kpmg-econtech-final

ABCDCPA AustraliaEconomic Analysis of the Impacts of Using GST to Reform TaxesSeptember 2011MM900 modellingMM900 includes both taxes on insurance (stamp duties and fire insurance levies), and the rate ofeach tax on insurance can be changed independently.Further, there are eight separate insurance products in MM900 to which insurance taxes can beapplied, and the rate of tax on each of these products can be modified independently. Currently,eight are subject to insurance stamp duties and three are also subject to fire insurance levies.ResultsAs discussed above, insurance taxes impose high economic costs because they are levied on a narrowbase (insurance services) which results in a high effective rate. While stamp duty on insuranceimposes a high economic cost, with an AEB of 29 cents per dollar of revenue and a MEB of 31 centsper dollar of revenue, fire insurance levy is estimated to have a very high economic cost, with anAEB of 59 cents per dollar of revenue and a MEB of 65 cents per dollar of revenue.Fire insurance levy has a higher excess burden for two reasons.• The products to which the fire insurance levy is applied are often consumed by households(household and motor vehicle insurance) and therefore demand for these services is moreresponsive to price.• The products to which fire insurance levy is applied have a higher overall rate of tax than theproducts to which stamp duties are applied. For example, fire insurance levy is applied to fireand industrial special risks insurance, houseowner and household insurance and motor vehicleinsurance. Each of these products already have stamp duties applied to them, leading to a higheroverall rate of tax, and a higher excess burden for the fire insurance levy.C.8 Motor Vehicle TaxesDefinitionStates and territories impose a variety of taxes on vehicle registration and vehicle sales. Motorcycleshave separate flat fees, and some states impose different fees for commercial vehicles. The types ofmotor vehicle taxes imposed when purchasing, selling or registering a vehicle can be divided intotwo categories, annual taxes paid on vehicle ownership (registration), and taxes paid on the transferof a vehicle (stamp duty).Annual taxes on vehicle ownershipVehicle registration fees apply at the initial registration of a vehicle and for annual renewals.Different types of vehicle attract different fees, with larger fees for various types of heavy vehicles.Some states levy insurance charges for third party insurance as part of the registration fee. Variouscharacteristics of the vehicle, such as its type (its sitting and carrying capacity), its intended use andthe accident risk levels of the zones where the vehicle is located, are taken into consideration whendetermining the charges.Taxes paid on the transfer of vehiclesMotor vehicle stamp duty is payable on registering a new vehicle or transferring a vehicle. Theamount payable depends predominantly on the value of the vehicle.Implications of current designBoth types of motor vehicle taxes lead to motor vehicle sales being lower than otherwise would havebeen the case. Business use of any capital item is sensitive to taxes, and as such, business demand formotor vehicles will be responsive to motor vehicle taxes. Households will also substitute away from© 2011 KPMG, an Australian partnership and a member firm of the KPMG network of independentmember firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.The KPMG logo and name are trademarks of KPMG.Liability limited by a scheme approved under Professional Standards Legislation.35