NSW Premier Gladys Berejiklian has put the brakes on the controversial Fire and Emergency Services Levy (FESL), which could now be scrapped.

The FESL was supposed to come in on July 1 to replace the Emergency Services Levy (ESL) but it sparked consternation from several quarters, including from local councils, property owners and unions.

The government is now in the awkward position of having to reverse FESL legislation, which went through in March, to stall the scheme while it works out what to do next.

The new levy would have meant several changes: first, it would be collected by local councils on the state government’s behalf alongside council rates, rather than by insurance companies; second, all property owners would pay the levy, including those whose property is uninsured.

The government has repeatedly said that the ‘vast majority’ of property owners would be better off under the new levy, saving on average $47 per year, and that it would encourage more people to insure their properties. It said the levy was revenue neutral and fairer.

But this figure has been disputed by the firefighters’ union, the Fire Brigade Employees’ Union of NSW (FBEU), using figures from the NSW Valuer-General and formulae contained in the FESL Bill.

The union argued that property owners in some parts of Sydney, such as North Sydney, Mosman and the northern beaches, could end up paying more than double: up to $471 a year, compared with an annual average of $233 under the previous levy.

The FBEU argued too that the proposal shifted the burden from businesses to homeowners with people living in low-risk homes subsidising those in bushfire-prone areas and high risk industries while halving the state’s contribution by around $70 million annually.

Government News understands that some businesses had used the government’s online calculator and been shocked at how much extra they would have to pay under the new levy.

Yesterday [Tuesday] Ms Berejiklian and Treasurer Dominic Perrottet blamed the government’s deferral on the negative impact it could have on small and medium-sized businesses and made no mention of homeowners.

“While the new system produces fairer outcomes in the majority of cases, some people – particularly in the commercial and industrial sectors – are worse off by too much under the current model, and that is not what we intended,” Ms Berejiklian said.

Mr Perrottet said the FESL was a complex reform and there would be challenges during the transition phase.

“It’s not enough for this reform to work on paper – its real-life implementation has real life consequences for families and businesses, and we need to make sure they are not placed under unfair strain,” Mr Perrottet said.

The government would not be drawn on whether the scheme would be scrapped or deferred. Ms Berejiklian said during a media conference yesterday: “If we don’t get a fairer system, we won’t introduce it. But our intent is to defer until we get a fairer system.”

The government has said it will work with local government, fire and emergency services, the insurance industry and others to find a better and fairer path forward.

Reaction

News of the back down took many by surprise yesterday, cheering the firefighters’ union and local councils and aggravating insurance companies.

The FBEU took it as proof the tax was ‘hopelessly wrong’ from the start.

“They had six years, an inquiry and interstate precedent to get this right, and yet they completely stuffed it,” FBEU Secretary Leighton Drury said.

“The FESL is a bad tax, and the wrong way to go. It doesn’t need further review and tinkering, it needs to be scrapped.”

Mr Drury said there should be no levy and fire services to be funded from consolidated revenue, the same as police and other core public services.

The Local Government NSW (LGNSW), the peak body for the state’s local councils, also welcomed the policy rethink.

“Premier Gladys Berejiklian’s announcement that the government will not impose the FESL from July 1 provides an opportunity to pursue a true broad-based levy that replaces both the insurance and existing ratepayer contributions,” LGNSW President Keith Rhoades said.

LGNSW said the FESL was based on the value of unimproved land value of property in NSW and recent land valuations would have meant ‘significant increases’ for many property owners.

“Councils have already done a lot of work to comply with the government’s FESL legislation, and there will now be a need to undo this work – not to mention the associated costs. While this is regrettable, the chance to get the levy right should be our focus,” he said.

Meanwhile the insurance industry reacted angrily to the news and said it would increase policy premiums for property owners.

The Insurance Council of Australia (ICA) said insurance companies were ‘shocked and disappointed’ by the decision to delay the FESL, especially as no deadline had been set for a final decision.

“This has significant legal and commercial implications for the industry. It is a logistical and technical challenge that will cause confusion and increase premiums for policyholders,” ICA spokesperson Campbell Fuller said.

“The resumption of ESL collection will come with significant additional costs that the industry will be forced to pass on in full to policyholders.”

He complained that ‘every other mainland state has abolished emergency services levies on insurance with little fuss’.

Mr Fuller said insurers had already spent more than a year and tens of millions of dollars on consultants and IT changes to prepare for the new levy.

The Emergency Services Levy Insurance Monitor, headed by Professor Allan Fels and his deputy David Cousins, had previously been tasked with being the ‘cop on the beat’ to ensure insurance companies removed the levy from policies and passed this on in full to homeowners and businesses.  

The government has said it will now oversee ‘a smooth continuation of the existing system and ensure insurance companies collect only the amounts necessary to meet fire and emergency services funding requirements’.

Penalties for any insurance company that does not heed this are steep: up to $10 million for corporations and $500,000 for individuals.

Both men had similar roles when Victoria did the same thing, following the 2009 Bushfires Royal Commission recommendations.