“What you need to know about taxes on insurance” is a discussion paper which examines the background and effects of insurance taxes, how they work and the much fairer funding alternatives.
While in Queensland we have relatively low taxes, Victoria and NSW are the highest taxed states in Australia. Victoria is actually the highest taxed place in the world when it comes to insurance.
As a policyholder, you are paying a number of taxes including GST (10%), stamp duty (7.5-11%) and – in NSW, Victoria and Tasmania – a fire services levy (up to 72%). Then don’t forget the Terrorism Levy and possibly in the future, a Flood Levy.
The fire services levy exists in NSW, Victoria, and Tasmania (all other states and territories have abolished it). What it means is insured homeowners and businesses pay a tax to pay for the state’s fire services. Uninsured people don’t pay, and they still get the use of the fire services.
What is particularly annoying to me is that I have said for years and in particular when the GST came in, that the added taxes on insurance puts many people with limited incomes off buying cover to protect their most valuable assets. Their home and possessions. And if they do they choose to under-insure and that means if there is a total loss, they do not have enough money to rebuild.
In Victoria, look what could happen to a simple $1,000 premium. First you add in the Terrorism Levy of 1.6% (this makes it $1,016). Then you add the Fire Service Levy of 67% (this brings it up to $1,696.82), then add the GST of 10% (now at $1866.39) and then to top it off, add the State Stamp Duty of 11% bringing the total to $2,071.70. An Insurance Premium is doubled.
This tax is bigger than taxes on tobacco and yet Insurance is good for businesses and good for the economy.
What is disappointing is that the Royal Commission into the Victorian Bushfires recommended that the Fire Service Levy be abolished so that Insurance could be made more affordable. However, the State Government there has now extended it for another year and increased it.
Why do we have Fire Service Levies? Many years ago it was Insurance Companies that created their own Fire Brigades and they went to their Insured’s properties that were on fire. Sensibly, the Governments took them all over and merged them to provide a community service for all people. However, they made sure Insurance Companies kept funding them by insisting on a levy being charged.
Then the GST was supposed to replace the inefficient stamp duties taxed by State Governments. But they kept them on the excuse that there is no GST on food! Why do some states charge as little as 5% while others 11%?
High taxes add to the cost of insurance, and add to Australia’s problem with non-insurance and under insurance.