Tax attack: Battered by the defeat of its fire services levies campaigns, the Insurance Council still has some cards to play – including a powerful business coalition
Insurance & Risk Professional, February 2005
Australia’s insurance taxes are among the nation’s top four inefficient taxes, and it’s an issue that should be addressed by federal and state governments this year, according to the Insurance Council of Australia (ICA).
Following the release of a report commissioned by the Business Coalition for Tax Reform (BCTR), ICA has appealed to governments to review insurance taxes under the Intergovernmental Agreement discussions next month.
The coalition was formed in 1997 and has some influential members. They include the Australian Stock Exchange, CPA Australia, the Council of Small Business Organisations of Australia, the Federal Chamber of Automotive Industries, the Institute of Chartered Accountants, the Investment and Financial Services Association of Australia and the Property Council of Australia.
The report was compiled by Access Economics. It says that when the GST was introduced in 2000, the states and territories agreed under the Intergovernmental Agreement on the Reform of Commonwealth-State Financial Relations (1999) to:
- Forego their entitlements under the previous Financial Assistance Grants;
- Remove accommodation levies, financial institutions duties and stamp duties on quotable markable securities;
- Remove bank account debits taxes subject to review;
- Review the need to retain these taxes by 2005;
- Aim to remove a further range of inefficient state and territory business taxes; and
- Refrain from introducing similar taxes.
But despite the agreement and the improved financial position of many state and territory governments, many of these commitments were not upheld.
ICA Executive Director Alan Mason says the tax burden on policyholders is increasing, with the New South Wales Government indicating it will raise an additional $35 million over the next four years, “the bulk of which will be collected from policyholders”.
All states and territories have surpluses available that could be used to remove some taxes by July this year, according to the report. It says some states (which weren’t identified in the report) will be in a position to remove all targeted taxes by July, with other states in a similar position in July 2007. The report says only NSW won’t have a sufficient surplus to remove all its remaining relevant taxes.
“It’s time to get on with reforms which promote efficiency and which help people protect their own property, rather than taxing insurance at a similar level to alcohol and cigarettes,” Mr Mason said.
ICA statistics show that Victorian business owners in country areas are taxed almost 70% on their basic premiums. Tasmanian and NSW businesses in country areas are taxed an additional 52% and 43% respectively.
In NSW, Tasmania, and Victoria, fire services levies (FSL) are charged on top of basic premiums before GST. For example, for a premium of $100, $40 FSL may be charged (depending on the region), then an additional 10% GST, and then stamp duty of up to 11%.
“There is solid evidence to suggest businesses will take up more insurance if taxes are reduced.”
Mr Mason says an independent audit of insurance premiums following the removal of the FSL in Western Australia found insurers passed on the savings through cheaper premiums. “The removal of tax contributed to Western Australia having one of the most price-competitive insurance markets in Australia, and policyholders responded by increasing the level of insurance cover to more adequately protect themselves.”