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NSW Government fails to remove fire services levy in latest Budget

The NSW Government has removed one insurance tax but kept the fire services levy on insurers in its latest Budget.

The Government has announced that it will abolish the Insurance Protection Tax (IPT) from the 2011/2012 financial year. The IPT was introduced in 2001 and imposed on insurers as a means of funding the outstanding claims obligations arising from the collapse of the failed insurer, HIH. Legislation for the IPT prevents general insurers from passing on the IPT impost through to insurance policy holders.

The IPT collects $69 million per annum – only a small proportion of the $1.912 billion that insurance taxes will deliver into State coffers in 2010-11.

NIBA CEO Noel Pettersen said the Budget showed that people who are prudent enough to protect their property with insurance continue to be taxed more heavily than gamblers. The so-called “sin taxes” on gambling and betting will bring in $1.804 billion.

The $1.912 billion in insurance taxes includes the tax on insurers to fund 73.7% of the budgets for the fire services and the State Emergency Service, which is passed on to policyholders through a fire and emergency services levy, as well as Stamp Duty.

When GST is included, the “tax on tax” effect of the levy + GST + Stamp Duty, means a $500 premium costs $822.80.

Recommendation 79 of the Henry Tax Review says: “All specific taxes on insurance products, including the fire services levy, should be abolished. Insurance products should be treated like most other services consumed within Australia and be subject to only one broad-based tax on consumption.”

Mr Pettersen said that the recommendation was just the latest in a long line of Findings – including by the HIH Royal Commission and the NSW Independent Pricing & Regulatory Tribuna – that the levy and State Stamp Duty unfairly penalise policyholders. For example, those who do not pay for insurance do not contribute, yet the fire brigade still attends a fire on their property.

“The Budget papers say that the Government expects the Henry Review’s recommendations will be the subject of ‘on-going discussions’ between governments,” Mr Pettersen said.

“But there should be no need for further debate about replacing the levy with a fairer tax because the evidence is overwhelming.

“NSW should join Queensland, South Australia and Western Australia in introducing a broad-based property tax.”