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. A new 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 government proudly exclaims the mandatory side of auto premiums has been reduced by the AIRB by a total of 18% since 2003. If you include the new grid system, mandatory insurance premiums have dropped 26%. The AIRB's most recent declaration in July 2006 was to reduce mandatory auto insurance premiums yet again, this time by 3%.

While the government only mandates drivers have the compulsory Public Liability and Property Damage (PLPD) coverage, those drivers who carry collision or other automobile insurance coverage are paying the brunt, and haven't seen these savings.

This is particularly evident when you look at Statistics Canada's Consumer Price Index data on average total automobile insurance premiums (PLPD, collision, glass, etc). While mandatory premiums might have dropped 26% since 2003, total premiums have actually increased more than 5% during the same period.

Those wanting the AIRB to continue dropping premiums point out that during a two-year period between January 2002 and January 2004, total automobile insurance premiums increased 76%, and in the two years since January 2004, total premiums have only dropped 4%.

Yet, it's difficult to understand why a government that 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 that private competitive companies reduce their mandatory rates and limit fundamental freedoms, all to see a small reduction in compulsory premiums and temporary political gain.

It's even more difficult to understand why a government awash in cash has yet to take the one easy step that would immediately reduce all insurance premiums an additional 3%.

It's a little known fact the Alberta government charges a 3% sales tax on all insurance premiums sold in the province. Don't bother trying to find it on your bill. Insurers are not permitted to itemize the tax embedded in the cost of your 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 in 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 3% 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 3% 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, just like they have with the forced reductions in mandatory automobile insurance.

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