Biggest tax review in 50 years must cover insurance
The Federal Government has kicked off an 18-month review into the Australian tax system, pledging to shine the light into every corner.
Announcing the country’s most comprehensive tax review in 50 years, Treasurer Wayne Swan said there is “stronger pressure than ever for a tax system that works in the fairest, simplest and most efficient way. This review will help to achieve that goal.”
When it comes to insurance, the directive is clear: axe the fire services levy (FSL) and reduce insurance stamp duty.
But will the Federal Government follow through, or is this review simply a false dawn?
A positive omen came from the recent NSW Independent Pricing and Regulatory Tribunal (IPART), which slated insurance taxes in its draft report into state taxation.
IPART said the fire services levy and insurance stamp duty are the state’s “least efficient” taxes. It called for a 33% cut in stamp duty and proposed the fire services levy be phased out.
It was a timely shot ahead of the wider review, and shows the NSW economic regulator at least is on the money. But whether the IPART recommendations are enough to prise the NSW Government’s hands off a significant slice of revenue worth $1.2 billion a year remains to be seen.
The terms of reference for the Federal Government review reveal a key focus will be the effect of tax on consumption.
The case to reform insurance taxes could hardly be clearer. Insurance stamp duty and the FSL ratchet up the cost of premiums and encourage people to underinsure.
The FSL also compels insured residents to fund the fire services on behalf of others. It is patently unfair.
Robert Samut, a partner at Brisbane law firm Barry & Nilsson, points out that taxes impede the ability for insurance to transfer risk to the private sector, taking the pressure off public funds.
“The imposition of these state charges is at odds with the otherwise efficient and fair way in which the insurance market in Australia operates,” he told insuranceNEWS.com.au.
“To act in a way so as to discourage individuals and businesses from insuring their properties and businesses is bad policy.”
But don’t hold your breath. Little has changed since former Prime Minister Paul Keating observed that one should “never stand in the way of a state government and a bucket of money”.
State governments have remained firmly attached to insurance stamp duty – a so-called hidden tax that reaps little controversy and steady income. The two most populous states also fiercely hang on to the fire services levy. In NSW, the powerful Property Council is strongly opposed to the FSL being moved to a rates-based system – logically because it would shift the cost of the fire services payment on to its members.
In Victoria, Victorian Treasurer John Lenders staunchly defended the FSL in a recent missive to insuranceNEWS.com.au after it was suggested the state could do better.
In a statement that is commonly used by the Victorian Government to defend retention of the FSL, he says the community will still be funding the fire services “whether it is via insurance premiums or a property levy. On the fundamentals of equity and incentives to manage fire risk, an insurance based-system is clearly better”.
That “better” system will see Victorian policyholders pay $191.18 for $100 worth of rural commercial premium when the levy moves from 55% to 58% on July 1.
It’s a strange definition of equity.
Mr Samut compares this with hospital funding. “Could you imagine the uproar if state governments decided to fund public hospitals by forcing a levy on health insurance premiums?”
The fire services levy creates no such uproar. It’s concealed away inside an insurance premium, and as far as the fire services are concerned, it’s a nice little earner.
Compare that to a property-based levy. It’s an inherently better user-pays system, but it’s attached to property rates, and rates make headlines.
But a review of this scale demands bold decisions. We’ll have some idea if Mr Swan’s tax review panel is up to the task when a discussion paper is released in August, while a final report is due by the end of next year.
Announcing the country’s most comprehensive tax review in 50 years, Treasurer Wayne Swan said there is “stronger pressure than ever for a tax system that works in the fairest, simplest and most efficient way. This review will help to achieve that goal.”
When it comes to insurance, the directive is clear: axe the fire services levy (FSL) and reduce insurance stamp duty.
But will the Federal Government follow through, or is this review simply a false dawn?
A positive omen came from the recent NSW Independent Pricing and Regulatory Tribunal (IPART), which slated insurance taxes in its draft report into state taxation.
IPART said the fire services levy and insurance stamp duty are the state’s “least efficient” taxes. It called for a 33% cut in stamp duty and proposed the fire services levy be phased out.
It was a timely shot ahead of the wider review, and shows the NSW economic regulator at least is on the money. But whether the IPART recommendations are enough to prise the NSW Government’s hands off a significant slice of revenue worth $1.2 billion a year remains to be seen.
The terms of reference for the Federal Government review reveal a key focus will be the effect of tax on consumption.
The case to reform insurance taxes could hardly be clearer. Insurance stamp duty and the FSL ratchet up the cost of premiums and encourage people to underinsure.
The FSL also compels insured residents to fund the fire services on behalf of others. It is patently unfair.
Robert Samut, a partner at Brisbane law firm Barry & Nilsson, points out that taxes impede the ability for insurance to transfer risk to the private sector, taking the pressure off public funds.
“The imposition of these state charges is at odds with the otherwise efficient and fair way in which the insurance market in Australia operates,” he told insuranceNEWS.com.au.
“To act in a way so as to discourage individuals and businesses from insuring their properties and businesses is bad policy.”
But don’t hold your breath. Little has changed since former Prime Minister Paul Keating observed that one should “never stand in the way of a state government and a bucket of money”.
State governments have remained firmly attached to insurance stamp duty – a so-called hidden tax that reaps little controversy and steady income. The two most populous states also fiercely hang on to the fire services levy. In NSW, the powerful Property Council is strongly opposed to the FSL being moved to a rates-based system – logically because it would shift the cost of the fire services payment on to its members.
In Victoria, Victorian Treasurer John Lenders staunchly defended the FSL in a recent missive to insuranceNEWS.com.au after it was suggested the state could do better.
In a statement that is commonly used by the Victorian Government to defend retention of the FSL, he says the community will still be funding the fire services “whether it is via insurance premiums or a property levy. On the fundamentals of equity and incentives to manage fire risk, an insurance based-system is clearly better”.
That “better” system will see Victorian policyholders pay $191.18 for $100 worth of rural commercial premium when the levy moves from 55% to 58% on July 1.
It’s a strange definition of equity.
Mr Samut compares this with hospital funding. “Could you imagine the uproar if state governments decided to fund public hospitals by forcing a levy on health insurance premiums?”
The fire services levy creates no such uproar. It’s concealed away inside an insurance premium, and as far as the fire services are concerned, it’s a nice little earner.
Compare that to a property-based levy. It’s an inherently better user-pays system, but it’s attached to property rates, and rates make headlines.
But a review of this scale demands bold decisions. We’ll have some idea if Mr Swan’s tax review panel is up to the task when a discussion paper is released in August, while a final report is due by the end of next year.