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Wasted millions: Report slams NSW’s levy backflip

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The NSW Government’s last-minute cancellation of reforms to the Emergency Services Levy (ESL) has been slammed in a parliamentary report released today.

The reforms, which would have removed the levy on insurance and replaced it with a property-based levy, were announced in December 2015.

But in May last year, just one month before the new system was due to come in, the NSW Government pulled out of the plan, causing massive confusion in the state’s insurance market.

Many insurers had already removed the levy from their calculations and were forced to reinstate it. The Insurance Council of Australia estimates the cost to the industry was about $40 million.

The NSW parliamentary Legal Affairs Committee, which held an inquiry to consider the impact of the abandoned reform and what should happen next, published its report today.

“The committee has found the NSW Government’s failed implementation of [the reform] was a poor public policy decision, undertaken without adequate understanding of the complexities of the issue or the impacts of the proposed reforms,” committee Chairman Robert Borsak said.

“Additionally, we found that the Government’s failed implementation and late deferral of [the reform] has caused significant and avoidable costs to local government and the insurance industry.

“It is unclear why the NSW Government chose to pursue [the reform] in its 2017 form when it was clearly not going to meet its policy objectives.

“It was an unnecessary waste of millions of dollars which could have been used to fund hospitals, schools, or fire and emergency services.”

The report says the Coalition government made it clear the reform program in its previous form is “dead, buried and cremated”, but it expects to reintroduce a property-based levy if re-elected next year.

The report makes six recommendations about how the Government should proceed, saying more options should be considered and better consultation carried out.

It also says that the role of Emergency Services Levy Insurance Monitor Allan Fels should be extended beyond June 2020 if the reforms proceed.

“The committee acknowledges that if the current ESL is removed from insurance premiums there is no guarantee that the premiums will reduce accordingly,” the report says.

ICA told insuranceNEWS.com.au the reform of the levy must progress, pointing to the fact that “every other state and territory” has done so already.

“This is a regressive and unfair tax on households and small businesses that do the right thing by insuring their assets,” spokesman Campbell Fuller said. “The setback in NSW should not see the levy remain indefinitely.”

ICA says the levy, GST and insurance stamp duties mean NSW residents insuring their home and contents are paying about 45% tax.

“This is blatantly unfair,” Mr Fuller says.

“ICA urges the government and the Labor opposition to reconsider the removal of the levy and find a better method.”

The NSW Government will respond to the report by the end of February. Click here to see the report in full.