Described as a 'misery tax', insurance duty is hitting businesses and homeowners hard while generating a windfall for state coffers
FOR as long as I have been covering insurance pain in northern Australia, the state government has claimed it is a federal issue and there was not much it could do to help.
For the most part this is true.
It is why the federal government implemented a $10 billion cyclone reinsurance pool – after many years of inquiries – essentially to act as insurance for the insurers covering cyclone-prone areas.
Whether it is working as intended or not so far is questionable.
A recent consumer lobby report found the pool was having negligible impact and in some cases brokers were even reporting increases to premiums.
But it is early days, and the policy deserves a little more time to take effect, given smaller insurers aren’t obliged to sign up to it until the end of 2024.
In the meantime, there are areas where the state government can make a difference.
Insurance duty – a state tax – is raking in impressive profits off the back of natural disaster-induced misery and strong economic growth.
In 2021-22, it tipped $823 million into the state’s bank account and is forecast to grow to more than $1 billion by 2025.
It is a tax Liberal MLC Neil Thomson pointed out to me a few months back, and one targeted recently by the Australian Consumers Insurance Lobby (set up to advocate for a better insurance deal for those above the 26th parallel).
There is a strong economic growth factor to rising payments from this levy, but there is another, more sinister, element.
Put simply, more natural disasters and more crime equals higher insurance premiums equals more money flowing into state government coffers.
The 10 per cent levy payable on annual premiums for most kinds of insurance unfairly affects those who choose to live, work, and invest in the regions critical to our lives and the economy.
Insurance categories exempt from the duty are health, workers’ compensation, reinsurance, and marine hulls.
It isn’t news to anyone that insurance premiums in regional Western Australia are often substantially higher than those paid in the city; mine certainly were when I lived up north.
While the tax is levied on insurers – and one could make an argument the insurer should absorb the cost at the end of the day – they are businesses and, as a business is entitled to do, they can pass the cost on to customers.
This hits the business owners who run mining services companies critical to keeping the Pilbara’s $78 billion industry ticking over.
It hits the farmers of the Mid West still working desperately to recover from cyclone Seroja in 2021.
And it hits homeowners in the Kimberley at their wits’ end trying to protect their properties from out-of-control youths running rampant.
You could almost make a case for it if that money was being pigeonholed into disaster preparedness and response efforts, but it is going into general revenue.
As for the forecasts, they have consistently been undercooked since COVID upended the economy.
The state’s number crunchers expected an annual decline in insurance duty payments of $9 million in 2022-23.
It increased by $137 million.
In the 2020-21 budget, they forecast the levy would bring in $830 million by 2025.
By the 2023-24 budget that figure was hiked to $1.02 billion.
Forecasts for 2021 in the current government’s first budget in 2017 were not too far off; only 9 per cent short of reality.
The 2023-24 budget reflected a $29 million increase over 2022-23 projections made just six months prior in the mid-year review.
This year’s budget once again tipped a conservative 2.9 per cent growth in the outyears, despite double digit growth in the previous two years and the potential impact of major flooding in the Kimberley, crime waves and inflation on premiums.
Insurance duty wasn’t introduced by the current government, but it can be removed or rejigged by it to bring instant relief to skyrocketing premiums.
Doing so would amount to a tiny hit on the state budget but a decent win for those scratching around to pay their growing premiums each year.