The National Insurance Brokers Association (NIBA) has again pushed for the NSW Emergency Services Levy (ESL) on insurance products to be axed, saying the “inequitable” tax adds to the rising cost burden facing small businesses.

NIBA says the NSW Government budget papers’ estimates of a 28% rise in ESL collection for the 2022/23 financial year, and a further 15% in the following year, is “staggering” in light of the enormous financial impact of recent natural disasters and Covid-19 lockdowns on the small business sector.

Before covid, the February/March floods and a spate of other disasters in the last 24 months, businesses were already struggling with the hardening premium rate cycle in the last several years.

NIBA says for small businesses, many of whom are facing an uncertain economic future, the “artificial inflation” of premiums caused by the state’s ESL scheme makes insurance an unaffordable luxury, rather than a necessary cost of conducting business.

“The necessity for increased funding is not a surprise, what is a surprise is that there seems no appetite within the NSW Government to change what is widely recognised as a flawed funding model,” NIBA CEO Philip Kewin said.

“NSW has led the way in so many areas over the past few years, yet sadly is one of the few states that still has such an inequitable model whereby the ESL, is in the main, funded by those who take out necessary insurance policies, but at an ever-increasing cost.

“We will continue to advocate for the abolition of this inequitable and inefficient funding model that penalises responsible property owners and small businesses.”

The ESL was set to be replaced in 2017 with a broad-based property levy, but the NSW Government dropped the plan at the last minute. All other mainland jurisdictions no longer fund emergency services with insurance taxes and Tasmania is currently in the process of removing its levy.

The amount of ESL collected by insurers has increased significantly since the reform was ditched, rising 48% since the 2017/18 financial year, NIBA says in a submission to the NSW Small Business Strategy consultation.

NIBA says general insurance contributions account for almost 75% of emergency services funding, with councils and the NSW government contributing the remainder. The general insurer contribution for the 2022/23 financial year has been set at about $1.17 billion.

The current system sees ESL, GST, and stamp duty levied on top of the base premium in that order, NIBA says.

“This compounding of taxes can have serious consequences for small businesses that may already struggle with insurance affordability as a result of the hard insurance market and rising business costs.”

NIBA says it “strongly supports” the abolition of the ESL in favour of a more equitable property-based funding model which would provide relief to small businesses and encourage small business owners and individual householders to appropriately manage their risks, thus increasing business and community resilience.

Click here for the submission.