The Insurance Council of Australia (ICA) has reacted to flagged increases to the New South Wales Emergency Services Levy (ESL) in 2020 which will see the tax exceed the premium on property insurance.
From 1 July 2019 the goods and services tax (GST), stamp duties and ESL will account for 60‒70% of the cost of commercial property insurance.
This is because in NSW insurance companies are required to contribute to funding the state’s fire and emergency services, with the amount depending on the total budget allocation. In 2019‒20 the ESL contribution will increase by 15% to $897 million, principally to meet the cost of changes to workers’ compensation for fireman and investment in firefighting aircraft.
The ICA has warned the increase will hurt small businesses and increase incidence of under-insurance and non-insurance. According to its analysis the higher cost of premiums will result in a $20 million reduction in pre-tax expenditure on insurance.
“Businesses are already feeling the strain on increased insurance premiums and this will compound the issue with the new charge being applied,” says Gallagher Newcastle Area Director Mark Bramley, who interacts with many small to medium sized (SMEs) businesses in the region.
The ICA has been in discussion with the NSW Treasury on these implications and spokesperson Campbell Fuller says the ICA will continue to lobby for the removal of the tax. “New South Wales is the only state that continues to fund its emergency services in this unfair manner,” he says.
Flip flop policy
The Berejiklian government abandoned a planned switch to property based council charges in 2017 and rejected proposals to reintroduce a property based levy earlier this year. Under the current funding model insurers contribute 73.7% of the emergency services budget, the NSW Government 14.6% and local councils 11.7%. The plan is to increase revenue by $602.9 million over the four years to 2010‒22.
New South Wales property owners pay the highest level of tax on insurance policies of any state in Australia. It has been standard practice for insurers to vary ESL rates throughout the year, making the financial impact on policyholders renewing their insurance unpredictable and dependent on timing.
We can help
“Business owners need to be aware of the impact this could have on their property insurance and budget accordingly for the increase,” Bramley advises.
We strongly recommend you talk to your insurance broker about the increases to the levy and how this affects the cost of your insurance. “Options like premium funding are available to clients who meet the selection criteria, should paying the premium in full cause concerns for a business’s cash flow,” he says.