitytopreventandsuppressfireineveryStateforest,national
parkandonallpubliclandinVictoria.DSEinpartnershipwithParksVictoriaprovidesa
significantfirefightingeffortduringeventssuchaslargebushfiresandisentirely
governmentfunded.
3.2.1 MFESBandCFAgeographicalcoverage
WhiletheMFESBandCFAareeachresponsiblefordistinctgeographicareas(seeFigure1),
theyextendtheirservicesacrossregionalboundariesinresponsetospecificemergencies.
TheMFESBprovidesfireservicecoverageinmetropolitanMelbourne.TheMelbourne
MetropolitanFireDistrict(MFD)coversapproximately1096squarekilometres,containing
almostfourmillionresidents,workersandvisitorsandbillionsofdollarsofassetsand
infrastructure.TheMFESBemploysmorethan1700firefightersin54firestationsand
specialistdepartments.
TheCFAisoneoftheworld'slargestvolunteeremergencyserviceandcommunitysafety
organisations.TheCFAisbasedoncommunityinvolvementandgainsitsstrengthfromthe
commitmentofitsvolunteersandstaff.Thereareover58000CFAvolunteers,including
morethan35000trainedvolunteerfirefightersand23000involvedinnonfirefighting
roles.Theauthorityissupportedbyover1400paidstaff,includingover500careerfire
fighters,providingemergencyresponseandcommunitysafetyprogramsthroughout
Victoria.TheCFAprovidesfireservicestoallpartsofVictoriaotherthantheMelbourne
MFD.Thiscovers150182squarekilometres,andwiththeexpansionoftheurbanfringe
requirestheCFAtoprovideserviceswithagreaterurbanfocus.

Figure1:AreasservicedbytheCFAandtheMFESB

Source:CountryFireAuthority

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VictorianFireServicesPropertyLevy
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4. Fireservicesfundingarrangements
4.1 Currentfundingarrangements

TheMFESBandCFAarelargelyfundedbystatutorycontributionsfromtheinsurance
industry,metropolitanmunicipalcouncilsandtheStateGovernmentinproportions
determinedbySection77AoftheCountryFireAuthorityAct1958(CFAAct)andSection37
oftheMetropolitanFireBrigadesAct1958(MFBAct).
AsillustratedinTable1,insurancecompaniesarerequiredtocontribute75percentofthe
statutorycontributionstoMFESBannualexpenditureand77.5percentofthestatutory
contributionstoCFAannualexpenditure.TheStateGovernmentcontributes12.5and
22.5percentrespectively.LocalgovernmentslocatedwhollyorpartlywithintheMFDare
requiredtocontribute12.5percentofthestatutorycontributionstotheannual
expenditureoftheMFESB.LocalcouncilsoutsidetheMFDarenotrequiredtocontributeto
CFAannualexpenditure.
Table1:Statutorycontributions(percent)
MFESB CFA
Insurancecompanies 75.00 77.50
Localgovernment 12.50
StateGovernment 12.50 22.50
Total 100.00 100.00
Source:Section77AoftheCountryFireAuthorityAct1958andSection37ofthe
MetropolitanFireBrigadesAct1958
InadditiontothestatutorycontributionssetoutinTable1,thefireservicesreceivefunding
fromarangeofothersources.ThisadditionalfundingisprovidedbytheCommonwealth
Government,insurancebrokers(andpropertyownerswhoinsurewithacompanynot
requiredtomakeacontribution),usercharges(includingattendanceatfalsealarms),the
saleofgoodsandservicesandincomefrominvestments.TheStateGovernmentprovides
furtherfundingforcatastrophicfireevents.(Table6onpage14providesafullsummaryof
MFESBandCFAfunding.)
4.2 TheinsuranceFireServicesLevy
InsurancecompanieshavehadanevolvingroleinfundingVictoriasfirebrigadessincetheir
inceptionin1845.Underthecurrentstatutorycontributionsmodel,thefirebrigades
providetheGovernmentwithanestimateofexpenditurelikelytobeincurredduringeach
financialyear.TheMinisterdeterminesthetotalstatutorycontributions,andtheinsurance
industrystatutorycontributionisdistributedbetweenindividualinsurancecompanies.The
distributionisbasedontheinsurancecompaniesannualgrosspremiumincomeforeach
dedicatedclassofinsurance.
InsurancecompaniespassontheircontributioncoststopolicyholdersasanFSLon
insurancepremiums.TheInsuranceCouncilofAustralia(ICA)providestheirmemberswith
quarterlyadvisoryratestoaddtopremiums.Theratesareadvisoryinnatureandmembers
arerecommendedtomaketheirowndeterminationoftheFSLhavingregardtotheir
estimatedpremiummovements.TheICAhasnolegislativeorstatutorypowertosetrates

VictorianFireServicesPropertyLevy
OptionsPaper,June2011 7

andinsurancecompaniesarenotobligedtorecoverthecostsinthisway.Similarly,thereis
norolefortheGovernmenttodeterminehowinsurancecompaniesshouldrecovertheir
costs.
TherecentICAadvisoryratesforVictoriaareillustratedinTable2.
Table2:ICAadvisoryrates(percent)
Victoriametro May11 Feb11 Dec10 Sep10 Jun10 Mar10 Dec09 Sep09 Jun09 Mar09 Dec08 Sep08 Jun08
Commercial 45 44 44 46 46 46 47 50 51 48 48 48 48
Householders/homeowners 18 17 17 18 18 18 19 20 21 20 20 20 20
Victoriacountry
Commercial 65 64 64 66 72 72 80 84 68 63 63 58 58
Householders/homeowners 24 23 23 24 26 26 28 31 26 24 24 24 24

Source:InsuranceCouncilofAustralia
MostICAmembersapplyratessimilartotheadvisoryratestoallhomeandcontents
policies.TocalculatetheFSLliability,theinsurerwillmultiplythecostoftheinsurance
policybytheadvisoryrate.Forexample,aresidentialbuildinginsurancepolicyof$400a
yearwillbemultipliedbytherelevantrate(18percentinthemetropolitanarea)to
determineaFSLliabilityof$72.
4.3 Problemswiththecurrentfundingmodel
Followingthe2009bushfiresanumberofquestionswereraisedregardingtheequityand
efficiencyofthestatutorycontributionsfundingmodel.
4.3.1 Overcollection
The2003reviewhighlightedconcernsthatinsurancecompanieswerecollectingmoreFSL
thantheamounttheywererequiredtocontributetotheMFESBandCFA.
Itisestimatedthatfrom199899to200102theFSLrevenuecollectedbytheinsurance
industrywas$47milliongreaterthanthestatutorycontributiontheinsuranceindustrywas
requiredtomaketofundVictoriasfireservices.Whiletheseexcessamountswereretained
bytheinsuranceindustryatthattime,theGovernmentintroducedimprovedreporting
measurestoincreasetransparencyintheinsuranceindustryscollectionoftheFSL.Insurers
mustnowreportthecontributionsmadetothefireservicesandtheamountoftheFSL
collectedeachyear.
FromJuly2006toJune2009,theinsuranceindustrycollected$17millionlessinFSLthan
therequiredstatutorycontributiontotheCFAand$12millionmorethantherequired
statutorycontributiontotheMFESB.Thesediscrepanciesarelikelytobetheresultof
estimatingpremiumincomeinadvanceofrevenuecollections.
4.3.2 Underinsuranceandnoninsurance
InsurancetaxesareamongthemostinefficienttaxesleviedinAustraliaandthereis
significantpotentialforreform.ThecombinationofstateandCommonwealthtaxeson
insurancereducestransparencyandincreasesthecostofinsurance.
Oneoftheprimaryconcernswiththeinsurancebasedmodelisthatnoninsuredproperty
ownersdonotcontributetofundingthefireservices.Asaresult,ownersofinsured
buildingsandcontentsareovercontributingtofundingthefireservicesandcross
subsidisingthenoninsured.
In2010,DTFandtheStateRevenueOffice(SRO)undertookastudytoassessthelevelof
noninsuranceinVictoria.Thisstudyinvolvedcollectinginformationfrominsurance

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companiesoninsuredpropertiesin10localauthorityareasandmatchingthistotheSROs
propertydatabase.
InVictoria,thereisalowlevelofbuildingnoninsurancebothinabsolutetermsandwhen
comparedtootherAustralianstatesandterritories(includingthosethatdonotusean
insurancebasedfundingmodel).Theestimatedrangefornoninsuredresidentialproperties
isbetween3and9percentforbuildings,withthemostreliableestimateindicatingthat4
percentofVictorianhouseholdsdonothavebuildinginsurance.Approximately26percent
ofVictorianhouseholdsdonotinsuretheircontents.
Asecondequityconcernistheincidenceofunderinsurance,wherepropertyownersinsure
theirpropertyforlessthanitsvalueandthereforepaylowerpremiumsandareducedFSL.
Therearetwopossiblemeasuresofpropertyvalueforinsurancepurposes,replacement
costandmarketvalue.Replacementcostreferstothecostofrebuildingthehome,while
marketvalueisthedifferentialbetweenthelikelysalepriceoftheland(intheeventofthe
homebeingdestroyed)andthecostofpurchasinganequivalentproperty.
Underinsuringapropertyforitsreplacementcostisprevalentandlikelytobecausedby:
theintrinsicallydifficulttaskofestimatingrebuildingcosts;
failuretoupdatepoliciesascircumstanceschange;and
adeliberatetendencytoinsureonlythedwellingandnototheritemssuchasfencesand
watertanks,whichisapositivechoicetopartiallyselfinsure.
Conversely,onlyasmallpercentageofdomesticbuildingsareinsuredforlessthanmarket
value.Manypropertyownersaresignificantlyoverinsuredinrespectofthemarketvalue
oftheirhome.
4.3.3 Ownersofsimilarassetscanmakesignificantlydifferentcontributions
Insurancepremiumsforsimilarpropertiescanvarysignificantly.Thepriceofinsurance
variesduetodeductiblesanddifferentialproducts,suchasnewforoldreplacementand
reimbursementifbuildingcostsexceedthesuminsured.Somepropertyownersrenew
insurancepolicieswithexistinginsurerswithoutcomparingpremiums,oraccurately
estimatingthevalueoftheirhomeandcontents.Thesefactorscontributetoownersof
similarassetspayingconsiderablydifferentpremiumsandthereforedifferentFSL
contributions.
A2010analysisofonlineinsurancepremiumcalculatorsfoundthataresidentialproperty
withasuminsuredof$200000andadeductibleof$500couldpayaninsurancepremium
ofbetween$296and$544.WhentheICAadvisoryratesareappliedtothesepremiums,the
FSLpayablevariesfrom$53.28to$130.56perannum(seeTable3).
Inaddition,ownersofsimilarpropertieschoosetoinsuretheirpropertyfordifferent
amounts.Forexample,theDTFandSROstudyshowedthattheownersofpropertieswith
improvementsvaluedat$155000insuredtheirpropertiesforbetween$148800and
$548700.Substantialdifferencesinthesuminsuredforsimilarpropertieswillbereflected
indifferencesininsurancepremiumsandFSLcontributions.
4.3.4 Someassetownerspaytoomuchforfireservices
TheDTFandSROstudyfoundthatthosewithcontentsinsurancesignificantly
overcontributetofundingVictoriasfireservicesrelativetothebenefitsthattheyreceive.
In200809,thisovercontributionfrominsuredcontentsownerswasestimatedtobe
between$46and$54millionandisdueto:

VictorianFireServicesPropertyLevy
OptionsPaper,June2011 9

insurancepremiumrates(asapercentageofthesuminsured)beingmuchhigherfor
residentialcontentsthanforbuildings,largelyduetotheriskofburglaryandtheft;and
insurersapplyingtheICArecommendedratestoinsurancepremiums,whicharethe
sameforbothbuildingandcontentspremiums,todeterminetheFSLpaidbyindividual
policyholders.
AnalysisofdomesticcontentsinsurancedataindicatesthattheaverageFSLpayablein
respectofacontentspolicyis$52.71.ThisisinadditiontotheFSLpaidinrespectofbuilding
insurance.
4.3.5 Fireriskandresidentialinsurancepremiums
Insurancepremiumsinthehouseholdsectorareinfluencedbyanumberofriskfactors.
Whilefireriskisone,arguablyweatherdamageandlossattributedtotheft/burglaryare
greaterdeterminantsofinsurancepremiumsandtheFSL.
ResearchundertakenbyDTFfoundalackofconsistentvariationinthepremiumscharged
byinsurancecompaniesforequivalentpropertiesbasedonlocationinselectedloworhigh
fireriskareas(basedonMFESBandCFAadvice,seeTable3).AstheFSLiscalculatedasa
percentageofthetotalinsurancepremium,somepropertyownerspayahigherFSLasa
resultofariskprofilewhichdoesnotnecessarilyreflectfirerisk.
Table3:Insurancepremiumsfortimberhouse,selectedinsurersandlocations
Lowfireriskareas Highfireriskareas
InsurerA $351$440 $351$470
InsurerB $376$436 $406$436
InsurerC $391$412 $367$390
InsurerD $296$307 $320$352
InsurerE $450$486 $443$544
InsurerF $475$516 $473$483
InsurerG $318$339 $326$377
Summary $296$516 $320$544
Source:2010DTFandSROstudyusingonlineinsurancecalculators
Thelackofvariationisduelargelytotherelativeimportanceofotherrisks(e.g.burglary)in
determiningpremiumsandthecosttoinsurersofundertakingfireriskassessments.
4.4 Alternatefundingmodels
Inrecentyearstherehasbeenasubstantialchangeinthemechanismsusedtofundthe
provisionoffireservicesacrossAustraliaandNewZealand.Asrecentlyas199899,
insurancebasedfundingmodelswerepredominantacrossAustraliaandNewZealand.At
thattimefourstatesusedaninsurancebasedmodel(NewSouthWales,Victoria,Western
Australia,SouthAustralia),asdidNewZealand,whileTasmaniausedahybridmodel
containingbothpropertybasedandinsurancebasedfundingelements.OnlyQueensland
adoptedapropertybasedmodel,withtheACTandNorthernTerritoryfundingservices

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fromconsolidatedrevenue.Queensland'spropertybasedmodelwasadoptedin1985,prior
towhichitalsousedaninsurancebasedmodel.
Sincethattime,threejurisdictions(WesternAustralia,SouthAustraliaandtheACT)have
movedtoapropertybasedmodel.InNewSouthWalesandVictoriarecommendationshave
beenmadetogovernmenttomovetopropertybasedmodels.
AhighlevelcomparisonoffundingmodelsbyjurisdictionisprovidedatTable4.Further
informationonthedesignofthefireserviceslevyinotherjurisdictionsissetoutatTable5.
Table4:Fundingmodelsbyjurisdiction
Jurisdiction Fireservicescontribution
forresidentialproperty
Fireservicescontribution
fornonresidential
property
Victoria Insurancebasedmodel
NewSouthWales Insurancebasedmodel
Queensland Propertybasedmodel
WesternAustralia Propertybasedmodel
SouthAustralia Propertybasedmodel
Tasmania Localcouncillevies Insurancebasedmodel
AustralianCapitalTerritory Fixedcharge Propertybasedmodel
NorthernTerritory Consolidatedrevenue
NewZealand Insurancebasedmodel

Source:DepartmentofTreasuryandFinance,FireandRescueNSW,QueenslandFireand
RescueService,FireandEmergencyServicesAuthorityofWesternAustralia,RevenueSA,
TasmaniaFireService,ACTRevenueOffice,NorthernTerritoryTreasuryandtheNewZealand
FireService
Inadditiontothemodelsusedinotherjurisdictions,thefollowinghavebeenraisedas
possiblealternativestoVictoriasfundingarrangements:
enhancingthecurrentinsurancebasedmodel;
introducingcompulsoryinsurance;and
mandatingrecoveryoffireservicecosts.
Uponanalysis,theseoptionswerefoundtobeimpracticalandunlikelytodeliversignificant
improvementsinefficiencyandsimplicity.

Table5:Fireserviceslevyinotherjurisdictions

Jurisdiction Fireservicesfunding
model
Collection
agency
Taxbaseandlevystructure Concessions Motorvehicles
included
Propertytypeclassification Areaclassification Exemptions
Victoria(current) Insurancebasedmodel Insuranceindustry Insurancecontributionpassedonto
policyholders
No No DifferentICAadvisoryratesforresidential
andcommercialproperty
DifferentICAadvisoryratesfor
propertieslocatedinMFESB
andCFAareas
InfrastructureinsuredbytheState
Governmentandsomepropertyinsuredwith
theVMIAbystatutoryauthorities
NewSouthWales Insurancebasedmodel Insuranceindustry Insurancecontributionpassedonto
policyholders
No Yes Unknown Unknown Unknown
Queensland Propertybasedmodel Localgovernment Fixedchargedeterminedbythesize
andnatureofanyimprovementson
theland
Pensioners No 17riskweightedcategories Areaclassificationsreflect
qualityofservicesdeliveryas
measuredbyresponsetime
StateandCommonwealthproperty
WesternAustralia Propertybasedmodel Localgovernment RatemultipliedbyGrossRentalValue
(rentalvalueoflandandbuildings)
Pensionerconcessioncards,
stateconcessioncards,
CommonwealthSeniorsHealth
CardandWAseniorscards.
No Threepropertyclassifications:Vacant,
residentialandfarming;commercial,
industrialandmiscellaneous;andmining
(extraction)tenements.Different
maximumsapplydependingonproperty
classification
Fiveareaclassificationsto
reflectqualityofservice
Commonwealthproperty,somelocal
governmentproperties,mining(prospecting)
tenements,Wittenoomtownship(whichis
contaminatedbyasbestos)
SouthAustralia Propertybasedmodel RevenueSA Fixedchargeplusvariablecharge
calculatedusingthecapitalvalueof
theproperty(valuationbasedonthe
marketvalueoftheproperty).Afixed
chargeisappliedtomotorvehicles.
Pensioners,selffundedretirees,
peoplereceivingeligible
Centrelinkbenefits
Yes Sixlandusecategories:residential;
commercial;industrial;rural/vacant;
other;andspecialcommunityuse
Fourregions No
Tasmania Localcouncilleviesfor
residentialpropertyand
aninsurancebased
modelfornon
residentialproperty
Localgovernment,
insuranceindustry
Legalliabilitytoresidential
contributionrestswiththelocal
council.Councilsarepermittedto
passthecostontoratepayersinthe
formofalevy.Commercialproperty
ownerspayaninsurancelevyand
motorvehiclesownerspayalevyon
registration.
Unknown Yes Residentialandnonresidentialproperty
contributionsarecollectedusingdifferent
fundingmodels
Unknown Crownland,councilland,Stateforests,the
townofSavageRiver,ajettyorslipway,
unimprovedlandnotexceeding10square
metresandAboriginalland
AustralianCapital
Territory
Propertybasedmodel RevenueOffice Afixedchargeisimposedon
residentialandruralproperties.
Valuationbasedcharges,assessedon
theAverageUnimprovedValueof
land,applytocommercialproperties.
TheAverageUnimprovedValueof
landistheaveragevalueoftheland
forthe3precedingyears.
Pensioners No Twopropertyclassifications:residential
andruralproperties;andcommercial
properties
Unknown Unknown
NorthernTerritory Consolidatedrevenue
NewZealand Insurancebasedmodel Insuranceindustry Variablerateappliedtotheinsured
replacementvalueofpropertyanda
fixedchargeformotorvehicles
No Yes Ratesareconsistentforallpropertytypes
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12
VictorianFireServicesPropertyLevy
OptionsPaper,June2011

5. Propertybasedfireserviceslevy
5.1 Propertycharge
ImplementingapropertybasedchargetofundVictoriasfireserviceshasseveral
advantages.Apropertybasedlevywouldhaveabroadtaxbaseandensurethatallproperty
ownersmakeafinancialcontributiontothefireservices.Alevycalculatedwithreferenceto
propertyvaluewouldbemoreequitable,andtheownersofsimilarpropertieswouldmake
similarfundingcontributionsthatreflecttheunderlyingcostsofprovidingfireservices.
RemovingtheinsurancestatutorycontributionwillalsoremovetheFSLfrominsurance
premiumsandcouldleadtoanincreaseinthetakeupofbuildingandcontentsinsurance.
EvidenceindicatesthatthelevelsofinsuranceincreasedwhenWesternAustraliareplaced
itsinsurancebasedmodelwithapropertycharge.
Apropertychargewilldirectlyandtransparentlylinkthefinancialcontributionspaidby
individualpropertyownerswiththeexpectedcostsofprovidingfireservicesandprovidea
stableandpredictablerevenuesourcetofundthefireservicesovertime.
5.2 Principles
Thefollowingprincipleshaveguidedthedesignofapropertybasedfireservicesfunding
model:
efficiency;
equity;
sustainabilityandstabilityoftherevenuebase;
simplicityandtransparency;and
minimisingadministrationandcompliancecosts.
5.2.1 Efficiency
Thenewpropertybasedfireserviceslevyshouldbechargedonabroadbase,andatalow
ratethatminimisesdistortionstodecisionmaking.Taxesthatimposeasignificantburden
mayalterbehaviour,suchasdiscouragingconsumptionofagoodorservice.
5.2.2 Equity
AllbeneficiariesofthefireservicesshouldcontributetoMFESBandCFAfundingin
proportiontothebenefitstheyreceive.AsallpropertyownersbenefitfromVictoriasfire
services,aminimumcontributionshouldbemadebyallpropertyowners.Equally,property
ownersinsimilarcircumstancesshouldmakesimilarcontributionsandconsiderationshould
begiventotheirabilitytopay.
5.2.3 Sustainabilityandrevenuestability
Fundingshouldbederivedfromareliableandstablesource.Therevenuebaseneedsto
growovertimeinlinewithdemandandthecostofprovidingtheservices.Theamountof
revenuereceivedshouldbepredictabletoallowforserviceplanningandminimisetheneed
foradjustmentstothelevy.

VictorianFireServicesPropertyLevy
OptionsPaper,June2011 13

5.2.4 Transparencyandsimplicity
Afireservicesfundingmodelshouldallowpropertyownerstoidentifywhattheyare
contributingtoandhowmuchtheyarecontributing.Thesystemshouldalsoensure
accountabilityforrevenueandexpendituredecisions.
5.2.5 Administrationandcompliancecosts
ThecoststotheGovernmenttoadministertheschemeandensurepropertyowner
complianceshouldbeminimised.Propertyownersshouldalsobeabletocomplywiththeir
obligationswithoutincurringsignificanttime,resourceandfinancialcosts.

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6. Levydesign
6.1 Fundingrequirements
Theintentionofthisreformistomaintainexistingfundinglevels.Ingeneral,thisimplies
thatthenewpropertylevywillreplaceexistingstatutorycontributions,whileothersources
ofrevenuetothefireserviceswillremaininplace.
Tomaintaincurrentfundinglevels,thepropertybasedfundingmodelwillneedtoreplace
allfundingsourcesthatwillceasewhenthepropertylevyisimplemented.
Table6summarisesthe200910budgetfortheMFESBandCFA.Thehighlightedvalues
representtherevenuesourceswhichcouldpotentiallybereplacedbythepropertybased
levyfollowingthecessationoftheinsurancemodel.
Table6:200910Revenue
FundingSource CFA200910 MFB200910
InsuranceContributions $303170000 $206136000
LocalGovernment $34356000
StateGovernment $71554000 $34356000
CommonwealthGovernment $576000 $3049000
Majorincidentfunding $4389000
Contributionsfrombrokersandowners $20670000 $8086000
ProvisionofGoodsandServices $13701000 $27214000
Interestanddividends $4544000 $8072000
OtherIncome* $14252000 $4288000
Uninsuredfirefees acomponentofotherincome
TotalIncome $432856000 $325557000

*Otherincomeincludespublicdonations,contributionsfromtheTransportAccident
Commissionandincomefrominvestments.
Source:CFAandMFESB

Statutorycontributionscomefromthreesources:theinsuranceindustry,localgovernment
andstategovernment.Thereisastrongcaseforthenewpropertylevytoreplaceall
existinginsuranceandlocalgovernmentcontributions,andaquestionastowhetherit
shouldalsoreplacestatecontributions.
Localcouncilscurrentlycontributetothefireservicestotheextentthattheyinsuretheir
buildingsandcontentswithprivateinsurancecompanies.Inaddition,councilseitherwholly
orpartlywithintheMetropolitanFireDistrict(MFD)makestatutorycontributionstothe
MFESB.Thesecostsarepassedontoresidentsthroughlocalcouncilrates.Ifthe
metropolitanmunicipalcouncilstatutorycontributionwastoceasefollowingthe
introductionofthepropertybasedlevy,therewouldnotbeanincreaseintheoverall
burdenonratepayersasaresultofapropertylevyonlocalcouncilproperty.Similarly,the
StateGovernmentstatutorycontributioncouldalsobereplacedbyalevyonState
Governmentproperty,subjecttothedevelopmentofarobustandtransparent
methodologyfordeterminingthelevy.Thiscouldhowever,giverisetosomeadministrative
complexity.

VictorianFireServicesPropertyLevy
OptionsPaper,June2011 15

Insummary,therearesignificantdistinctionsbetweenthesituationsinrelationtolocal
governmentcontributionscomparedwithstategovernmentcontributions.Inparticular:
LocalcouncilscurrentlypaytheFSLwhentheyinsuretheirassetsprivately;stateowned
landandbuildingsareinsuredthroughtheVictorianManagedInsuranceAuthority
(VMIA).
Existinglocalgovernmentstatutorycontributionsarepassedon(throughrates);whereas
statecontributionsaresourcedfromconsolidatedrevenue.
Thesefactorsraiseaquestionastowhetherthenewpropertylevyshouldreplaceall
existingstatutorycontributions,orinsuranceandlocalgovernmentcontributionsonly.

6.2 Taxbase
Sinceallpropertyownersbenefitfromtheavailabilityoffireservices,thelevyshouldbe
imposedonrealproperty(i.e.landandimprovements).
6.2.1 Personalpropertyandmotorvehicles
Theownersofpersonalpropertyandmotorvehiclesreceivesignificantbenefitsfromthe
fireservices.Approximately12percentofincidentstowhichtheCFArespondsaremobile
vehiclerelated,whileatotalof9.1percentofMFESBincidentresponsetimerelatesto
mobilevehicles.However,thisincludesrescueactivitiesandtheTransportAccident
Commission(TAC)currentlymakesanannualcontributiontowardsthecostoftheMFESB
andCFAprovidingroadaccidentrescueservices.TheTACcontributionwillcontinue
followingtheimplementationofthepropertybasedfundingmodel.
WhileSouthAustralia,TasmaniaandNewZealandimposealevyonmotorvehicles,studies
conductedbytheFireandEmergencyServicesAuthorityofWesternAustralianindicated
thatalevyonmotorvehicleswouldaddlittlevaluetothedesignofafireservicesproperty
levy.WesternAustralia,QueenslandandtheAustralianCapitalTerritoryhave
propertybasedfundingmodelsbutdonotimposethatlevyonmotorvehicles.Amotor
vehiclefireserviceslevyforVictoriawillincreasecollectioncostsandduplicatecollectionof
thelevyfromownersofbothrealpropertyandmotorvehicles.
Thereisalsonoexistingvaluationprocessorcomprehensivevaluationbaseuponwhichto
imposeapropertylevyonmotorvehiclesorpersonalproperty.Asaresultofthe
impedimentstoimposingthelevyonmotorvehiclesandpersonalproperty,theproperty
levywillnotbeextendedbeyondrealproperty.
Question
Which components of the statutory contributions model should be replaced by a property
levy?
o Allstatutorycontributionsfrominsurersandstateandlocalgovernments?
o Statutory contributions from insurers and local government only, with existing state
governmentcontributionscontinuingonthebasisofthecurrentmodel?

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6.2.2 Nonrateableproperty
GiventheiruseofVictoria'sfireservices,thereisacaseonequity,efficiency,competitive
neutralityandtransparencygroundsforafireservicespropertychargetobeleviedonlocal
governmentpropertyandpropertiesthatcurrentlyreceiveexemptionsfromotherproperty
taxesinVictoria.ThisisconsistentwiththearrangementsinWesternAustraliaandSouth
Australia.
Thisapproachreflectsthefactthatownersofpropertyusedforcharitablepurposes,
infrastructureandothercurrentlytaxexemptpurposesalreadymakeafinancial
contributiontothefireservicesthroughtheirinsurancepremiums.Thepropertylevywould
replacethisinsurancecontribution.

6.3 Valuationbase
Therearethreemainpropertyvaluationoptionsforapropertylevy:
sitevalue,whichisthevalueoflandonly;
improvedvalue,whichisthevalueofbuildingsonly;and
capitalimprovedvalue,whichincludesthevalueofbothlandandbuildings.
Table7illustratesthevalueofthedifferenttaxbases.AllVictorianpropertiesarevalued
biennially,withsupplementaryvaluationswherenewpropertiesaredevelopedorfollowing
achangeinpropertyuse(i.e.fromcommercialtoresidential).
Table7:Valueofthetaxbase

Taxbase Valueoftaxbase
Sitevalue $776billion
Improvedvalues $486billion
Capitalimprovedvalue $1.3trillion
Source:ValuerGeneralVictoria

Site(land)valueisaneconomicallyefficienttaxbaseandalevyonsitevaluehasthebenefit
ofnotaffectingincentivestoinvestinimprovements.Sitevalueishoweverless
representativeofthevalueofassetsprotectedbythefireservices.Alevyonthesitevalue
ofapropertycouldimposemoreheavilyonpropertyownerswithlowimprovedvalues
relativetolandvalue,suchasfarmsandlowdensityresidentialpropertiesinmetropolitan
areas.
Apropertylevybasedonimprovedvalues(i.e.thevalueofbuildings)wouldreflectthe
benefitsreceivedfromfireservices,astheownersofhighervalueassetsreceiveagreater
potentialbenefitfromtheavailabilityoftheseservices.Althoughalevyonimprovedvalues
Proposal
Impose a property levy on real property, including nonrateable property, property owned by
localcouncilsandpotentiallytheStateGovernment.

VictorianFireServicesPropertyLevy
OptionsPaper,June2011 17

wouldalsohaveahigherimpactonpropertieswithhighimprovedvaluesrelativetoland
value,suchashighdensityofficeandapartmentbuildingsandretailcomplexes.Alevyon
improvedvaluesmayresultintheownersofvacantlotsnotmakingacontributiontothe
fireservicesevenwheretheyrepresentafirerisk.Thisissuecouldbemitigatedbyincluding
afixedlevycomponentonallproperties(discussedfurtherinsection6.5).
Apropertylevyassessedoncapitalimprovedvaluewouldpartlyapplytoabroadand
immobiletaxbase(land).Asthevalueofimprovementsisincludedinthetaxbase,thelevy
wouldpartlyreflectthebenefitsreceivedfromtheprotectionofassets.Imposingthelevy
oncapitalimprovedvalue,however,wouldnotidentifywhetherthemajorityofthe
propertysvalue(andthereforethebenefitderivedfromfireservices)wasinthelandorthe
improvements(buildings).Acapitalimprovedvaluationbasewouldbemoreconsistentwith
localcouncilsexistingpracticelevyingrates,whichmayreduceadministrationcosts.

6.4 Revisionofthefundingrequirementandlevy
Arevisionmechanismisrequiredtoensurethefireservicespropertylevyraisesadequate
revenueinfutureyearswhileprovidingastableandtransparentlevyforpropertyowners.
Therearethreemainoptionsforrevisingtherevenueraisedandpropertylevyintheyears
followingimplementation:
continuetosetMFESBandCFAbudgetsannuallyandderivethepropertylevyratefrom
thefundingrequirement;
determinealevyrateatthetimeofimplementationandmaintainthatfixedlevyratein
futureyears(subjecttoperiodicreview);or
derivethepropertylevyratefromthefundingrequirement,subjecttoacapontotal
revenuegrowth.
Therehasbeenstronggrowthinrevenuedirectedtothefireservicesinrecentyears.If
MFESBandCFAbudgetscontinuetobesetannuallyandthepropertylevyratesarederived
fromthefundingrequirement,thelevyrateswillchangeeachyear.Tocalculatelevyrates
thetotalrevenuerequirementswouldbedividedbyaggregatepropertyvalues,takinginto
accountlevyareasandpropertytypes.Achangeinrevenuerequirements,orachangein
aggregatepropertyvalues,wouldhaveanimpactonthelevyrate.Variablelevyrates
provideflexibilitytoensurerevenuecollectionsmatchfundingrequirements,butmay
reducecertaintyforpropertyownersaboutfuturelevycharges.However,variablelevy
rateswillensureVictoriasfireservicesareadequatelyfundedintothefuture.
Alternatively,thepropertylevyratecouldbedeterminedatthetimeofimplementationand
fixed,subjecttoperiodicreview.Inpractice,abiennialreviewwouldbemostappropriateto
ensurethattherevenueraisedusingrevisedpropertyvaluesisequivalenttothecostof
providingfireservices.Afixedlevyratewouldresultinsmallrevenueadjustmentsduring
Question
Whatisthemostappropriatevaluationbase?
Sitevalue(i.e.thevalueoflandonly)?
Improvedvalue(i.e.thevalueofbuildingsonly)?
Capitalimprovedvalue(i.e.thevalueoflandandbuildings)?

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VictorianFireServicesPropertyLevy
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nonvaluationyearsduetonewlydevelopedproperties,andallowforlargervariations
followingeachreviewwhennewvaluationsareusedtocalculatethelevy.
Fixedlevyratesprovidecertaintyandadministrativesimplicitybutremoveflexibility.This
limitationmaycausebudgetarypressureinnonvaluationyearsifthereislittlerevenue
growth.Growthinpropertynumbersreflectsanincreaseindemandforservices,butdueto
thelargelyfixednatureofMFESBandCFAcosts,revenuerequirementsmaynotincrease
untilacapacityconstraintisreached.Similarly,growthinpropertyvaluesisnotnecessarily
relatedtogrowthinMFESBandCFAbudgetingrequirements.
Asanalternativetotheaboveoptions,thelevyratecouldbealteredannually,subjectto
restrictionsonthegrowthofoverallrevenue.Increasestofireservicesrevenueandthe
resultinglevyratewouldbecappedtopromoteprudentfinancialmanagementandprevent
anincreasedfinancialburdenbeingpassedontopropertyowners.Cappedvariations
providecertaintybutremoveflexibilityintherevenueraisingcapacityofthepropertylevy.

6.5 Fixedandvariablecharge
Theexpectedbenefitsofthefireservicestoapropertyareaffectedbytwofactors:therisk
ofafireoccurringandthevalueofthepropertytobeprotected.Thefireservicesalso
providebroaderpublicbenefits,suchasfireprevention,whichcannotbereadilylinkedto
specificproperties.
Afixedcomponentoraminimumpaymentwouldreflectbroadercommunitybenefits,while
anadvalorempropertyrate(achargecalculatedasapercentageofpropertyvalue)would
reflectthebenefitstoindividualpropertyowners.Thestructureoftheemergencyservices
propertylevyinSouthAustraliaincludesbothafixedcomponentandanadvaloremlevy.
Thefireservicesprovideanoncallfirefightingcapacityandundertakefireprevention
activitiesthatbenefitthecommunityasawhole.Thecostofthesepreventionand
preparednessservicescanbeconsideredbroadlyequivalentacrossagivenclassof
properties.Thecostofrespondingtofireoremergencyincidentsisalsolikelytobesimilar
formanysectorsofthecommunity.Forexample,theMFESBwillsendtwofireappliancesto
mostresidentialpropertyfiresirrespectiveofthevalueoftheproperty.However,thecosts
willbegreaterforhighvaluepropertiessuchasmultileveloffice,retailorapartment
buildings.Thisadditionalcostwouldbereflectedintheadvaloremcomponentofthelevy.
Asalternativestoafixedcomponentandvariablecharge,aflatperpropertychargecould
beappliedtopropertyownersorasimpleadvaloremratecouldbeappliedtothevalueof
eachproperty.Thesealternativesareefficientandadministrativelysimpletocollect.
However,aflatchargeperpropertymaybeinequitableasthesamecontributionis
expectedfromownersofhighvalueandlowvaluepropertieswithnoconsiderationgivento
theirabilitytopay.Aflatperpropertychargealsodoesnotreflectthevalueofassets
protected.Alternatively,ifasingleadvaloremlevyratewereapplied,thelevywouldnot
reflectthebenefitsderivedfromoncallfightingcapacityandfirepreventionactivities.In
addition,thecollectioncostsassociatedwithasingleadvaloremlevyratecouldbe
disproportionaterelativetorevenuecollectedfromlowvalueproperties.
Proposal
Setthepropertylevyannuallytoensurethefireservicesareadequatelyfunded.

VictorianFireServicesPropertyLevy
OptionsPaper,June2011 19

6.6 MFESBandCFA
Underthecurrentinsurancebasedarrangements,policyholderscontributetothefire
servicefortheareainwhichtheirpropertyislocated.Asaresult,theownersofproperty
outsidetheMFDarea(servicedbytheCFA)payahigherrateofFSLthanthoseinsidethe
MFD(servicedbytheMFESB),asreflectedinthecurrentICAadvisoryrates(seeTable2).
ThisdifferencearisesbecausetherelativelylargerbudgetoftheCFA(Table6)isspreadover
asmallerpoolofinsurancepremiumsintheCFAarea,althoughthereareasimilarnumber
ofpropertiesineacharea(Table8).
MaintainingseparatelevyratesforpropertieswithintheMFDandpropertiesoutsidethe
MFDwouldbeconsistentwiththeexistingfundingarrangements.WhiletheMFESBandCFA
extendtheirservicesacrossregionalboundariesinresponsetospecificemergencies,
propertyownerswithintheMFDlargelybenefitfromservicesprovidedbytheMFESBand
propertyownersoutsidetheMFDlargelybenefitfromservicesprovidedbytheCFA.
Separatelevyratesmeanthatpropertyownerscontributetotheirlocalfireservice.Dueto
significantdifferencesinthecostofprovidingfireservicestodifferentgeographicalareas,
separatelevyratesreflectthecostandqualityoffireservicesprovidedwithinandoutside
theMFD.
Underaseparatelevyratestructure,similarpropertieswithineachregionwouldpaythe
samelevyrate,butpropertiesintheMFDwouldpayalowerlevyratecomparedto
propertiesofsimilarpropertiesvalueoutsidetheMFD.Asaresult,andparticularlyinareas
closetotheboundaryoftheMFD,propertyownersinrelativelycloseproximitymaymake
quitedifferentcontributionstotheprovisionoffireservices.
WhiletheRoyalCommissionnotedthatthefundamentalproblemwiththecurrent
arrangementsarisesfromitsimpositiononinsurance,italsoraisedthepossibilityof
establishingasinglefundforCFAandMFESBservices.Whileasinglefundcouldimplya
singlestatewidelevy,itcouldalsoinvolvedifferentiallevyratesdeterminedonsomebasis
otherthantheCFAandMFESBbudgets.
Asinglelevyrateislikelytobemoreeconomicallyefficientasitwouldspreadthecostof
fundingbothfireservicesoverthebroadestpossiblypropertybase(particularlywhen
imposedonthecapitalimprovedvalueofproperty).Asingleratewouldalsomeanthat
propertyownersinVictoriawouldallcontributetofundingthefireservicesonsimilar
terms,relativetothevalueoftheirproperty.However,itwouldnecessarilyredistribute
someofthecostsoffundingtheCFAtometropolitanpropertyowners.
Proposal
The fire services property levy include a fixed component and an ad valorem charge assessed
onthecapitalimprovedvalueofproperty.

20
VictorianFireServicesPropertyLevy
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Table8:Propertycountbylocation

WithintheMetropolitanFireDistrict(approx.)
Residentialproperty 988000
Nonresidentialproperty 122000
OutsidetheMetropolitanFireDistrict(approx.)
Residentialproperty 1266000
Nonresidentialproperty 216000
Source:ValuerGeneralVictoria

Thechoiceofsingleorseparatelevyrateswillinvolveatradeoffbetweeneconomic
efficiency,equityandtheprincipleofuserpays.Assuch,DTFwelcomessubmissionsin
responsetothefollowingquestions.

6.7 Differentialratesbypropertytype
Informingitsrecommendations,theRoyalCommissionnotedthatthereispotentialto
adjusttherateofthefireservicespropertylevytoreflectrisk.Developingandapplyinga
comprehensiveriskratingtoscaleapropertylevyforindividualpropertiesisunlikelytobe
feasible,asthecostsofdoingsowouldbeveryhighrelativetotheamountofthelevy
collected.However,itisfeasibletoapplydifferentratestodifferentpropertytypes.
Applyingdifferentialratesbybroadpropertytypewouldbedesirableonequitygroundsif
theuseoffireservicesdiffersacrosspropertytypes(forexample,commercial,industrial,
residential,primaryproductionlandandpublicbenefit).Withdifferentialrates,a$1million
residentialpropertyanda$1millioncommercialproperty,bothlocatedinthesamearea,
wouldmakedifferentannualcontributionstothefireservices.
Developingarobustmethodologyforclassifyingpropertytypesbyfireriskwillbekeyto
implementingdifferentiallevyratesinafairandtransparentmanner.AsDTFfurther
examinesapproachestoriskclassification,thefollowingquestionsareposedfor
consultation.
Questions
Shouldthepropertylevybesetatsinglestatewiderate,orshouldseparatepropertyleviesbe
imposedwithinandoutsidetheMFD?
Are there alternative ways of sharing the cost of funding fire services across the boundary of
theMFD?

VictorianFireServicesPropertyLevy
OptionsPaper,June2011 21

6.8 Concessions
TheRoyalCommissionrecommendedthatthefireservicespropertylevyincludea
concessionforlowincomeearners.However,therecommendationsdidnotprovideany
directiononhowaconcessionshouldbeimplementedorappropriatelytargeted.
6.8.1 Eligibilityforaconcession
EligibilitybasedonCommonwealthconcessioncardswouldallowforanindividualsstatus
tobeeasilyverifiedandsubjecttoCommonwealthincomeandassetthresholds.Thiswould
beconsistentwiththeapproachtakeninotherjurisdictions.
Accordingly,thesimplestandmostequitablewaytoprovideaconcessionistogranta
concessiontoholdersofCommonwealth:
HealthCareCards;and/or
PensionerConcessionCards;and/or
DepartmentofVeteransAffairsgoldcards.
ItisconsideredthatCommonwealthSeniorsHealthCarecardandVictorianSeniorscard
holdersshouldnotbeentitledtoafireservicespropertylevyconcession.Thisisduetothe
eligibilityrequirementsforthesecardsallowingindividualsnotgenerallyconsideredlow
incometobeeligible.
6.8.2 Rateofconcession
Stateconcessionscanbedeliveredinavarietyofways.Forexample:
Thelocalcouncilratesconcessioniseffectivelyafixeddiscount,withanominal
50percentdiscountsubjecttoacap($187.60for201011).Approximately98percent
ofconcessionhouseholdsreceivethecappeddiscountamount.
TheAnnualElectricityConcessionprovidesa17.5percentdiscountofftheelectricity
billsofeligiblecustomers.
Thefireserviceslevyconcessioncouldtaketheformofapercentagediscountonthelevy
payable,apercentagediscountwithacap,orafixeddollaramountdiscount.
6.8.3 Targetingtheconcession
TheRoyalCommissionrecommendedaconcessionduetoitsconcernsaboutuninsuredlow
incomeearnersbecomingliableforafireservicespropertylevy,withoutanoffsetting
reductioninfireservicesinsurancelevy.
Questions
Shoulddifferentlevyratesapplytodifferentpropertiesclassifications?
Howshouldthetotalfundingburdenbedistributedbetweenpropertyclassifications?
Should the total budget be allocated according to a measure other than the fire risk of broad
propertyclassifications?

22
VictorianFireServicesPropertyLevy
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Thefireservicespropertylevyconcessionwillneedtobeappropriatelydesignedand
targetedtoensureitisavailabletolowincomepropertyowners,withoutsignificantly
increasingthefireservicespropertylevyfornonconcessionallevypayers.Inadditionto
concessioncardeligibilitycriteria,itmaybepossibletotargettheconcessiontothosewho
needitmostbysettingapropertyvaluethreshold.
6.8.4 Interactionofconcessionandcollectionagency
Thechoiceofcollectionagencyinteractswiththechoiceofconcessionseligibility.
Iflocalcouncilsarethecollectionagency,thefireservicespropertylevywouldlikelybe
issuedaspartofratesnotices.Inthatcase,itwouldbemostsimpleadministrativelytoalign
theconcessionwiththeexistinglocalgovernmentratesconcession,whichisavailableto
PensionerConcessionCardandDepartmentofVeteransAffairsgoldcardholders.
CollectionbytheSROwouldallowmoreflexibilityinchoosingtheconcessionspolicy.The
SROcurrentlyadministersarangeofconcessionsforstampduty,includingthepensioner
stampdutyconcession,whichisavailabletopensionerswhoholdaHealthCareCard,
PensionerConcessioncardandDepartmentofVeteransAffairsrepatriationhealthcards
andpensionercards.

6.9 Collectionagency
LocalcouncilsandtheSROarebothfeasibleoptionsforcollectingthefireservicesproperty
levybasedontherecommendedrevenuebase.DTFestimatesthattheadministrationcosts
ofeitheroptionwouldbebroadlysimilar.Thesecostscouldberecoveredfromthelevy.
6.9.1 Localcouncil
Localcouncilshaveanestablishedlegislativeframeworkandestablishedproceduresfor
billing,collection,pensionerconcessioncardverification,objectionstopropertyvaluations,
anddebtcollection.Thesecouldbeextendedtothefireservicespropertylevy,whichwould
simplifycomplianceforresidentialowneroccupiers.
Implementationinanyonelocalcouncilwillnotbecomplex,buttheinvolvementof79local
councilssignificantlyaddstothecomplexityofimplementationandongoingadministration.
Proposal
AconcessionshouldbegiventoholdersofHealthCareCards,PensionerConcessionCardsand
DepartmentofVeteransAffairsgoldcardsontheirprincipalplaceofresidence.
Questions
Shouldeligibilityforaconcessionbesubjecttoapropertyvaluethreshold?
Howshouldaconcessionbecalculated?
o Percentagediscount?
o Percentagediscountwithacap?
o Afixeddollaramountdiscount?

VictorianFireServicesPropertyLevy
OptionsPaper,June2011 23

Collectionbylocalcouncilscouldcreatethepotentialfordifferentialtreatmentoftaxpayers
(e.g.differentcollectionandenforcementarrangementsindifferentcouncils),andwould
requireanewmechanismfornonrateableproperty.Itwouldalsorequiremorecomplex
legislation,becauseoftheneedtoprovidefortaxadministrationpowersandgovernance
arrangementsinadditiontothelevydesign.
Implementationwillrequirealeadtimeofatleast12monthstodevelopsuitable
agreementswithlocalgovernment.Ensuringthesmoothdevelopmentandimplementation
ofcollectionarrangementswillalsorequirebeingmindfulofpeakworkloadsforlocal
government,suchasfloodrecovery.TheGovernmentwouldneedtoagreewithcouncilson
suitablearrangementstosupportthemtoimplementandadministerthepropertylevy.
6.9.2 StateRevenueOffice
TheSROhasspecialisedknowledgeandexpertiseintaxadministration.TheSROs
establishedprocessesforeducation,compliance,enforcementandexistingavenuesof
reviewandappealcouldbeextendedtothefireservicespropertylevybyamendingthe
TaxationAdministrationAct1997(TAA).
Asinglecollectionagencyhaslowercomplexityrelativetothelocalgovernmentoption.
CollectionbytheSROwouldalsoallowgreaterflexibilityinlevydesign,greaterdirect
controlbygovernment,asophisticatedcapacityforcomplianceactivityandlowerriskto
implementationtimelines.Additionally,theSROwouldprovideuniformserviceandis
alreadysubjecttoexistingsupervisionandaccountabilitymechanismsthatwouldapplyto
thepropertybasedlevy.
However,theSROwouldneedtoimplementanewcollectionsystemtoissueanassessment
tomosthouseholds.Thiswouldincreasehouseholdcompliancecosts.Ifthereislow
householdcompliancewithfireservicespropertylevypayment,theadditionalcostofSRO
debtcollectionmaynotbejustifiedbytheexpectedlowfireservicespropertylevy
assessments.Thiscouldbeanongoingrisktorevenue,althoughthiscouldbemitigatedby
otherfactors.

6.10 Transitionalarrangements
Theexistingfireservicestatutorycontributionsfrominsurerscanbephasedoutrelatively
easily.TheGovernmentcandeclareafinalstatutorycontributiontobepaidbyinsurersfor
the201213financialyearandpropertyownerswillthenbeliableforthepropertylevyfrom
1July2013.
However,thereareseveralassociatedriskswhichmustbecarefullymanaged.Ifinsurers
continuetocollecttheFSLinfulluntil30June2013,thismaycreateanincentivefor
propertyownerstodefertakingoutorrenewinginsuranceinthemonthsimmediatelyprior
to30JuneinordertoavoidtheFSL.Thosepropertyownerswhochoosetoremaininsured
andpaythefullFSLmayconsiderthattheyhavecontributedtwicetothefireservicesin
thefirstyearofthepropertylevy.
Proposal
That the fire services property levy be collected by local councils, with support for
implementationandadministration.

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VictorianFireServicesPropertyLevy
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Theinsuranceindustrywillreceivesignificantlongtermfinancialandeconomicbenefits
followingtheabolitionofthestatutorycontributionsmodelandfacesomeincentivesto
ensuretheFSLisremovedfrominsurancepolicies(includingtheriskofcustomerswitching,
pricecompetitionandreputationalrisk).However,itispreferablethattheGovernment
activelymanagethetransitionprocesstoensuretheinterestsofpolicyholdersare
protected.
6.10.1 Taperingmodel
Underataperingmodel,insurerswouldreducetheFSLpaidoninsurancepremiumsinthe
201213financialyearonaproratabasis(forexample,by1/365thforeachsuccessiveday
inwhichaninsurancepolicyisrenewedortakenoutduringtheyear).Byphasingoutthe
FSLinthisway,theincentiveandequityimpactsidentifiedaboveareavoided.
WesternAustraliaadoptedataperingapproachaspartoftheirtransitionmodel,which
provedtobefeasibleandeasytocommunicatetostakeholders.
6.10.2 Decouplingmodel
Thealternativeapproachisadecouplingmodel,whereinsurerswouldpayafinal
discountedstatutorycontributionwiththebalanceofthefundingrequirementmetthrough
adiscountedpropertylevy.Inthiscase,thediscountedFSLwouldapplytothefulltermof
theinsurancepolicy.Forexample,witha50percentdiscounttothestatutorycontribution
allpolicyholders(includingthosetakingoutinsuranceimmediatelypriortotheendofthe
financialyear)wouldpayanFSLequivalentto50percentoftheFSLnormallyapplyingto
thefullpolicy.
Themainadvantagesofthisoptionarethatitstaggerstheintroductionofthepropertylevy
fornoninsuredpropertyowners(50percentinyearoneand100percentinthesecond
year),andissimplertoimplement(asimple50percentdiscountratherthanaprorata
reduction).
However,thismodelonlypartiallyaddressestheincentiveandequityimpactsonproperty
ownersthroughapartialdiscount.Thisoptionhasnotbeensuccessfullyimplementedin
otherjurisdictions.

6.11 Monitoring
TheabolitionofstatutorycontributionsfrominsurancecompanieswillremovetheFSLfrom
insurancepremiums.However,thenatureoftheinsuranceindustryandsignificantevents
suchastherecentfloodsmaymakeitdifficulttoidentifysavingstoinsurancepolicy
holders,particularlyintheresidentialsector.
Anindependentreviewoftheimpactofabolishingtheinsurancebasedfundingmodelwill
beimplementedtostrengthentheincentivesforinsurancecompaniestofullypasson
premiumreductionsanddemonstratepremiumreductions.
Proposal
The tapering approach be adopted to phase out the insurance contributions prior to the
introductionofthepropertylevy.

VictorianFireServicesPropertyLevy
OptionsPaper,June2011 25

Therearetwomainoptionsforanindependentmonitoringauthority:theEssentialServices
Commission(ESC)oranappropriateaccounting,actuarialorconsultingfirm.
TheESCisVictoriasindependenteconomicregulatorofessentialservicesandalsoprovides
advicetotheVictorianGovernmentonarangeofregulatoryandothermatters.TheESChas
therelevantskillsandexperienceindatacollectionandanalysis,performancemonitoring,
andtheprovisionofindependentadvice.TheESCwilladoptacooperativeapproachwith
insurersbutalsohasthestatutorypowertocompelinsurancecompaniestoprovidedata
foranalysisshouldthisbecomenecessary.
Thealternativeistoappointanaccounting,actuarialorconsultingfirmtoundertakethis
monitoringrole.However,theremaybeconcernsregardingtheindependenceand
transparencyandhencecredibilityoftheanalysisundertakenbyanexternalfirm,
particularlywhereitmayhaveapreviousorongoingrelationshipwithclientsinthe
insuranceindustry.
Themonitoringagencywouldreviewindustryandcompanyspecificdatatoinvestigate
whetherinsurancecompanieshavepassedonsavingstopolicyholders.Themonitorwould
produceapublicreportdetailingcomplianceornoncomplianceonanindustrywidelevelas
wellasforspecificinsurersifnecessary.

Proposal
The Essential Services Commission be appointed to independently monitor the FSL transition
process. A public report on whether or not insurance companies have passed on savings to
policyholdersistobeproducedaspartofthemonitoringrole.

26
VictorianFireServicesPropertyLevy
OptionsPaper,June2011

7. Nextsteps
7.1 Consultation
TheGovernmentoffersallVictorianstheopportunitytocommentontheoptionsforthe
designandimplementationofthenewfireservicespropertylevyinVictoria,andwill
conductarigorouspublicconsultationprocess.
Allwrittensubmissionswillbetreatedaspublicdocumentsunlessindividualsor
organisationsrequestotherwise.Pleasenotethatfreedomofinformationaccess
requirementswillapplytoallsubmissionsincludingthosetreatedasconfidential.
Theclosingdateforwrittensubmissionsis30September2011.
Submissionscanbesent:
Bypost:
FireServicesProject
DepartmentofTreasuryandFinance
1TreasuryPlace
EastMelbourne
Vic3002
Byemail:
fireservicesproject@dtf.vic.gov.au
7.2 Timeline
Consultationperiod FromJune2011
Writtensubmissionsclose 30September2011
Legislationintroduced Early2012
Transitionperiodcommences 1July2012
Implementation 1July2013
Independentreviewofinsuranceprices
followingtheremovaloftheFSL
July2013June2014

VictorianFireServicesPropertyLevy
OptionsPaper,June2011 27

www.dtf.vic.gov.au