Tangled taxes. The industry enjoys a (temporary) victory in its insurance tax tussle with the states and territories
Insurance & Risk Professional, October 2002
The Victorian Government is showing no signs of easing its world record-level insurance taxes, and is preparing to introduce a law that ensures its tax take is maintained at the highest possible level.
The move comes in the face of growing business opposition to the level of insurance taxes, fuelled by a NIBA campaign that brought the taxes to the attention of brokers’ clients.
Despite a decision by New South Wales – which imposes the world’s second-highest level of insurance taxes – to halve the amount of stamp duty it imposes on insurance premiums, Victoria remains adamant that its ability to impose stamp duty on premiums, the fire services levy and GST is essential.
Unlike other states, Victoria had not legislated to ensure stamp duty could be calculated on top of the premium, fire services levy and GST. In August the Victorian Supreme Court agreed with Royal & SunAlliance that the gross insurance premium does not include the GST.
Supreme Court Judge Byrne concluded that the total amount of all premiums chargeable with stamp duty received by Royal & Sun Alliance did not include “that portion of the premiums received which is designated for payment of GST”.
It was a small but rare victory for insurers in their long-running battle with state and territory governments over taxes and levies imposed on insurance premiums.
The decision will be appealed by the Commissioner of State Revenue to the Court of Appeal, but in the meantime, the Bracks Government has moved to “clarify” the legislation covering duty on insurance premiums.
NIBA and the Insurance Council of Australia in Victoria are campaigning to convince the State Government to abolish stamp duty and the fire services levy.
This year Tasmania and South Australia have have removed stamp duty on public liability insurance policies, with New South Wales halving its stamp duty and Western Australia dropping the fire services levy.
Victoria, Tasmania and New South Wales have retained the levy.
Victorian Treasurer John Brumby has shown no sign that he will back away from his statement earlier this year that his Government is not making windfall profits from the dramatic rises in premiums. And on the fire services levy issue, he hinted that insurers could end up being accused of profiteering.
“The amount Government requires insurers to contribute towards the funding of fire services is set at the beginning of the year based on fire services budgets, and remains unchanged during the course of that year,” he said in response to letters sent to him by insurance brokers’ clients. “In the event that rising premiums cause insurance companies to ‘over-collect’ via the charge imposed on policyholders, all surplus company revenue accrues to insurers and not to the Government.”
The Federal Government has also criticised the Victorians’ attitude, with Federal Small Business and Tourism Minister Joe Hockey telling Parliament last month that Premier Steve Bracks “knows only too well why they have been slow to act”.
“Why would Steve Bracks want to introduce competition into the Victorian insurance market and reduce premiums when for every dollar in premium that is charged, Steve Bracks receives 40 cents in taxes?” Mr Hockey said.
But Mr Brumby said in his letter that he does not accept the findings of a well-known financial services research company that insurance taxes in Victoria are among the highest in the world.
“The international and interstate comparisons of fire service tax rates cited in the press are typically misleading,” he said, without explaining how.
But ICA and NIBA negotiators have not given up hope. “Now is the best opportunity that the insurance industry and its customers have ever had to have the fire services levy abolished,” said Peter Jamvold, ICA’s Group Manager Southern Division, who is co-ordinating the insurers’ campaign for the abolition of the levy.
“The campaign leads into the [Victorian] state election and this is an excellent time for campaign politics to impress on members the particular importance of introducing a fairer, more sustainable fire services funding system,” he said.
“We are working closely with a range of community organisations representing people who pay the fire services levy, and who are also approaching governments and demanding change.”
Mr Brumby’s move to change the legislation to maximise the Government’s tax take has not been taken up by the Opposition, which dominates the Upper House of the Victorian Parliament. It is therefore expected to be passed.
“It will be with the minimum of fanfare,” a Melbourne lobbyist said. “There’s an election looming, and it would be an unpopular move in the regional seats that may decide the next election.
“The Government will act to ensure that the collection of this revenue – which funds many vital services – is fully protected,” Mr Brumby said in a statement.
“Had stamp duty not been GST-inclusive in relation to a number of taxes, there would have been an overall net loss to state revenue,” he said.
NIBA Chief Executive Noel Pettersen said the Government’s unwavering attitude, which ignores windfall gains already made from premiums that are unlikely to fall to their previous levels, is “most unfortunate”.
“The campaigning for change will continue,” Mr Pettersen said. “But we should remember that although Victoria is the worst example, taxes on insurance Australia-wide can only act as a disincentive to insure.
“Ultimately, that means insureds are carrying an unfair burden that the whole community should share.”