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$54.7 billion and rising: ICA maintains push for tax reforms

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State and territory governments have collected a combined $54.7 billion from insurance taxes over the past 12 financial years, according to an Insurance Council of Australia (ICA) submission.

The figures are contained in the submission to the NSW Productivity Commission as one of the key reasons why levies on insurance products must be removed. In October the Commission released a discussion paper that called for feedback on ways to take the state’s economy forward. Among the topics in the paper are improving the existing insurance taxation arrangements.

In the past financial year, the governments raised about $5.41 billion in revenue from the taxes and the figure is projected to rise another 22% between now and 2022/23.

NSW collected the most over the last 12 years at $18.2 billion, but the state also has the lowest take-up of home and contents covers, which reflects how the taxes are discouraging residents from taking up insurance.

Additionally, the state’s emergency services levy (ESL) ups home and contents premiums by another 21%.

“Insurance taxes create an incentive for the policy holder not to insure by penalising them for effectively managing their risks,” the ICA submission says.

“Accordingly, the imposition of insurance-based taxes exacerbates the serious problem of non-insurance and underinsurance.

“This ultimately increases the financial exposure to all levels of government when providing recovery assistance during catastrophic events.”

ICA says a broad-based property levy is the ideal model to replace the current taxation arrangements.

In a separate submission to the NSW Federal Financial Relations Review, it urged for an overhaul of the state’s insurance tax regime, including the abolition of the ESL.

“With regard to the ESL, the [ICA] submits to that broad-based taxes are a more equitable way to fund emergency services, so that those who insure their property do not unfairly bear the cost of the state’s emergency services budget while those who don’t insure their property make no contribution.”