Insurance stamp duties are “economically destructive” and should be replaced with a broad-based property levy, the Grattan Institute says.
Its State Orange Book report, which outlines areas state and territory governments should look into, argues the taxes and insurance-based fire and emergency services levies should be dropped as part of wider tax reforms.
Fire insurance levies – now only imposed in NSW and Tasmania, raising a total of about $900 million – exact the third biggest loss in economic activity, followed by stamp duties on insurance, the report says.
Residential stamp duty and commercial stamp duty are ranked as the first and second destroyers of economic activity.
KMPG modelling cited in the report says a one dollar rise in fire insurance levies costs the economy just under 40 cents.
For insurance overall, state governments charge a 9-11% tax on gross premiums, collecting about $5 billion nationally from insurance premiums.
The institute says scrapping existing insurance taxes would leave residents in NSW and Tasmania about $430 million better off.
At the national level, such a move could reap a gain in excess of $17 billion.
“There is a big prize for tax reform,” the report says. “All taxes drag on economic growth, but some are worse than others.”
“State governments rely too much on taxes that reduce growth more. Making state taxes more efficient would boost economic growth.”
The insurance industry has long argued for the abolition of taxes on insurance, calling it inefficient and a deterrent to encouraging consumers and businesses to adequately protect their assets.
The Grattan Institute agrees with the industry’s assessment. “Taxes on insurance deter people and businesses from purchasing an adequate level of insurance, leaving them exposed to risks such as the risk of flood or fire damage to their own home or businesses assets, or motor vehicle theft.”
“Low-income earners are also the most likely to not purchase insurance, or to underinsure themselves.”
“The burden of these taxes falls on those who prudently take out insurance, while the uninsured who do not contribute often receive public assistance.”