Broker Search

Related Articles

Tax attack. The insurance industry takes comfort in the HIH Royal Commission’s sharp criticism of taxes on premiums. But governments keep taking the money
Insurance & Risk Professional, June 2003

HIH Royal Commissioner Justice Neville Owen recommended the abolition of stamp duty, fire services levies and “other taxes that cannot be passed on to policyholders”. And he recommended that GST be excluded for the purposes of calculating stamp duties and other levies on premiums.

The royal commissioner’s damning assessment of the number and intent of a variety of taxes on premiums were hailed by insurance industry commentators as a positive step towards a more stable industry.

Commenting on the controversial New South Wales Insurance Protection Act, which forbids insurers passing its cost on to policyholders, Justice Owen questioned “how far it is possible by legislation to prevent an insurer from passing on to policyholders the burden of an impost of this kind”.

The Act taxes insurers on their premium incomes as compensation for NSW compulsory third party and homeowners’ warranty policyholders affected by the HIH collapse.

The impact of industry-specific taxes is “inequitable and should be redressed,” he said.

On the anomalies of applying GST to fire services levies, he said: “The discriminatory effect and lack of equity – not only between states and territories, but of equal importance, between regions within states – is obvious.”

He pointed out that the industry has nine industry-specific taxes levelled against it: stamp duties; fire services levies, the GST, the NSW Insurance Protection Act; the Victorian building industry levy; the Queensland FAI-related insolvency levy; the Tasmanian and Western Australian workers’ compensation levies; and levies on the industry to fund corporate regulation.

(The industry is levied an estimated $8.4 million each year as its contribution to the finding of the Australian Prudential Regulation Authority and the Australian Securities and Investments Commission.)

Justice Owen also noted Australian Bureau of Statistics data that taxes on insurance in 2000-01 totalled $2.4 billion.

International comparisons of tax rates “suggest that overall sales and turnover taxes on general insurance products in parts of Australia are well above an optimal”, he said.

The Insurance Council of Australia said insurance premiums could drop 30-40% if the royal commissioner’s recommendations were followed.

One of the states seem as operating some of the most unfair tax regimes, NSW, indicated shortly after that it will consider switching to the more widely accepted land tax-based system.

But Victoria and Western Australia reacted shortly after with a more ominous sign that the royal commissioner’s recommendations will not be followed by state governments.

Victorian Treasurer John Brumby announced in the state budget that the stamp duty take on insurance premiums will rise from $542.5 million to $668.4 million – an increase of 23.2%.

Over the past year Mr Brumby has also withstood a great deal of pressure from a coalition of business and insurance industry groups wanting to drop the fire services levy. It is understood that an inquiry initiated by the state’s Treasury has stalled after the insurance industry offered to assist in modelling alternative systems.

Less than two months before the new land tax-based fire services levy was due to start in WA, state Treasurer Eric Ripper raised WA’s stamp duty take on premiums to help avoid a $1 billion blowout in debt.

For the insurance industry, the moves on premium taxes by the two state governments has raised questions about how many of the suggested reforms will actually find their way into legislation.

Insurance Council of Australia Pres-ident Raymond Jones said when the HIH report was announced that its suggestions “will increase stability in the industry and eventually provide lower premiums for potential policyholders”.

NIBA President Noel Pettersen said brokers “particularly welcome” the recommendation to do away with stamp duty on general insurance products.

“NIBA has been campaigning strongly for this for a long time, and Justice Owen’s recommendations are definitely a step in the right direction.”