New South Wales Treasurer Dominic Perrottet says the state’s 2017 budget will relieve cost pressures for 600,000 small businesses in the region through the reduction of red tape, including by axing insurance duty on a range of policies for businesses with annual turnover of $2 million or less.
The 2017 budget, which delivers a $4.5 billion surplus, pledges to relieve cost of living pressures for families and business owners, and includes a $318 million plan to improve the viability of small businesses by removing insurance duty for commercial vehicle, professional indemnity, product and public liability, and crop and livestock insurance from January 1, 2018.
This will mean businesses with an aggregate turnover of up to $2 million will be encouraged to “take up more appropriate levels of insurance by removing the disincentive caused by higher insurance premiums”, according to the budget papers.
Insurance duty is paid to the state government by insurance providers and is calculated as a percentage of the policy premium. According to the Office of State Revenue, in NSW this can mean additional fees, which are often passed on to policy holders, range from 2.5% to 9% depending on the policy type.
In order to make a claim for the exemption, small businesses will need to declare to their insurer in writing that the turnover of the business is $2 million or less each year.
“Our reforms send a strong signal to the market that this state continues to be a great place to do business,” Perrottet said in a statement about the changes.
Council of Small Business Australia chief executive Peter Strong says while insurance duty may only represent a small percentage of total insurance costs, given the large sums SMEs have to pay for appropriate cover, this change is a win for businesses in the state.
“Professional indemnity insurance for example can be quite expensive, and this sets an example for the other states. It means the insurance providers will be looking to compete more,” Strong says.
Allied Business Accountants director David McKellar says while it’s likely every little bit will help when it comes to lowering insurance costs for SMEs, in general terms small business owners still need to make sure they understand the complexity of business insurance policies, and go to the right people for help on them.
Just because a business owner has sought out their own personal vehicle or home insurance successfully, McKellar says does not mean they should be going it alone in the world of business insurance contracts.
“I’d always recommend SMEs use insurance brokers. They have access to deals you really cannot get yourself,” he says.
“Business policies are very complex, to both understand what each policy actually covers and excludes, to when trying to understand how different insurance providers will deal with you differently when making a claim.”
Developing a good relationship with a broker will also save a business time by acting as the point of contact in the event something does go wrong or a claim needs to be made, McKellar says.
“Using a broker saves you cash up-front, but in the event of a claim or some sort of an issue, they do the work — instead of you doing this,” he says.
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The NSW government has made SME growth a central part of its 2017 budget narrative, and many of its policies are continued commitments to funding for the state’s existing $190 million jobs package. Included in the budget papers is the release of $25 million in funding for a co-investment vehicle between the state and private equity to fund high-growth NSW companies, and $20 million for the planned startup incubator space to be built in Sydney’s CBD.