Barry Burns Fire Brigade Funding


The first fire brigades in Sydney and major regional centres were established either by insurance companies or by local government. For the insurers it was a simple economic question; every fire brought under control quickly, or every fire prevented, spared them from paying out on policies.

For over 100 years the lion’s share of the funding for fire services in NSW has come from the insurance companies of the state. While the formula has shifted over time, currently they carry 73.7 per cent of the load — over $700 million. The remainder is split between local and state governments.

Now Barry O’Farrell’s NSW Coalition Government is proposing to move away from this funding model and replace the Fire Service Levy with a new tax to be paid by all property owners. Their argument is that the current system has "free riders" — those who do not have insurance, and who therefore do not contribute to the upkeep of the brigades.

O’Farrell assumes that abolishing the levy on the insurers will lead to market forces and public scrutiny reducing insurance premiums. Exactly the same arguments were run out when green slips were introduced for car registration — the insurance component was opened up to the insurance market — and prices did not go down.

And why would they? Those selling insurance have shareholders to satisfy, and consequently there has been a steady creep in the cost of compulsory third party insurance. Guarantees from both government and the insurers couldn’t prevent the invisible hand of the market from dropping the ball.

In 1994 the Minister of Emergency Services in the then Liberal NSW government, Ted Pickering, noted that after years of cost cutting measures inside the fire services he had taken action:

"At the same time, because of the funding formula, that reduced the charge against the insurance company [sic]. For three years I reduced the charge against the insurance industry while it increased its charge premiums to the community by about 40 per cent [sic]. I gave that game away as a waste of time, and created within the fire brigade movement a slush fund, or a hollow log as it is often referred to, rather than allow the insurance industry to use this mechanism to increase its charges against the community."

So the industry has form. If they can charge they will. Abolishing the Fire Service Levy is consequently not going to lead to a genuine reduction in premiums. There may be a brief drop, to keep up appearances, but over the medium term the market has established what punters will pay, and the insurers charge accordingly.

Once this assumption has been exposed for what it is, the free rider question becomes particularly interesting. The O’Farrell Government proposes to deal with the perceived problem of the 25 per cent of home owners who do not insure by letting the industry that most benefits from the service off the hook entirely. The biggest free riders in the state will be GIO, NRMA, AAMI and associates.

Alternatives exist, even under the government’s own logic. While the FBEU does not advocate such a position, it would be possible to directly bill those who use the services of FRNSW without insurance. Ambulances work on that basis — if you need ambulance assistance but are not insured for it you are billed by the government. There are clear issues with such a proposal, but it does highlight that there are different ways to look at fire service funding that don’t have the net effect of handing $700 million per year back to the insurance companies.

At its most basic the O’Farrell Government is looking to introduce a new tax on families. They are replacing a funding model that had the virtue of forcing those who benefited the most to contribute the most, and replacing it with one where the big beneficiaries contribute nothing. This is wealth shifting, from the suburbs to the boardrooms, nothing more.

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