PREMIUM TAXES
02-Feb-2011 UNFAIR, TOO HIGH AND A DISINCENTIVE TO INSURE
We all accept the fact that we have to pay tax, but it’s not fair if we’re paying too much tax. As your broker we can assure you of one thing: you’re paying too much tax on your insurance premium. Sometimes the level of taxes makes sense - higher income earners, smokers and drinkers all pay more, but the extra tax is tied to their ability to pay or propensity to need government services later. Insurance taxes aren’t like that. They specifically target the average citizen doing the right thing and impose taxes on premiums in ways that no other governments in the world impose. These taxes come under different names - stamp duties, fire services levies (FSL) and goods and services tax (GST), but they all add up. Depending on which state your business operates in you could be paying up to 82.5% on your base premium. This example, for regional Victorian businesses, includes a whopping 50% FSL, the standard 10% GST from the Federal Government and a 10% stamp duty placed on top.
The cost escalates at each level, so that state governments are taking a final premium tax that is simply unfair. In the case of Victoria, the state stamp duty is actually worth 16.5% of the base premium. It’s a tax on a tax on a tax! Victoria’s metropolitan policyholders are not much better off. They face a 37% FSL, bringing the total tax take to 65.7% of the base premium. That’s a hefty penalty for one single transaction. Imagine, for example, if insurance policies were some 40% cheaper than what you’re currently paying - or 45% if you’re in country Victoria. Certainly your business would be better able to manage risk but so would the entire economy. The problem of underinsurance could be significantly reduced - something that could actually benefit governments’ bottom lines over the long term. New South Wales is Australia’s other big taxing state - at least when it comes to insurance policies. The NSW Government recently increased its stamp duty on insurance to 9%, up from 5%. With a 30% FSL already in place, it takes the total tax charge on NSW business insurance to 55.8% of the base premium.
While your broker could comfortably argue for zero taxes on insurance policies, it is the FSL - which now operates only in NSW, Victoria and Tasmania - that really highlights just how unfair these taxes are. Designed to fund both metropolitan and country fire and emergency services, they ignore the fact that all property owners - not just those who pay for them through the levy - use these services. Not only is the imposition of FSL fundamentally unfair, the Australian rates verge on the ridiculously astronomical. There are very few industries where governments could get away with such a huge levy. Risk management is one area they can bank on businesses to do the right thing, even at great cost. The remaining states and territories have foregone this tax and now fund their fire services through either consolidated revenues or an across-the-board levy through property rates. South Australia, Queensland and Western Australia all still operate stamp duties on insurance.
But the total tax effect ranges from 18.25% to 22.1% on the base premium - a far cry from that faced by insurance buyers in the south-east. The National Insurance Brokers Association (NIBA) has been pushing for insurance tax reform for many years, and with some success. It is mounting a campaign to highlight the way Australia applies a “sin” tax on insurance - taxing it at levels similar to alcohol and gambling. The association has been asking politicians exactly why Australians face the highest insurance taxes in the world. And you can do your part too. Ask your local state and federal members of Parliament what they are doing to change this inequitable situation. The more they hear about it, the more likely they are to feel some electoral pressure to change the taxes.
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