There is widespread support for elimination, or at least reduction of state insurance taxes. Here are a selection of views. The information has been gathered by IAG (Insurance Australia Group) to help understand the many viewpoints:
Henry Review: Australia’s future tax system: Report to Treasurer
“Australia has high taxes on insurance, both in comparison to other countries and to the way that other products and industries are taxed. Specific taxes on insurance add to the cost of insurance premiums and can lead to under-insurance or non-insurance.
Low-income earners are more likely than high-income earners to abandon insurance in response to higher premiums. The result is that they bear more risk themselves, although they are less well-placed to do so than people with higher incomes.
Recommendation 79:
All specific taxes on insurance products, including the fire services levy, should be abolished. Insurance products should be treated like most other services consumed within Australia and be subject to only one broad-based tax on consumption.” (Australia’s Future Tax System: Report to the Treasurer)
Johnson Report: Australian Financial Centre Forum (November 2009)
“The Forum believes that the domestic tax impost on the insurance sector should be addressed as a matter of priority. The range and diversity of state taxes adds significantly to the cost of insurance, especially for those businesses operating on a national level. They are undoubtedly a factor contributing to underinsurance, with consequent increased demands on the public purse. Along with the variety of state non-prudential regulations, they also act as a barrier to new entrants to our insurance sector.
Recommendation 3.7: Remove state taxes and levies on insurance
The Forum recommends that all state taxes and levies on the insurance sector be removed.” (Australian Financial Centre Forum (2009): Australia as a financial centre: building on our strengths, p. 73).
Commonwealth Treasury: Architecture of Australia’s Tax and Transfer System (August 2008)
“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 transaction 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 cost of premiums relative to other products, which may encourage people to take up less insurance than otherwise.
An additional efficiency cost arises where a taxable product is used as a business input, since the tax can encourage businesses to use a less efficient mix of inputs. In addition, such input taxes cascade through the production chain to affect the market price of the final product, reducing international competitiveness.”
Independent Pricing and Regulatory Tribunal (IPART) NSW State Taxation Review 2008
“Insurance duty is a highly inefficient tax that creates disincentives for appropriate insurance. This suggests that the State should seek to reduce its reliance on this duty over the long term….By adding to the price of insurance, it encourages underinsurance and non-insurance in a market that already exhibits significant market failures.” ( IPART pp.61-2)
“The Fire Services Contribution by insurers is effectively a levy on insurance and creates disincentives for taking out appropriate insurance. On this basis, its removal should be a priority.” (Ibid. p.65).
NSW Treasury: Submission to NSW Public Accounts Committee into Fire Services Funding (2003)
“It is also apparent that insurance is relatively highly taxed – with the fire services levy the highest impost. High tax levels are likely to discourage insurance and lead to under-insurance with adverse consequences for resource allocation and economic growth.” (NSW Treasury submission, p. 20).
Access Economics
Axing the Alcabala: A program for a 21st Century State Tax System (2004)
“Fire Services Levy and stamp duty on general insurance are inefficient enough in isolation. In combination – and even if the tax base for insurance was properly specified – the taxation of general insurance products subject to all three taxes is the most inefficient taxation treatment existing at the state level.” (http://www.bctr.org/content/documents/AEconomics _State_Business_Tax_Reform_Nov_2004.pdf)
HIH Royal Commission
“…To the extent that this tax has to be met by insurers and cannot be passed on, it might have the effect of reducing the size of the capital base, which might in turn reduce the financial strength of the affected insurers – a potentially undesirable outcome.”
NRMA Insurance: Home and Motor Vehicle Insurance: A Survey of Australian Households (2001)
Found that an estimated 1.2 million Australian households (one in every six homes) does not have buildings and contents insurance. An estimated one in five passenger motor vehicles are not insured comprehensively. The most common explanation given for the lack of insurance in both cases was the cost of premiums.
NRMA Insurance
Business Insurance: A National Survey of Small and Medium Size Businesses (2001)
National survey of 1,253 small/medium businesses found that while the large majority of businesses have some form of insurance, close to half (47%) have irrelevant or inadequate cover. The most common reason why a business was not covered by an applicable insurance was the cost of premiums.
The above comments were gathered by IAG whose brands include NRMA Insurance, CGU, SGIO, SGIC, Swann and The Buzz (Australia); NZI andState (NZ); Equity Red Star (UK); and NZI and Safety (Thailand).
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