Taxes on Insurance are wrong

It is time to abolish taxes on Insurance

I do not believe any one should run the risk of being un-insured. I do not believe that people should expect to be bailed out by Governments when they run into trouble because of the bad decisions they have made. But I do believe, the Government should be there to guide and encourage a level playing field, a fair go and opportunity for all and to protect the more vulnerable in the community.

Then why do we continue to have so many taxes in Australia. To be fair, in Queensland we have the lowest taxes on insurance compared to the rest of Australia, but they should still be much less. The combined GST and Stamp Duty still add nearly 20% more to everyone’s premiums. It is worse in other states.

When the GST was first mooted in the late nineties, we were told that it would replace the stamp duties that State Governments impose on insurance. It never happened. Instead they applied the stamp duty rate on both the Base Premium and GST. Since then we have had other levies imposed such as the “HIH bail-out” tax and the Terrorism levy. For these a GST and a stamp duty rate is also applied. It is a tax on a tax on a tax.

If Mr Abbott can be allowed to call a price on carbon or an ETS “a big new tax”, then so should I be able to call all these duties and levies TAXES!

I think it is quite fair to impose taxes on things that cause harm in the community such as:

  • Taxes on cigarettes as they cause harm to your health
  • Taxes on Polluters because they are damaging the environment
  • Taxes on alcohol because excessive use can damage your health
  • Taxes on petrol, to encourage people to buy more fuel efficient vehicles that cause less pollution

However Insurance is good for the community. If you suffer a loss, you can receive compensation from an Insurer (be indemnified) and be able to start again with little affect to your ownership of assets or business. Insurance is a good thing to provide such protection.

While insurers hold onto your money before they pay out on claims, they invest it and bring wealth into the community. In fact for many insurers, every dollar they receive is sent back out in the form of claim payments. They actually only make profits on the money they invest. Insurance is a good thing.

The insurance industry is battered by over regulation from Governments and other Government decisions, such as allowing property development in known flood plains, not having more stringent building codes to reduce Storm damage to buildings, better fire prevention codes for modern buildings, allowing polluters to keep pumping gases into the atmosphere contributing to climate change bringing about more intense storms and fires, not forming better relationships with the dis-enfranchised to prevent criminal acts and terrorism. Instead they are happy to allow our industry to continue to be damaged by mis-informed media scrutiny encouraged by poorly informed politicians.

While I believe Queensland should abolish the Stamp Duty charges and the Federal Government should abolish the Terrorism Levy imposed, things are much worse interstate. In NSW and Victoria they continue to impose Fire Service Levies on Insurance Companies (who pass these charges on to policy holders).

The history of the Fire Service Levy goes back to when Insurance Companies owned Fire Brigades, who attended fires of their customers. The governments of the day quite rightly saw this as inefficient as one fire brigade would be putting the fire out on one building while the neighbour burned because he was with a different insurer. Best to offer this as one service to all citizens for any type of fire. But they insisted insurers pay for most of this service rather than out of general taxes and yet those uninsured contribute very little. Fortunately Fire Service Levies were abolished many years ago in Queensland, but many of our clients do business in New South Wales and have these charges added to their insurance premiums.

Some of these are ridiculous amounts. In Country Victoria for instance, what should be a $1,000 plus GST premium on Property ends up being a total premium of more than $2,500 with all the different taxes imposed. Governments have even suggested imposing a Flood Levy as well to be added to your premiums.

Now if we want to encourage all people to take out insurance, we should be concentrating on making the premiums more affordable. While competition and strong investment returns brings down prices, this is the result of a vibrant competitive Insurance Industry and is nothing to do with any of the governments. Instead they appear happy to see people be uninsured or under-insured simply because they cannot justify buying insurance when their first priority is to feed and shelter their families, only to lose everything to a fire or accident.

Then government’s welfare system has to step in and provide them with housing and welfare benefits until they recover enough to survive on their own. A situation more likely to have been avoided if they had been insured.

But for that small shop keeper in country Victoria, scraping by with an economic downturn, receiving his insurance premium this year, already increased by recent events such as Bush fire, Storm or Flood. Saying to his Broker,” I just cannot afford to renew this policy this year, I am going to have to risk it and go un-insured.” or “I could afford to pay $2,000 but not $5,000.”or “ Mr Broker, can I reduce the Contents and Stock right down, despite that average clause?” “Could I just take the Public Liability cover only?”. The Insurance Broker naturally is most concerned and he is exposed to increased risk because while he advises the client he should not do this, he understands why they are saying these things.

Then insurers generate less revenue, less money to invest, so less capital into our economy and more dependence on governments when disasters hit.

It makes sense for the good of Australia to abolish all taxes on insurance. We do not expect the GST to be taken off but all levies such as Terrorism and Fire Service levies and all stamp duties should no longer be applied and lets encourage all people to embrace the concept of insuring their property and liability exposures. It simply makes sense!  

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