Australia’s states and territories have been urged by the insurance industry to eradicate taxes on insurance at the upcoming Commonwealth tax review’s leaders’ meeting.
The Insurance Council of Australia (ICA) CEO Rob Whelan sent letters to Premiers and Chief Ministers this week outlining the inefficiency of current stamp duties on insurance products and the negative effect this has on communities.
Inefficient taxes account for almost 40% of government taxation revenue. Furthermore, it is estimated that the removal of state taxes on insurance would result in a 22% decrease in household non-insurance.
Whelan says stamp duty on insurance is an inefficient and inequitable method for raising revenue, and that governments should employ less distorting taxes in order to encourage economic growth and community wellbeing.
“Apart from the negative welfare effects arising from the distortionary effects that inefficient taxes on insurance have on resource allocation and economic growth, they are highly regressive and contribute to the incidence of underinsurance and non-insurance,” Whelan says.
“Insurance Council research reveals that the tax payable in cyclone/flood prone areas is on average twice that of residents in less disaster prone areas, which has the flow on effect of making high premiums more expensive than need be.”
Whelan made a special appeal to NSW Premier Mike Baird, calling for the removal of the state’s Emergency Services Levy, which raises the amount consumers pay for home and vehicle insurance by almost 20%.
Whelan says that, despite some reform in recent years, progression has stalled. The ACT is the only government that has committed to phasing out taxes on insurance.