Another report calls for removal of taxes on insurance!
We at No Tax on Insurance were very interested to see yet another independent report call for the removal of unfair taxes on on insurance. The draft report which was released on 7 February 2018.
The final report is expected to be handed to the Australian Government by 1 July 2018.
Under the Productivity Commission Act 1998, the Government is required to table the report in each House of the Parliament within 25 sitting days of receipt.
The section that I was particularly interested in and of course strongly support was on the recommended removal of what is described as distortionary taxes. I reproduce this section from page 343 of the report.
Remove distortionary taxes
Taxes can reduce incentives for people to invest or alter their consumption patterns in ways that reduce their welfare. Stamp duties on insurance are particularly inefficient taxes because of their narrow base, the distortions to insurance prices, and reduction in insurance affordability. They create an incentive to not insure.
As stamp duty is applied to the price of insurance, including goods and services tax, it is a tax on a tax.
While the ACT has abolished stamp duty on insurance, it still applies in other states and the Northern Territory, and in one case (NSW) multiple rates apply. There have been some recent moves in some states (including NSW and Victoria) to extend exemptions, including to crop and livestock insurance, however these add to the complexity of the system (box 11.7).
The 2009 Report on Australia’s Future Tax System (the Henry review) recommended insurance taxes should be abolished and replaced by more efficient taxes noting ‘Imposing specific taxes on insurance deters people from insuring their property and encourages them to bear unnecessary risks, rather than pooling risk with others. Rates of non-insurance (for building and content insurance) generally are higher at lower incomes, yet low-income people are less able to bear the risk’ (Henry et al. 2009).
Box 11.7 Stamp duty requirements vary across the country
- ACT — stamp duty on general insurance has been abolished in the ACT (ACT Government 2017).
- NSW — the NSW government has announced a number of stamp duty exemptions, including in relation to lenders mortgage insurance policies from 1 July 2017 and from 1 January 2018 in relation to crop and livestock insurance, along with certain small business insurances. From 1 January 2018 NSW has two rates of stamp duty applying to general insurance, 9% or 5% (NSW Government 2017a, 2017b).
- Victoria — from 1 July 2017 the Victorian government has exempted insurance for crops which are being grown, harvested or stored, and for livestock and agricultural machinery. There are also a number of other exemptions to the 10% Victorian stamp duty, including for WorkCover and for the physical hulls of a floating vessel used primarily for commercial purposes (State Revenue Office Victoria 2017).
- South Australia — stamp duty at the rate of 11% applies to general insurance in South Australia. Exemptions apply for certain types of insurance including reinsurance, workers compensation and insurance of the hull of a marine craft used primarily for commercial purposes (RevenueSA 2016).
- Western Australia — stamp duty of 10% of the premium applies to general insurance in Western Australia. A number of exclusions apply including workers compensation, reinsurance and insurance under the Defence Service Homes Insurance Scheme (Government of Western Australia 2017).
- Northern Territory — stamp duty of 10% of the premium applies to general insurance in the Northern Territory. A range of exemptions apply, including to reinsurance and residential building insurance and fidelity certificates taken out as a requirement under the Building Act (Northern Territory Department of Treasury and Finance 2016).
- Queensland — stamp duty of 9% of the premium applies to general insurance in Queensland (Queensland Government 2017).
- Tasmania — stamp duty of 10% of the premium applies to general insurance in Tasmania (Tasmanian Government 2017).
The Commission has previously recommended State and Territory taxes and levies on general insurance should be phased out as part of its inquiry into natural disaster funding.
DRAFT Recommendation 11.3 phase out Distortionary insurance taxes
Consistent with the Commission’s 2014 Natural Disaster Funding Inquiry (recommendation 4.8), state and territory