The Financial Services Council (FSC) has backed recommendations made by a NSW report calling for the axing of all state insurance taxes, including the controversial Emergency Services Levy (ESL).

FSC CEO Sally Loane says stamp duties add to the “substantial insurance cost” of investing in life insurance, deterring Australians from buying adequate income protection policies. In the 2018/19 financial year, stamp duty on life products cost Australians $644 million.

She wants state and territory governments to quickly implement the tax reforms tabled by the NSW Review of Federal Financial Relations’ draft report, which directed two of its 15 proposals at the ESL and other insurance levies.

“We have long called for the removal of the regressive state government stamp duty imposed on life insurance,” Ms Loane said. “We welcome the findings in the review and urge the NSW Government and other states to act quickly to implement this reform that has been supported by every major tax review.

“The harmful burden from taxes on life insurance substantially adds to underinsurance, which the NSW review rightly denounces as causing major human and social problems.

“The review also highlights that taxes reduce the scope for insurers to pool risks, leading to further increases in the cost of insurance premiums, further compounding the harm from the tax.”

In the draft report’s executive summary, review panel Chairman David Thodey singles out “phasing-out many of the nation’s most unfair and damaging taxes, including transfer duties and taxes on insurance” as one of three key priorities for the NSW Government.

The report says there is “no principled case for applying a special tax on insurance” and that the ESL and other insurance taxes should be replaced as a priority.

The ESL was supposed to be replaced with a broad property-based levy in July 2017, but the NSW Government cancelled the move a month before its implementation without consultation. The move shocked the general insurance industry, which had spent millions on reorganisation.