Call to axe ‘misery tax’ amid insurance probe

A tax pouring record funds into state coffers as insurers hike premiums in the wake of natural disasters needs to be abolished, according to a national consumer lobby group.

The tax – a 10 per cent duty on most insurance premiums – raked in $960 million for the state government in 2022-23 and that number is forecast to surpass $1 billion for the first time next financial year.

Australian Consumers Insurance Lobby has called on states to scrap the tax or rejig it to funnel payments into disaster mitigation and relief.

ACIL chairman Tyrone Shandiman said the levy hit people in northern Australia who were already paying premiums up to 20 times higher than other parts of the country hardest.

“It is a regressive tax that disproportionately impacts high premium payers and also people on lower socio-economic (incomes),” he said.

“We think it should be abolished, but if not they could also use it for mitigation efforts… to make homes more resilient to cyclones.

“The ACT… is the only territory or state in Australia that has done it.”

The ACT Labor government abolished insurance duty, which it described as “unfair and inefficient”, in 2016 as part of a sweeping tax reform agenda.

A spokesperson for WA Treasurer Rita Saffioti said the state government had no intention to follow suit.

“The State Government already funds various disaster mitigation programs and provides the necessary assistance when natural disasters occur – including the recent allocation of $393 million in conjunction with the Commonwealth, to disaster recovery initiatives in response to Ex‑Tropical Cyclone Ellie,” they said.

“Insurance duty in Western Australia is levied at a flat rate of 10 per cent of the GST-inclusive premium and is applied consistently across the state.

“The Government has no current plans to change or alter the insurance duty and given the Government’s existing commitment to fund disaster mitigation strategies, there is currently no intention to establish a special purpose account.”

State Liberal MP Neil Thomson has, separately to ACIL, lobbied to have the levy which he described as a “misery tax” axed.

“We have floods, we have fires, and then the government gets a massive increase in tax revenue, I think it's something that the government should be looking at,” he said.

“There is a massive affordability crisis… and people are just being slapped this additional tax on top of those insurance costs.

“It puts a handbrake on people purchasing their own home because you could be paying well over $10,000 a year in insurance for a fairly standard home in Broome or Karratha.”

The call to axe the levy came as part of an ACIL report into the federal government’s cyclone reinsurance pool established in July last year which all insurers will have to sign up to by the end of 2024.

So far 10 insurers have registered for the $10 billion government-backed pool and all remaining insurers with eligible policies will be required to do so by December 31, 2024.

ACIL found home insurance had fallen by as much as 20 per cent, strata insurance was also possibly trending down due to the pool, but businesses had seen little to no benefit.

Australian Reinsurance Pool Corporation chief executive Christopher Wallace said it was too early to measure the pool’s impact on business insurance.

“We just haven't had the opportunity yet to see the impacts on small business, because insurers have been focusing on bringing across the home insurance and strata insurance first,” he said.

“At the first of July, only 17 per cent of small business risks had been transferred in.

“We are expecting all those risks to be transferred in by the end of the year.”

Dr Wallace said there was anecdotal evidence individual consumers were seeing strong premium savings.

ACIL called for stamp duty on insurance premiums to be abolished or channeled into mitigation and for short term government subsidies for premiums until the pool worked as intended.

A CCC report into the effectiveness of the pool will be tabled in December.

The office of Federal Financial Services Minister Stephen Jones was contacted for comment.