The leaders of Australia's states and territories are being encouraged by the Insurance Council of Australia (ICA) to remove taxes such as stamp duty from insurance policies.
In letters sent to the respective leaders of each state and territory, ICA chief executive Rob Whelan said the governments remain overly reliant on inefficient taxes, including stamp duty on insurance products.
“Apart from the negative welfare effects arising from the distortionary effects that inefficient taxes on insurance have on resource allocation and economic growth, they are highly regressive and contribute to the incidence of underinsurance and non-insurance,” Mr Whelan wrote.
Taxes on insurance are one of the most “inefficient and inequitable” revenue-raising methods that government employs, he said.
Low-income households and property owners carry a “disproportionate burden” because of taxes on insurance, and the removal of stamp duties would improve affordability, he added.
Mr Whelan wrote that the Commonwealth tax review offers a “rare opportunity” for the comprehensive reform of insurance taxes.
“Premiers and chief ministers should take advantage of it by proposing at the leaders’ meeting that eliminating stamp duties on insurance policies be dealt with as part of the review,” he said.
The Financial Services Council had also called for the abolition of stamp duty and “inefficient taxes” on insurance policies in its submission responding to the federal government’s Tax White Paper.
The group acknowledged that there is “little incentive” for state and territory governments to “go it alone” in abolishing these taxes, but added the federal government has an opportunity to address the issue.
“While some have formally investigated abolishing inefficient taxes, the good work is often stymied by the absence of an alternate source of revenue,” the submission said.
“This is an especially poignant point, considering that the states and territories face an annual revenue shortfall of $100 billion.
“We therefore believe the Federation White Paper must finally address the vertical fiscal imbalance.”