The ACCC’s Final Report on its Northern Australia Insurance Inquiry has been released at last and, among other things, it rightly reiterates a recommendation made in previous reports to (on p. xxiii):
Abolish stamp duty on home, contents and strata insurance products
The governments of Western Australia, the Northern Territory and Queensland should abolish stamp duties on home, contents and strata insurance products. State and territory revenue needs could be more equitably met through other means.
While the main reason home insurance premiums are higher in Northern Australia is the risk of cyclones and flooding, having stamp duties on insurance products levied on the premium paid doesn’t help and adds substantially to the cost. Eyeballing Figure 3.37 on p. 56 of the Final Report, it appears stamp duty is adding around $200 to the average cost of home and contents insurance in North Queensland.
The state government receives $65 million per annum from stamp duty on home, contents, and strata insurance policies in North Queensland (see Table 3.7 on p. 56), so, if it were going to abolish it state-wide, such a move would cost several hundreds of millions of dollars and, hence, may be unattractive to a fiscally challenged state government. The ACCC has thought of this, and notes state governments could instead make stamp duty proportional to the property value rather than the insurance premium, in a revenue-neutral fashion, a change which would still see the bulk of NQ households paying lower insurance premiums.
The state government should seriously consider the ACCC’s proposed changes to stamp duty on home, contents, and strata insurance. Reading over all the ACCC’s recommendations, which include a range of improved transparency and disclosure measures among other things, a cut in stamp duty appears to be the recommended action most likely to generate some significant savings for North Queenslanders on insurance products.
Note I am assuming the federal government won’t choose to directly subsidise insurance premiums in Northern Australia, which the ACCC isn’t necessarily recommending, but says would be preferable to the government acting as a reinsurer (see Recommendation 8.1 on p. xxiv).
Let’s hope North Queenslanders can see some real relief on home insurance costs. They certainly need insurance given the huge damage that cyclones can bring. I well remember growing up in Townsville and hearing from my family members just how bad Cyclone Althea on Christmas Eve in 1971 was (see image below), and how important it was to be prepared for another cyclone. I recall various preparations such as taping up windows and some very heavy winds and rain several times in the eighties, but luckily Townsville was spared a direct hit when I was growing up there. Given the population growth in North Queensland which has occurred since the seventies, a direct hit of a cyclone on a large city would be even more devastating and costly nowadays.
Perhaps a side note to the point on stamp duty… Building standards have been demonstrably improved since cyclones Althea and Tracy. This adds a significant cost to new builds in the north, but results in far fewer structural failures.
Consider, in 1974 Tracy destroyed 70-80% of houses in Darwin. In 2011, Yasi took out less than half that proportion of homes in the Cassowary Coast, despite being stronger, and lasting significantly longer. The two affected regions had similar populations at the time of their cyclones. Deaths in Darwin were 71, while only one indirect death is attributed to Yasi. The inflation adjusted cost of Tracy is double that of Yasi.
With the exception of storm surge inundation – for which no insurance can be had – structural damage is likely to continue to proportionally decline, as the stock of housing is built or retrofitted to increasingly stringent standards.
Great point about improved building standards as a mitigating factor. Thanks Martin!
Whilst I can see why the committee would recommend removing or lowering stamp duty why is GST also not considered for removal. My last policy had $184 of GST and $183 of stamp duty on a $2200 H&C insurance policy here in Townsville, seems a big selective to only identify stamp duty. The govt could also examine the option of House and contents insurance being tax deductible on the principal place of residence, which it already is on investment properties, and then providing some sort of subsidy for pensioners etc who no longer earn an income.
Hi Glen, thanks for the comment. I think there’s a consensus that stamp duty is a bad tax while there’s strong support for the principle of the GST being as comprehensive and broad-based as possible. I think that’s why the focus is on stamp duty rather than GST.