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Federal budget: step in the right direction, but more needed

Treasurer Jim Chalmers handed down his second federal budget last week, and while there are some key wins for the insurance industry, there’s much more to do.

Here we outline some of the key measures that will impact the industry.

Confirmation of $200 million to support risk reduction projects under the Disaster Ready Fund (DRF)

This money was confirmation of a pre-existing Labor Government commitment to spend $200 million per year on risk mitigation projects across Australia – matched by states and territories.

Under the scheme, only state and territory governments can apply for funding for projects, and they must cover at least 50% of the cost of each project.

Applications for round one closed on March 6, but no information has yet been released by the National Emergency Management Agency as to how many applications were made, and which will be approved.

The insurance industry has some input into the process through the Hazards Insurance Partnership, a measure introduced by last year’s budget, and which has already held two meetings.

In its pre-budget submission the Insurance Council of Australia (ICA) called for DRF funding to be extended to a 10-year rolling program, to “ensure that Australians receive the benefits of resilience and mitigation investment for years to come and allow governments and communities to plan for long-term projects that put downward pressure on insurance premiums”. 

ICA says the funding should be indexed so it does not fall in real terms. It says a 10-year, indexed program would cost the budget approximately $2.5 billion over the medium term – $1 billion less than the cost of disaster recovery payments and allowances in 2022 alone.

While ICA welcomes the DRF funding confirmed in the budget, it says “much more will need to be done soon” and calls on states and territories “to also share the heavy lifting in resilience and mitigation funding”.  

$236 million over 10 years to improve flood forecasting and warnings

The budget announced that the Government will invest $236 million over 10 years to establish a “national, reliable flood warning network”.

The investment aims to improve reliability and consistency of flood data, forecasts and warnings. 
Funds will be used to purchase and upgrade high priority flood gauges that are currently owned by local, state and territory governments in flood-prone areas. “In many cases these are run down and poorly maintained,” the Government says.

Based on Bureau of Meteorology advice, work in Queensland will be prioritised.  

Local and state governments have been calling for a national solution to address “critical, long-standing risks” in Australia’s flood gauge network for a number of years, the Government says.  

“Severe weather events, including floods, are becoming more extreme and more frequent,” Minister for the Environment Tanya Plibersek said.

“The people of Queensland and Northern NSW especially know that from recent tragic experience. When these events occur, people need access to the best available information, in real time.

“Reliable flood warnings will help Australians prepare for moments of extreme weather. It will keep people safer as they happen. And being better prepared will, when the water recedes, help reduce the financial impact of flooding on families and businesses.”

The investment has been welcomed by ICA and the National Insurance Brokers Association.

$46.5 million for cyber security

To support the Government’s announcement on the establishment of a National Cyber Security Coordinator, it is investing $46.5 million in the Department of Home Affairs over the next four years.

The funding will support leadership across the Australian Public Service in the “coordination and triaging of action in response to major cyber security incidents”.

The Coordinator will be supported by 56 staff, including a new National Office for Cyber Security and staff from across the Department of Home Affairs, covering the cyber security response and toughening up government information technology security, as well as other surge staff as required.

A spate of cyber attacks in recent years has sharply pushed up cyber insurance premiums, with affordability now a serious concern.

Tax law changes to reduce compliance costs for general insurers

ICA has welcomed the Government’s commitment to introduce legislation to ensure tax law is aligned with accounting standards and minimise the regulatory burden on general insurers.

The Government has provided a clarification in relation to the application of AASB 17 for tax, confirming general insurers will be able to “use audited financial reporting information, which is calculated according to the new standard, as the basis for their tax returns”.  

BDO Tax Partner Ali Bolbol says the tax law amendment is “a welcome relief for the general insurance industry.” A misalignment between the tax law and new accounting standard for general insurers has caused anxiety and concern to the insurance industry since 2019, he says.  

 “The proposed changes to the tax law will enable general insurers to continue using audited financial reporting information that is calculated in accordance with the new standard as the basis for their tax calculations and tax returns. This should help to streamline the tax reporting process for insurers and reduce the compliance burden they face,” Mr Bolbol said.

 "The market will be able to better understand the financial position of an insurance company without having regard to certain tax timing differences.”