Industry fears that the Federal Government’s tax review won’t extend to insurance tax reform were allayed last week after a Treasury discussion paper drew a link between insurance taxes and underinsurance.

The paper was released by Treasurer Wayne Swan and Treasury Secretary Ken Henry, who is chairing the review.

While the paper, Australia’s Future Tax System Discussion Paper, makes no recommendations concerning taxation and is intended merely as a discussion document, it makes a number of observations regarding the way tax operates in Australia.

In particular, the report identifies the narrow base of many transaction taxes and how their interaction with other taxes can have an impact on resource allocation within the economy.

On the topic of insurance taxes, the Treasury report takes a similar view to the Independent Pricing and Regulatory Tribunal of New South Wales in its own review of NSW taxation.

The Treasury report says insurance products “are subject to GST, insurance transaction taxes and, in some states, insurance companies can also be required to contribute directly to the funding of fire services”.

“The interaction of these taxes increases the cost of premiums relative to other products, which may encourage people to take up less insurance than otherwise.”

National Insurance Brokers Association CEO Noel Pettersen says the recognition of the industry’s position on taxes is welcome.

“The good news is that problems with insurance taxes are being taken seriously,” he told insuranceNEWS.com.au.

The review is intended to simplify the Australian tax system, remove disincentives and improve international competitiveness.

The Treasury paper notes there are 125 different taxes in Australia, with 10 of those taxes making up 90% of total tax revenue.