The NSW Government is considering how to lessen disruption to the insurance industry while maintaining revenue in its reform of the state’s emergency services levy (ESL) on insurance premiums.

It is seeking community feedback on abolishing the ESL in favour of a property-based levy to fund the metropolitan and rural fire services and State Emergency Service.

A discussion paper notes that transitional arrangements will have different implications for state revenue, but says there should be no funding gap for the services as a result of the switch. The ESL raises about $1 billion annually to fund the emergency services.

It says if there is an abrupt change in the system on July 1 2014, people who renew their insurance from June 30 next year would pay a full year’s ESL on their insurance and then be liable for the full property levy in the same period.

This is similar to the impact on policyholders during Victoria’s transition this financial year to a property-based levy system.

The paper says the abrupt change scenario would give people “an incentive to delay renewal of their insurance, with potential disruption to the insurance industry”.

It suggests a smoother transition if insurance levies are compulsorily phased down by 1/365 a day in the year before the property levy starts, but says this would mean a $360 million funding gap with only half the usual amount collected from insurers.

An alternative would be phasing down insurance charges six months before the property levy and reducing the insurance surcharge over a year.

“Under this arrangement, there would still be a funding gap of around 1/8 of the required revenue, around $90 million, in the final year before the property levy commences but this would be recovered the following year.”

Policyholders who renewed on July 1 2014 would pay half the normal insurance levy and the full amount of the property levy during 2014/15.

The Government’s public consultation runs until October 8 and uses the website www.haveyoursay.nsw.gov.au/ESL to canvass options on such issues as whether local governments or the State Revenue Office should collect the tax.

The Local Government and Shires Associations of NSW have welcomed the reforms, with Local Government Association President Keith Rhoades saying many people are unaware that homeowners with insurance also pay through their rates for the 11.7% of the levy that councils fund.

Victoria’s Local Government Association is resisting a proposal for councils to collect the levy.

But Cr Rhoades told insuranceNEWS.com.au that NSW councils are prepared to collect it for the Government as long as the levy is listed as a separate line item, so ratepayers know it is a state government charge.

Cr Rhoades says councils do not yet have a position on how the transition should work, but they want NSW to fall into line with other states in funding fire services via a levy on all property owners.

One looming area of contention is whether motorists should pay a proportion of the levy via vehicle registration charges.

About 17% of emergency service callouts relate to vehicles, but a spokesman for the NSW motoring organisation NRMA told insuranceNEWS.com.au that motorists already pay considerable taxes to fund emergency services and it is inappropriate to put more costs on struggling families.

The Property Council of Australia supports reform, but says the new system should capture all property-owners that use fire and emergency services, including vehicle-owners.

Executive Director Glenn Byres says large commercial asset owners, including office, retail and industry property-owners, invest heavily in fire mitigation and suppression systems.

“This needs to be recognised in attributing costs in any new system and all users of fire and emergency services need to contribute,” he says.

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