Changes to the Goods and Services Tax (GST) may currently be off the Budget table, but the Financial Services Council (FSC) wants the Commonwealth to force the States to adhere to their original promise to the former Howard Government to deal with inefficient tax, particularly insurance taxes.
The FSC has used its pre-Budget submission to drive home the message that State taxes on insurance are among the most inefficient measures that currently exist and has pointed out that “Australia is one of the few mature economies that taxes life insurance and life riders instead of giving a tax deduction”.
“To the extent that changes are made to Australia’s taxation system, we encourage the Commonwealth to ensure the States commit to their promise to abolish inefficient taxes,” the submission said. “Importantly this commitment should be a focus of any agreement to make changes to the GST.”
The submission said the “backtracking of States on prior commitments” had resulted in “a patchwork of inefficient, distortionary tax outcomes” which were, in turn, impacting on areas of the economy with undesirable consequences.
“The different treatment of stamp duty on life insurance is an example,” the FSC submission said and said that while it acknowledged the issue was beyond the scope of the Federal Budget it wanted to make the following observations:
- Each jurisdiction has a different regime for the collection of stamp duty on life insurance policies.
- Individual members of different group insurance products residing in different States must be accounted for by insurers when calculating each member’s stamp duty liability, thus creating a substantial and costly administrative burden.
- Each jurisdiction applies different stamp duty rates to life insurance ‘policy riders’, such as such as trauma and disability cover, despite the fact it is virtually impossible to purchase these ‘policy riders’ as a stand-alone product.
- The cost to collect the tax (cost to insurers and government) in most jurisdictions would comprehensively exceed taxes raised.
