The Victorian government is yet to realise it has gone a step too far. The public’s festering anger and that of the business community will ultimately prevail.

by Walter Spratt

Victoria’s government professes its enthusiasm for attracting businesses to the State; but while it trumpets the benefits of relocating there, it neglects to mention a major financial impedient – and it’s one that is about to get worse, much worse. The government’s relative silence on the question of its world record property insurance premium taxes is deceitful. As the word spreads one senses the palpable anger in the business and wider communities.

This is government at its rapacious worst. It is already attacking premiums with three layers of taxation. A fourth tax will be introduced on 1 July, 2007. This premium tax will have even greater ramifications. Firstly, it is significant that it will be withheld until after the elections (scheduled for 25 November, 2006 ). Secondly, “tax 4” will largely only apply to businesses. Corporations cannot of course vote and they are being marginalised.

There are Machiavellian overtones in all this. It’s almost as if a trap, of the government’s own making, is being sprung. This will preserve evidence of its gross incompetence. Is it conceivable that the Act of Parliament confirming the Victorian government’s actions and its rationale may one day go on display at one of our major universities as an example of government ignorance and incompetence? The fourth tranche of taxation may reveal many corporations paying more in taxation than the underlining premiums themselves. Yes, a total tax rate of more than 100%. National and international corporations may wish to scrutinise this critical evidence before deciding whether or not to burn their bridges or run !

A leading Asian financial sector publication trumpeted the news in September, 2005: Victoria has the highest property insurance premiums in the world. The Australian Financial Review conveyed similar information to its widespread national audience earlier this year. A 2006 UK analysis of the Australian insurance market resulted in a report to key elements of the financial services’ industry globally. Premium taxes again featured.

Victoria’s premium taxing system is not about petty cash; it’s about huge volumes of tax. Those volumes are set to get much bigger. The higher the fire services’ levies the higher the inflow from GST (every cent of which goes into the State government’s maw); the higher the take from GST, the higher the rate of State stamp duty. The three taxes are entwined. Victoria’s official stamp duty rate is 10% but the multi-tiered and compounding impact of the taxes transform the position and the 10% rate increases by 65% and emerges as an applied rate of 16.5%.

These are savage, if not vindictive, taxes, with profound socio-economic consequences. Premiums should be affordable. They have paid for protection, not to satisfy the voracious appetite of government.

A total tax loading of $ 815 on every $ I,000 of premium paid by small and large businesses (this is before the introduction of premium “tax 4” now in train) often leads to unaffordable insurance and the self- assumption of risk. The public are faced with a similar dilemma with household insurance.

It’s a vicious circle and a growing number of property owners escape the government’s iniquitous premium taxes by only partly insuring … or not insuring at all. Conclusive evidence will no doubt be found in loss adjusters’ files.

Those who insure only, say, 30%, 4O%, 50%… or, 80% of their property values only pay comparable proportions of the taxes. The tax savings can therefore be substantial, but at the expense of causing distortions elsewhere in the system. It becomes a matter of holding one’s breath, hoping no losses occur. Besides, government handouts are to be had following bushfires and other disasters. Non-insurance no doubt translates into larger payouts.