Submission to the Fire Services Funding Review
 

Prepared by

Peter Davis
Secretary
Victoria Urban Fire Brigades’ Association

Tel: 9775 0117
Fax: 9775 0096
e-mail: vufba@bigpond.com

February 2003

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VUFBA represents the interests of volunteer firefighters in some 200 urban fire brigades distributed across Victoria and involving some 9,000 volunteers.

The Association was created under section 100 of the Country Fire Authority Act (1958) to bring to the attention of the CFA any matters which affect the welfare and efficiency of brigades.

The VUFBA’s mission is to actively support and represent volunteer urban fire brigades and promote the welfare and efficiency of members in order to exceed community expectations.

The VUFBA has an important role in representing the interests of volunteers. In accordance with clause 2 (b) (vii) of the Review Committee’s Terms of Reference, we have a number of concerns about the impact of any changes to the current Fire Services Levy (FSL) system and we seek to make a submission to the Fire Services Funding Review Committee.

Concerns about the Impact of Changes

Changes to CFA territory will mean alienation of volunteers.

Under the Metropolitan Fire Brigade Act, any municipality currently outside the MFESB district can choose to change their fire service coverage simply by applying to MFESB. This can then be implemented by MFESB without any consultation with CFA or CFA volunteers. 

Such a decision would impact negatively on volunteers and it would also be a breach of the CFA Volunteer Charter, signed by the Minister for Police and Emergency Services and The Premier in December 2001.  In that Charter, there is an agreement by the Victorian Government to consult on matters that affect volunteers.

A council could effectively dismiss their CFA career and volunteer professionals without any process that is usually provided to employees when they are dismissed. This would be unfair on the volunteers who choose to contribute their time and effort to CFA to protect the lives and property of Victorians.  It would also be unfair on the State of Victoria overall.

The Association would have difficulty in accepting such a decision because both CFA and MFESB operate according to the same standards of service delivery.

The reason why a council would do this could be as a result of some political pressures or pressure exerted by a self interest group.  One factor that stops a metropolitan council from taking this action is the requirement to contribute to 12.5% of the budget of MFESB.

If there was a general property based levy across the State, the relative financial advantage of the C.F.A. fire service to Municipalities would be lost.  If, as a result of political or other pressures, a municipality sought to change from the CFA to the MFESB for fire service coverage, there could be serious implications for the State of Victoria.

Volunteers from outer metropolitan CFA brigades play a very important part in the overall fire suppression activities of the CFA.   Many of these brigades have large memberships and the capacity to provide large numbers of volunteers on days of extreme fire activity or for long duration fires ie. the current fires in the North East and Gippsland areas of the State.  Any loss of these outer metropolitan CFA brigades as a result of extension of the MFESB boundary into traditional CFA areas would have serious consequences on the ability of the CFA to provide an adequate firefighting service for the State of Victoria.  There would also be the added burden placed on the remainder of the CFA volunteers of a greatly increased workload.  Other impacts could be:

•  CFA’s funding would be reduced.
•  The ability for CFA to cross subsidise regional and rural areas would be reduced.
•  CFA would not be able to mobilise adequate resources needed to fight serious bushfires.
•  There would be reduced funding for protective equipment to volunteers to do their fire and emergency services tasks.
•  Volunteers would become discouraged and would likely leave the service. 
•  The impact that this would have would be an impost on the people of Victoria to fund some of the $460 million contribution currently made by volunteers each year.
•  Without the volunteer commitment, the fire damage that results from an impoverished service would be significant and the payouts that would be required by the insurance companies would be considerable. 
•  This in turn would impact on Victoria’s economy.
•  There would be a greater burden placed on the remaining volunteers. 

•  The section in the MFB Act that allows a council to change its fire service to be repealed. 

The Association is concerned about sustainability of funding under any changes to the current system.

In Victoria, we believe that we are better off by comparison with volunteer fire services in other states. We would not want to see a system implemented which would result in reduction in the service currently provided by the CFA or reduce the system to a similar level experienced by our interstate cousins.  We believe this is a genuine threat if the current system is changed.
The Associations are currently negotiating with CFA concerning the replacement of fire fighting appliances. We have identified that there are more than 100 appliances each year in the five years between 2005 and 2009 that will require replacement.  If we have a system, like in South Australia, that is fixed in its revenue collection, we fear that these vehicles will not be replaced. This will raise reliability risks, health and safety risks and a reduced level of service to the Victorian people. 

As a result of the Linton Inquiry, we have seen changes in fire appliance design that further protects the safety of firefighters. This has added to the cost of these fire appliances and we will not accept any risk to the lives of our volunteers from any reduction in the appropriate health and safety equipment to protect them. 

If the FSL system is not flexible enough to allow for these vehicle replacements, we fear that lives will be unnecessarily lost and that the level of fire fighting equipment will deteriorate.

We are also aware that enterprise agreements for CFA staff have put pressure on the CFA funding system. We feel it is discriminatory to require volunteers to use equipment beyond its service life yet at the same time to give significant pay increases to career staff. It is conservatively estimated that Volunteers contribute $460 million per annum to the State, however, building of fire stations and equipment replacements have been delayed in order to fund the operating budget of CFA. 

We feel it is vital for any funding system to be flexible to meet the agreed budgetary needs of CFA. In this way the provision of adequate equipment and the health and safety of all can be better ensured.

The position of the insurance companies needs also to be put into perspective. Volunteers contribute at least $460 million and the government and the insurance companies collectively put in $156 million. Volunteers clearly contribute three times the amount of the cash budget.

Our volunteer members are under increasing time pressure from their jobs and families. They have reduced time for fund raising that may be required to provide needed equipment. Adequate funding is required so that volunteers can spend their time providing a fire service, not raising their own revenue in order to get the funds to provide the equipment they need.

The VUFBA view:

•  Funding must not decrease. Funding increases should not be less than CPI. 
•  We must have an ability to strike a levy that will reflect CFA’s budgetary needs.
•  Our information sources indicate that the projected vehicle replacement costs are valued at only 4.1% of the value of the volunteer contribution. 

VUFBA is concerned that any changes to the funds collection system will involve changes in the appropriation status of funds collected.

The way in which funding requirements for CFA are determined is set out in the CFA Act.  The contributions are deemed to be appropriations that enable CFA to undertake its statutory work.

VUFBA is concerned that a change to a fire services charge will mean that the funds are controlled by Treasury rather than made as direct payments to CFA.  As such, volunteers would be subject to competition for needed funds with other government departments. 

We do not believe that you can run a fire service that way. You can’t expect men and women to volunteer their time if the appliances, equipment and infrastructure is not there. We are concerned that having to go through Treasury for needed funds would hamper the way in which CFA operates. 

The Terms of Reference are silent on the method by which funds will be managed or by whom. For this reason we prefer retention of the existing system. 

We note that even in the revised system in Western Australia, funds are paid into a FESA Account and are administered directly by the Authority. We would expect no less. 

The VUFBA view:

• There should be no change in the control of funds by fire service authorities. 

The CFA volunteers contribute at least $460 million per annum to the economy of Victoria based on 2001 figures. Insurance companies contribute $121 million. Victorian Government contributes approx $35 million. Clearly, volunteers are key stakeholders and deserve recognition for their efforts.
We believe that volunteers contribute their time freely and without expectation of reward. However, they do gain some personal satisfaction from recognition and acknowledgment of their contribution. 

Previously, some attempts have been made to have volunteers Fire Service Levy rebated from their house insurance. Although it would not compensate them for all of their time contributed, it was intended to show recognition of their effort. The disappointing answer from the insurance companies was that this was too difficult.

Any changes to the FSL system can allow an opportunity to rectify this. 

The VUFBA view:

•  Volunteers contribute almost 75 per cent to the total value of CFA services. 
•  Any changes to the FSL system should provide an opportunity to recognise that contribution through exemption of FSL charges to volunteers.

We have read the Insurance Council of Australia (ICA) discussion document and have the following comments to make.

Fire services are still related to insurance

Whilst the ICA argue that fire is only a small proportion of their risk, we feel that they have not taken into account the suppression and mitigation efforts, nor the fire prevention efforts made by CFA volunteers and career staff. 

Without fire brigades to put fires out and containing structural fires to their room of origin, the damage from fire would be much worse and the cost to the insurance companies much greater. It is only through the efforts of fire brigades that insurance companies’ costs are reduced. The ICA only count fire damage, they don’t count prevention (Bushfire Blitz, Community Fireguard) or mitigation (reducing the effects of fire).  For this reason we argue that the insurance companies are closely linked to fire services.

We believe that insurance companies are in the best position to determine risk. 

The current Volunteer view is that:

•  Insurance companies are key beneficiaries of fire services 
•  The various services provided by the CFA reduce insurance claims.
•  Insurance companies are in the best position to determine risk.
•  The link between fire services and the insurance companies remains and insurance companies’ role in collection of the FSL should be retained.

The ICA view is based on financial considerations alone. Other than a one line reference to volunteers, they take no account of the value of the volunteer contribution. 

Volunteers contribute at least $460 million to the value of Victoria’s economy every year. 
When you take into account the value of the volunteer contribution (see Table 1), CFA volunteers actually contribute 74.7 per cent to the value of the CFA fire service. This reduced the insurance companies’ contribution to 19.6 per cent and the government contribution to 5.7 per cent. 

Table 1. Value of Volunteer Contribution

                                        Economic                  Economic &
                                       Comparison               Social Comparison
                                         $                    %          $                       %
Insurance Companies  $121 million 77.5%    $121 million   19.6%
Government                   $35 million  22.5%      $35 million     5.7%
CFA Volunteers                                                $460 million    74.7%
Total                              $156 million 100.0%   $616 million  100.0%

Governments are required to consider projects according to the triple bottom line: financial, environmental and social. By this requirement, CFA volunteers are by far the largest stakeholder.

Taxes on the FSL provide a disincentive to insure

The ICA paper argues that taxes amount to 44 per cent and 78 per cent of the insurance charge and that this creates a disincentive to insure. 

We are concerned that costs of insurance may create a disincentive for people to take out insurance. This means that persons who don’t insure are not contributing to the fire service. Our preference is that contributions to the fire service are shared equitably by all Victorians.

We are also concerned that if the levy is removed from insurance companies, that there should be obligations by insurance companies to substantially lower their prices.

We also believe that if the State and Federal Governments were genuine in their appreciation of the volunteer firefighters, they would remove the Stamp Duty and GST components of the Fire Service Levy as they relate to volunteer fire services, however, we would be guided by some financial modelling of such a proposal.

The VUFBA view:

•  The obligation to contribute to fire services should be equitably shared across all users of the fire service. 
•  A system that includes those who are not insured is required. 
•  If the FSL system is transferred away from the insurance companies, there must be a requirement that insurance premiums are substantially reduced and a report provided to government on compliance.

The ICA position paper also points out the unfairness of the current FSL collection system. 

•  Rural dwellers pay a higher rate than metropolitan dwellers. We believe that on the surface this argument looks compelling, but when you include the local council contribution from municipalities in the MFB district, this argument is less valid.

•  Those who do not insure make no contribution to the fire services. We support the ICA view in a call for the fire service funding to be equitably shared by all Victorians.

•  Those who insure off-shore may not be contributing their full FSL obligation. We support in principle the argument that those who insure off-shore should be involved in contributing appropriately to fire service funding.

•  Those who discount their premiums by choosing to exclude certain risks or carry part of the risk through self insurance are not contributing their full FSL obligation. We would argue that any revised system needs to include those who choose to discount their premiums by carrying the risk. The reality is that if a fire occurs, the fire brigade is involved in extinguishing the fire.  Lack of a fire service response or a reduced level of response as a result of inadequate funding, would see fires spread to other adjoining properties and considerably increased damage. Everyone should contribute to fire service funding.

•  The ICA argues that the activities of fire brigades now cover incidents that are broader than just fire.  This is true. Whilst some CFA brigades are involved in Road Rescue and Hazmat, these services are funded. However, between 8 and 10 per cent of all CFA call outs are to vehicle fires and CFA brigades are also involved in attending road accidents where there is a fire risk (i.e., to wash away fuel and protect the rescue workers). We believe that these users of fire services should also be contributing to the fire service funding. 

The VUFBA view:

•  The FSL collection system must be fair and equitable to all.
•  It must be simple to administer.
•  There is concern that a property based system would not allow necessary cross subsidisation of services which is necessary to provide the type of services that we have recently witnessed in North East Victoria and in Gippsland.
•  An insurance based levy with a basket of additional levies that picks up consumers who currently don’t contribute is preferred.

Changes to a levy collection system will be expensive. System implementation, training of personnel, education of the public and trouble shooting of problems when things go wrong all cost money. 

Further, there is concern that a property based collection system will increase rates by as much as 20 per cent. This would be a difficult political decision.

The VUFBA view:

•  The Fire Services Funding Review must take into account any costs of establishing a new FSL collection systems as part of its review. 
•  The impact on ratepayers must be fully assessed.
•  There could be a doubt on the preparedness of Municipalities to collect such a levy.

VUFBA expects the Fire Services Funding Review will deal with issues of equity, effectiveness and transparency of the current and any future proposed system, Volunteers are concerned that broader issues beyond how funds are collected have not been established.

The CFA system of firefighting is the envy of other Australian States.  It would be tragic if the Review into Fire Service Funding resulted in a reduction in the capability of the CFA service as an outcome of some changed funding arrangements.

In this paper we have outlined the valid concerns of volunteers that extend beyond the debate about methods of collection and outlines the impacts changes may have.

The ICA Alliance has focused purely on economics and has taken no account of social capital contributed by volunteers. 

The current VUFBA view is that the links between the insurance companies and the funding of fire services should be retained and that the system should be expanded to include those who currently do not contribute to fire services.