Related ArticlesInsurance tax reform would go to consumer pockets
Business Spectator, 27 January 2009
Despite an early portfolio burst by Treasury Ministers Bowen and Sherry and Finance Minister Tanner to meet and glad hand the general insurance industry, the industry’s appeal for tax reform so it can spend money on financial protection for Australians seems to still be in a drawer somewhere in Canberra.
Chris Bowen, Assistant Treasurer and Minister for Competition Policy and Consumer Affairs and Senator Nick Sherry, Minister for Superannuation and Corporate Law, and the Minister for Finance and Deregulation Lindsay Tanner have all spoken at general insurance functions.
They have professed interest and support for the ongoing viability of general insurance and its “valued place in the Australian economy”.
However, for a few months now, there has been silence, at least publicly, on the Insurance Council of Australia’s call for a Review of Australia's Future Tax System and that reform of general insurance taxes should be a priority.
The council quoted a Treasury report “Architecture of Australia’s tax and transfer system”. This succinctly stated, said the council: “The narrow base of many transaction taxes and their interaction with other taxes can have an impact on resource allocation in the economy.
“For example, insurance products are subject to GST, insurance taxes and, in some states, insurance companies can also be required to contribute directly to the funding of fire services.
“The interaction of these taxes increases the costs of premiums relative to other products, which may encourage people to take up less insurance than otherwise.”
Council supported these remarks and contended that the abolition of general insurance taxation would generate substantial gains to national economic welfare.
In this time of threatening recession, the council’s first point is telling because it notes that money can be put back in consumer’s pockets – Kevin Rudd’s avowed desire.
“Reform of general insurance taxes will yield gains to real household consumption of around 0.48 per cent or a little under $2.6 billion,” says the Insurance Council. This would ensure that the gains to economic welfare from general insurance tax reform equate with those achieved from micro-economic reform efforts of the past.
Further, its government experienced Alex Sanchez, general manager, economics and taxation directorate says:
“The net cost of abolishing stamp duties on general insurance is $1.7 billion after allowing for second round effects and revenue claw backs to the States from efficiency gains. The net cost of such reform is comparable to the hitherto cost of previous state tax reform in financial services such as the removal of FID and Debits taxes.
“The gains from the removal of all state transaction taxes are extremely large, with gains to household consumption of between 1.1 per cent and 1.8 per cent.”
There’s more, but we can’t make the message too long – for obvious reason.