Hosed down. New taxes inflame non-insurance debate
Insurance & Risk Professional, June 2009
NIBA’s latest anti-tax campaign reaches insurance-buyers just in time for another jump in the fire services levy
Just three months after the Victorian bushfires highlighted the link between the affordability of insurance and the state’s extraordinarily high taxes on insurance, the State Government has quietly introduced another rise in the fire services levy.
Country Victorian commercial policyholders will now pay more than double their insurance premium in taxes – $203 in taxes for every $100 in premium.
The fire services levy (FSL) has risen for the fourth time since March last year as state governments look to insurance-buyers to meet massive emergency services funding requirements.
The increase has angered many leaders in the industry, which for many years has lobbied against state insurance taxes.
It comes in the same week as NIBA launched a new discussion paper being directed through members to clients in New South Wales and Victoria.
NIBA Chief Executive Noel Pettersen says the fact that some of the calculations used in the paper will now show too low a rate of tax actually illustrated the scale of the problem. “Who can keep up with the pace of these rises?” he said. “The need to upgrade emergency equipment is a drag on governments’ bottom lines.
“By taxing insurance-buyers they’re making the insurance industry into a tax collector.”
The rise in the FSL came just a week after the Victorian Government announced a $215.5 million boost for the state’s emergency services – an announcement that had the industry wondering where the money to pay for it all might come from.
They had only a few days to wait before insurers got the news that rates would rise dramatically.
The Victorian FSL is now charged at 68% of the premium for businesses in country Victoria, up five percentage points. In metropolitan areas the levy on commercial premiums is now 51%, up from 48%.
For householders the figure is now 26% (up from 24%) in country Victoria, and 21% (up from 20%) in urban areas.
In New South Wales the Government has also added to the tax take with its new State Emergency Services (SES) levy on premiums, to come into effect on July 1.
The FSL in that state has also risen – from 36% to 40% on commercial premiums, and from 19% to 22% for householders.
Add to that GST and stamp duty and the two states maintain their reputation as the outstanding leaders on the world tax table.
Zurich Financial Services Australia Chief Executive David Smith was among the first of the leading insurers to protest at the level of taxes.
He says Australia’s position as having the highest taxes on insurance premiums in the world is only heightening Australians’ reluctance to insure.
“Australia suffers from chronic underinsurance, largely due to the unaffordability of insurance,” he told Insurance & Risk Professional.
He says that rather than continuing to raise taxes, governments should be working with the insurance industry to help make sure people are covered in case of loss.
Instead it seems governments are only putting the burden back on themselves.
Mr Smith believes state governments should not foot much of the bill to get uninsured bushfire victims back on their feet. “It should be the insurance industry that covers the loss – that is their business, after all.”
As NIBA’s discussion paper on insurance taxes lands on the doorsteps of brokers and clients, the Federal Government’s tax review is also showing some signs of understanding the implications of overly high insurance premiums.
NIBA consultant John Hanks told Insurance & Risk Professional it is a matter of “wait and see what happens” as the Henry Tax Review – which is being chaired by Federal Treasury Secretary Ken Henry – nears the unveiling of its findings later this year.
NIBA made a submission to the review last October which condemned the heavy taxation of insurance. It argues in the submission that NSW, Victoria and Tasmania should adopt a council rates-based system of FSL collection rather than levy property insurance premiums.
It also calls for the total abolition of stamp duty on premiums.
“We are seeing some positive signs that the review panel is aware of this issue,” Mr Hanks said. “But this is an issue that involves the states. So the move forward will be slow.
“But nevertheless NIBA is going to push the issue as hard as it possibly can.”
NIBA’s discussion paper is intended to educate Australians on the presence of state insurance taxes. Mr Pettersen says brokers hope they might help to mobilise consumers to lobby their Members of Parliament to demand change.
“There are no quick fixes to this – we know we’re in this for the long haul,” he told Insurance & Risk Professional.
“The likelihood of persuading governments out of $3 billion in taxes and charges on insurance premiums is highly unlikely in current times, but we can’t sit on our hands and do nothing.”
CGU Insurance Chief Executive Duncan West told Insurance & Risk Professional it doesn’t make sense that people who choose not to insure don’t contribute to the funding of the fire services, while those who do insure foot the bill for the whole community.
“CGU has consistently called for changes to the funding model that would spread the cost more equitably,” he said. “We believe a property-based system is a workable solution, and this has been adopted successfully in other states.”
He says such a system would not only reduce the cost of insurance but also encourage households and businesses to insure properly and help combat non-insurance and underinsurance.
Many insurers and brokers point to Western Australia’s success in changing from an FSL to a rates-based system in 2003. Non-insurance levels dropped significantly as premiums fell.
The levy also no longer exists in Queensland or South Australia, where funding for fire services is also collected through local council rates. In the Australian Capital Territory and Northern Territory it comes from consolidated revenue.
The only other state to charge FSL through premiums is in Tasmania where the rate remains unchanged at 28%.
Mr Pettersen says NIBA had hoped that under a federal Labor government there would be more consistency with the states’ approaches to taxation.
“But the global financial crisis is putting governments in trouble and they are now looking at every dollar coming in the door,” he said. “So for us to go out there and lobby and say ‘you can’t have that’ is a difficult thing to do.”
But he says the industry must “maintain the rage” and the initiative to get the discussion paper into the hands of the community is important.
Mr Hanks says NIBA would be making a submission to the bushfires royal commission by mid-May. The submission will echo the sentiments of NIBA’s discussion paper.
The Insurance Council of Australia, which has been given permission to appear at the royal commission, is also expected to highlight the impact of high insurance taxes as a deterrent to insure.
“The figures are indicating that almost 30% of the houses that were destroyed by fire had no insurance,” Mr Hanks said. “That is an incredible figure.
“While taxes on insurance might not be responsible for all of that, it’s certainly indicating that the high cost of insurance is a significant factor in whether people take out insurance.”