Most consumers are not aware of the amount or severity of insurance taxes they pay on top of their premiums for domestic insurance policies.

For Australian policyholders the cost of insurance policies has been pushed up by a "tax on tax" effect because state stamp duty is imposed on top of GST.

For policyholders in NSW, Victoria and Tasmania, the situation is even worse. With the addition of a fire services levy there’s a "tax on tax on tax" effect that in Victoria is as much as 81.5% on property insurance.

The recent federal Budget has given state governments a GST windfall of $2.3 billion for 2006/07, making it crucial to lobby state and territory governments to take a fresh look at abolishing the inequitable taxes on general insurance.

The taxes needlessly make insurance more expensive, and as long as they continue the problem of underinsurance and non-insurance will remain.

Personal lines customers may not be aware their policies are taxed as though they were luxury items such as alcohol, gambling and tobacco.

Over the past 10 years the industry has told governments underinsurance is a big problem that could cost them considerably when it comes to providing emergency assistance. The effect of underinsurance and non-insurance was evident most recently after Cyclone Larry, and in Canberra after the 2003 bushfires.

Much research has been done in this area, confirming the negative effect of taxes on general insurance and the community’s ability to afford cover.

A report by the Centre for International Economics, commissioned by the Insurance Council of Australia, found general insurance plays a crucial role in supporting economic activity and protecting the community.

The report says taxes on insurance are inefficient. Reducing them or replacing them with almost any of the other imposts governments have at their disposal would lead to large gains in economic welfare.

The report also confirmed that Australia leads the world in levels of taxation on household and commercial property insurance, due to the existence of a fire services levy in NSW, Victoria and Tasmania, and stamp duty levied by all state and territory governments.

Given that most state and territory governments are moving into revenue-positive positions following the introduction of the GST, it is time for the community to apply pressure on their governments to cut exorbitant insurance taxes.

To read the original of this article on Sunrise Exchange click here.