The NSW Budget gives some benefits to small business owners, but takes away far more with the reinstatement of the Emergency Services Levy (ESL) on insurance premiums.
NSW continues to rely on a raft of inefficient taxes, especially stamp duty and the Fire and Emergency Services Levy. Matt Wade, Analysis of NSW Budget, Sydney Morning Herald, 21 June 2017.
The NSW Government unveiled its Budget on Tuesday this week (20 June). The key announcements are:
- From 1 January 2018, small businesses (with an aggregate turnover of less than $2 million) will be exempt from stamp duty on insurance policies for commercial motor vehicles, professional indemnity, product and public liability, leading to an expected saving of $318 million over 4 years.
- From 1 January 2018, insurance stamp duty on crop and livestock insurance will be abolished, with a forecast saving of $12 million over 4 years.
And now the bad news:
- The ESL on property insurance premiums will be reinstated. For 2017-2018, the government plans to raise $794 million from this levy (up from $785 the previous year), and similar amounts are projected to be raised through to at least 2020-2021.
- The government will raise $927 million in 2017-2018 from stamp duty on insurance premiums.
- This includes an additional $79 million each year through stamp duty on the ESL levy – the tax on a tax impact.
For small business owners and farmers, the savings from the removal of stamp duty on some policies will be overtaken by the reinstatement of the ESL levy.
For 2017-2018, insurance policyholders will contribute over $1.7 billion to the NSW Government. This is a massive tax burden that is imposed on products that are designed to protect and assist people and businesses in times of adversity.
Legislation to reinstate the emergency services levy on insurance premiums has been introduced into the NSW Parliament. The legislation reinstates a process similar to the one that has operated in NSW in recent years, prior to the phasing out of the levy on premiums.
Shortly, the Treasurer will proclaim the amount to be raised by the levy in the 2017-2018 financial year. From the NSW Budget papers, that amount is expected to be $794 million.
It will then be up to each insurer to determine the amount it will include in premiums to meet its ESL obligations. Each insurer will determine the timing for reintroducing the ESL component of premiums.
The legislation refers to a “transition period” which will operate until the proposed ESL on property takes effect. There are suggestions that the transition period will start on 1 July 2017 and will cease on 30 June 2019. However, the levy on insurance premiums could well continue beyond that date, and indeed the NSW Budget envisages it will do so.
Importantly, the Emergency Services Monitor and Deputy Monitor will continue in their roles until 30 June 2020. They will have the power to continue to monitor insurance pricing and levy collections until that time.
The ESL Monitor published a Section 30 Notice regarding the provision of information to insureds on 30 June 2017. NIBA is taking steps to confirm the application of this Notice, in light of the introduction of the reinstatement legislation into the Parliament. Further information will be provided to members as soon as this is clarified.
Insurance brokers who place business with foreign insurers will have similar obligations to those that operated in recent years. Brokers should take care to ensure that those obligations are met at all times.
The government has decided to change the agency responsible for administering the ESL. In future, the levy will be administered and enforced by the Chief Commissioner of State Revenue, and there will be a single contribution to the Chief Commissioner rather than separate contributions for fire brigades, rural fires and state emergency services.
NIBA will provide further information on the reinstatement of the ESL on insurance premiums as developments occur.