NIBA has provided a submission as part of the consultation on the NSW Government’s Small Business Strategy.
NIBA has provided a submission as part of the consultation on the NSW Government’s Small Business Strategy. The consultation will help inform the NSW Government’s strategy and priorities for small businesses over the next three years. With the aim to promote a “thriving, dynamic and innovative small business community”.
NIBA’s submission focused on the NSW Emergency Services Levy (ESL) and the disproportionate impact it and other insurance-based taxes have on small businesses.
NIBA’s submission highlighted the increased price sensitivity of many small businesses as a result of the rising costs across many areas of business. This is exacerbated by rising premiums due to the hard general insurance market and repeated natural disasters impacting many areas of New South Wales.
The submission also highlighted the increasing burden the ESL poses to insurance policyholders with the contribution target (the amount collected by general insurers) rising 48 per cent since the decision to abolish the ESL was delayed in 2017.
Despite the recent challenges faced by small businesses, budget papers released by the NSW Government earlier this week reveal that this amount will increase by 28 per cent in the 2022/23 financial year and a further 15 per cent the following year. “This is a staggering announcement in light of the enormous impact of recent natural disasters and COVID-19 lockdowns” said NIBA CEO Philip Kewin.
“The necessity for increased funding is not a surprise, what is a surprise is that there seems no appetite within the NSW Government to change what is widely recognised as a flawed funding model”, Kewin said.
“NSW has led the way in so many areas over the past few years, yet sadly is one of the few states that still has such an inequitable model whereby the ESL, is in the main, funded by those who take out necessary insurance policies, but at an ever-increasing cost”, he said
NIBA’s submission criticised the levy for being inequitable as it places the burden of funding the levy primarily on those who take out necessary insurance, while those who choose not to insure or can’t afford to insure, do not contribute to the levy. This artificially increases the premiums, thus forcing more people out of the pool due to unaffordability and places more pressure on those who remain. This finding is supported by numerous reviews, including the 2008 New South Wales IPART Review and the Victorian Royal Commission into the Black Saturday Bushfires.
The Emergency Services Levy is one of three taxes levied on insurance premiums. These three taxes (ESL, Stamp Duty and GST) combined increase the cost of insurance for small businesses by up to 70 per cent.
For small businesses, many of whom are facing an uncertain economic future, the artificial inflation of premiums caused by these taxes makes insurance an unaffordable luxury, rather than a necessary cost of conducting business.
In order to limit the impact of increasing premiums, many small businesses may be forced to reduce their level of cover for certain risks or forgo insurance entirely, leaving them open to significant financial liability if a disaster were to occur. Alternatively, small businesses who are able to may seek out alternative risk-transfer mechanisms, such as mutual pools that do not attract the levy, increasing the financial burden on traditional insurance policyholders.
Many, including NIBA, have called for the ESL to be abolished and replaced with a fairer broad-based property levy which would ensure those who receive the benefit of the emergency services – all property owners – contribute to the funding of those services, not just those who take out traditional insurance policies.
The NSW Government was set to replace the levy back in 2017, but inexplicably reversed that decision at the last minute. The current situation further exacerbates the model and will only get worse as costs rise, while the pool of insureds is set to fall due to the rising costs created by the ESL.
Through the prism of the NSW Small Business Strategy, NIBA has outlined a better alternative and the abolition of the ESL will remain a priority for 2022 and beyond if necessary. “We will continue to advocate for the abolition of this inequitable and inefficient funding model that penalises responsible property owners and small businesses” said Kewin.
To view NIBA’s full submission, click here.