Tuesday, May 28, 2013

Insurance 'king hit' for FNQ

Treasurer Tim Nicholls has been releasing some of the nastier details to soften up the blows ahead of this weeks Queensland budget. A curious aspect of this has been the use of twitter where some stuff appeared even before the official media releases. The biggest item was an increase in the stamp duty on insurance form 7.5% to 9%.

Insurance stamp duty is regarded as one of the more inefficient taxes and Queensland Economy Watch has a good post on this which I will come back to: Government has to rely on inefficient taxes to fix budget – GST reform needed.

FNQ has been particularly hit by insurance premium hikes in recent years. Treasurer Tim's PR spin included the following:
On a policy for a $300,000 home with $75,000 contents the increase will be $25 per year.
So I looked online for a standard quote from Suncorp based on that criteria for the 4870 postcode in leafy flood-free suburban Freshwater and was supplied with a premium of more than $4,000! That would imply a premium and nominal increase more than double the unspecified location of Treasurer Tim!

Update: I also did a Suncorp insurance quote for an address in Taringa which I thought may be a reasonable Brisbane comparison with Freshwater if that matters on the exact same criteria. The quote was just $1,600 which would approximately correlate with the $25 increase in the PR spin.

The $25 is presumably also based on no increase in the insurance premium. However, as we know premiums everywhere have been increasing above CPI in recent years and the increase of 1.5 percentage points, from 7.5% to 9.0% on the premium, is an increase of 20% in the stamp duty you pay. So if your base premium has gone up by 10% you will actually end up paying 32% more stamp duty than last year.

Assume a property where the base insurance premium was $10,000 (inc GST). Stamp duty on this at 7.5% would be $750. An increase in in the stamp duty to 9% of the premium would increase the stamp duty by 20% to $900. However if your base premium has gone up 10% to $11,000 then your stamp duty contribution will now be $990. An increase of 32% over the previous year!

I used $10,000 because the premium for my own strata property was below that as recently as the 2010 renewal and has since increased approximately 200% in two years. There have been larger numbers reported but my guess is that is somewhere close to typical in FNQ strata. That 200% increase will now translate into a 260% increase in my stamp duty contribution to the treasury tin since FY2011.

Perhaps that is why Treasurer Tim is keen on such an inefficient tax, which would also appear to have adverse regional consequences including FNQ? Somewhat hypocritically Treasurer Tim was concerned by such stamp duty issues back in 2011 when in opposition:

Queensland’s Treasury cupboard is bare after 20 years of Labor mismanagement and the extra $44 million the Bligh government will rake in on higher insurance policies following the floods and cyclone will impose even higher costs on families.
Revenue measures will also include an expansion of the fire levy. This is a flat rate on every rateable property and as such is highly regressive with the smallest bed sitter paying the same charge as a five bedroom house, or Clive Palmer's mansion. There have been interesting moves here in NSW and Victoria where both Liberal governments have moved to base their equivalent levy on property valuations.

Property valuation based levies could be considered a small step towards broader land taxes. This was suggested in the interim Costello report before revenue measures went AWOL in the final document. Land taxes also featured in recommendation of the Henry Tax Review.

Queensland Economy Watch has suggested "State Governments will keep using inefficient tax measures in the future because they really don’t have much choice". When it comes to measures that are available Treasurer Tim seems to be falling short?

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