There was more than a little fury and frustration being voiced in Sydney last week when a NSW Government committee went against industry expectations that the fire services levy (FSL) would be scrapped.

The Government’s move means that NSW policyholders will continue to pay the world’s second-highest taxes on property insurance (Victorian policyholders pay the highest).

Industry insiders say the insurers were rolled by powerful interests linked to the Property Council. It’s believed their intervention was enough to overturn the persuasive case put to the NSW Public Accounts Committee (PAC), whose report on funding for the NSW Fire Brigades and the Rural Fire Service was three months overdue. Now we know why.

The industry was initially hopeful that the report would call for changes but it seems the PAC has not recommended any. It was also hoped that the report would help bring about change in Victoria, where a similar push to drop the levy was halted by a cynical Government “internal inquiry”.

The insurance premium-based funding system also operates in Tasmania. It has been scrapped most recently in South Australia and Western Australia.

It’s understood the committee bowed to pressure from the Property Council, which argued that a levy based on property value would result in an unfair burden on owners of large commercial properties.

Economic modelling commissioned by the PAC showing that most householders, farmers and businesses in NSW would pay far less if money was collected from all property owners, not just those prudent enough to insure.

Allan Hansell, the Insurance Council of Australia's (ICA) Regional Manager for NSW and the ACT, says it is hard to believe that the committee felt there were too many unknowns, because the PAC had already conceded the system is inequitable.

He believes the tax burden on policyholders will increase because of high levels of non-insurance and because more owners of large commercial properties are buying insurance cover from overseas companies, allowing them to avoid the FSL, GST and stamp duty.

ICA has expressed “extreme disappointment” that the PAC failed to support funding reform. NSW fire services receive $446 million a year in premium taxes.

The ICA-led Alliance for the Equitable Funding of Fire Services had been lobbying for abolition of the FSL since last September.