The Senate inquiry into the impact of climate risk on insurance premiums is getting one message loud and clear: axing taxes on insurance would be the easiest and most direct way for governments to ease affordability pressure.

The Insurance Council of Australia, in the run-up to the Queensland election, has drawn attention to the “madness” of imposing state stamp duties on premiums when cover is needed “more than ever”.

In Queensland, stamp duty – imposed on top of GST – adds 9% to premiums. In NSW the tax burden is far greater because of the emergency services levy, which, to the industry’s relief, is to be abolished. 

Insurers appearing before the inquiry have been quick to highlight the issue – and they’ve been backed by a range of experts.

The Productivity Commission told the hearings that rising premiums are pressuring governments to “step in to reduce the price of insurance”.

And its director for climate change and energy Stewart Turner says the first step should be reforming “inefficient” taxes.

“State and territory governments levy a range of duties, charges and levies on general insurance premiums,” he said. “These taxes and charges increase the price of insurance and reduce the level of insurance that people take out, and are an inefficient source of revenue. They should be phased out and replaced with more efficient revenue sources.”

He says reform “would be the easiest, most direct measure that governments could take to reduce premiums”.

Commissioner Barry Sterland was asked why stamp duty on insurance is “a bad thing”.

“It’s the sense in which it distorts private decisions,” he said. “If people are price-sensitive to a product, and you impose a tax on that, that distorts their decisions in a big way. 

“It’s changing behaviour a lot. It’s away from what would be an optimal level. It causes too many choices that are poor from an individual’s point of view. That’s why it’s a high burden, I think it’s reasonable to say, in a tax economic sense. 

“There are other taxes that distort decisions less. There have been many reviews on that issue. Wider bases – all that sort of stuff is why it can have a lower marginal burden, but the reason stamp duties are often focused on is that [they] actually distort behaviour so much in all the ways we’ve been talking about. People underinsure. People won’t make the right decisions because of the tax.”

The Actuaries Institute agrees insurance taxes should go. 

“We absolutely support the replacement of taxes on insurance – emergency services levy in NSW and stamp duties – with more efficient and equitable sources of taxation,” Vanessa Beenders, EGM public policy and professionalism, told the hearings.

And consumer representatives are equally concerned. The Australian Consumers Insurance Lobby says removing stamp duty is one of its “top priorities”.

“We believe it is an unfair tax because, particularly in states like Queensland, where someone is paying 10 times the cost for insurance, they pay 10 times the stamp duty,” chair Tyrone Shandiman said. “How is that a fair tax for people? We’ve been lobbying very hard leading up to the Queensland election.”

Industry consultant John Trowbridge believes that while state governments won’t want to concede the revenue, “they need to do it a different way”.

“I think it’s quite inequitable at the moment because it’s proportional to premium,” he told the hearings.

He says the more expensive your premium, the more you pay in stamp duty, “and for what? It’s not connected to the risk. It’s just a charge by government.”

It’s a debate that’s already raged for decades, and while progress has been made on emergency services levies, stamp duties remain stubbornly in place despite numerous reviews recommending their replacement.

But the more expensive insurance becomes, the more governments will be forced to consider the removal of an “unfair” tax that continues to undermine efforts to make communities more resilient.