It wasn't too many years ago that rising automobile insurance premiums were front page news in Alberta. In an attempt to "do something," the provincial government formed an MLA committee to review auto insurance across Canada. Despite their efforts, the committee ignored the simplest, most obvious way they could have dropped premiums -- eliminating their own tax on insurance premiums.

The committee did however make recommendations on how they felt automobile insurance rates could be reduced. The Automobile Insurance Rate Board (AIRB) now determines the "appropriate" profit margins of insurance companies. A grid system is now in place for new drivers, and an individual's right to sue for pain and suffering for minor injuries has been limited.

Thanks to these "reforms," the mandatory side of driver premiums have been reduced by the AIRB by a total of 18 per cent since 2003. Those wanting the AIRB to continue dropping premiums point out these reductions pale in comparison to the 57 per cent increase in premiums drivers ate between 2001 and 2002. The AIRB's most recent declaration in July 2006 was to reduce mandatory auto insurance premiums yet again, this time by three per cent

It's difficult to understand why a government who once prided itself on "getting out of the business of being in business" would mandate a bureaucratic committee decide how much profit a private company can make, dictate private competitive companies reduce their rates and put limits on fundamental freedoms, all to see a small reduction in mandatory premiums and temporary political gain.

It's even more difficult to understand why a government awash in cash has yet to take the one simple, easy step that would have immediately reduced all insurance premiums by an additional three per cent.

It's a little known fact that the Alberta government charges a three per cent sales tax on all insurance premiums sold in the province.

Don't bother trying to find it on your last insurance bill because you won't. Insurers are not permitted to itemize the tax that is embedded in the cost of your insurance premium.

Originally, the insurance premium sales tax was intended to fund the activities of the provincial rate board, but as part of Alberta's recent reforms, the AIRB now directly bills insurers to pay for their operation.

Furthermore, much like the way GST is calculated on gasoline, the Alberta insurance premium sales tax is added on last, after the other taxes. It's a tax-on-tax. Insurance companies in Alberta are required to pay provincial and federal corporate taxes, a provincial health levy (for their client's use of the public health care system), GST, and then the three per cent Alberta sales tax is applied to the entire premium (including taxes).

This results in an (albeit small) multiplier effect, increasing the provincial governments take. In fact, the Alberta government is projected to collect $195 million from their three per cent sales tax on insurance in 2006-07. It amounts to 0.6% of their total revenue take.

Don't kid yourself, insurance companies aren't paying these taxes out of their profits, they're passing them on to motorists through higher optional premiums. So while mandatory insurance premiums might be declining, if you have collision or other forms of insurance, your pocket book is potentially no further ahead.

If the government is serious about reducing the cost of auto insurance for Albertans, they should forget about trying to meddle in a competitive free-market system and eliminate a tax they don't need to collect in the first place.