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Could NSW tax report be final nail in ESL coffin?

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A major report on NSW taxation reform has called for the end of all state insurance taxes – including the highly controversial Emergency Services Levy (ESL).

Today’s draft report from the NSW Review of Federal Financial Relations contains 15 recommendations – including two related to insurance.

Recommendation 10 says “all specific taxes on insurance products” including the NSW ESL “should be abolished and replaced by more efficient and broad tax bases, to improve the affordability and uptake of insurance”.

Recommendation 11 says the NSW Government should revisit reforms aimed at replacing the ESL with a broad-based land tax “to reduce the cost of insurance and enable fairer ways to fund the fire and emergency services”.

“The reform should follow a detailed consultation and modelling process to carefully consider the impacts on different taxpayers,” it says.

The action on insurance taxes forms a core pillar of the suggested wider reforms.

In his executive summary, Review Panel Chairman David Thodey singles out “phasing out many of the nation’s most unfair and damaging taxes, including transfer duties and taxes on insurance” as one of three key priorities for the NSW Government.

As has reported, the NSW Government was all set to abolish the ESL but backtracked at the last minute in 2017.

The insurance industry, which was furious with the u-turn, has continued to campaign for reform.

Today’s report backs up many of the Insurance Council of Australia’s (ICA) arguments.

It says NSW raised $2 billion – or 6% of tax revenue – in 2018/19 from three insurance taxes: the ESL, stamp duty on general and life insurance products, and a private health insurance levy.

“There is no principled case for applying a special tax on insurance,” the report says.

“Insurance taxes are inefficient: they drive up premiums and discourage consumers from adequately insuring.

“There can be serious human and social consequences from what has been dubbed ‘a national crisis of under-insurance’, especially for a country that relies heavily on insurance markets for recovery from disasters.”

The report says that the issues which prevented the previous ESL reform from proceeding can be overcome.

“It is clear that New South Wales can and should revisit this reform. The implementation of equivalent reforms in almost every other state indicates that reform is achievable.”

The report adds that climate change and the recent devastating bushfires makes reform “more critical”.

“The Review concurs with the numerous previous inquiries, pressing with urgency that all specific insurance taxes should be abolished, with replacement revenue sourced from more efficient and equitable taxes.”

ICA is now urging the NSW Government to act on the report.

“I applaud David Thodey in taking a strong and rational view to achieve the best broad-based outcomes for all NSW residents, and not just a simple lift and shift on taxation," ICA CEO Rob Whelan said.

“We agree with the Thodey report that there is a pressing need for abolishing insurance taxes, with replacement revenue sourced from more efficient and equitable taxes.

“The industry urges NSW Treasurer Dominic Perrottet and Premier Gladys Berejiklian to accept the report’s findings in relation to insurance stamp duties and the ESL, and prioritise this vital reform process.”

Comments can be made to the review up until the end of this month “to inform its Final Report to Government”.

Click here for more details and to read the full report.