The Financial Services Council (FSC) predicts stamp duty raised on life insurance will fall short of collection costs.

It says administration of different rates across states means extensive collection costs for life insurers and each State Revenue Office.

“Most states and territories have a different rate and basis for levying taxes collected,” the FSC says in its pre-budget submission.

“This creates a productivity drag on life insurers because it necessitates complex assessment processes, legal fees and systems reconfiguration, all of which would be simplified under a harmonised system, or not necessary at all if stamp duty was abolished.”

The FSC commissioned Deloitte Access Economics to review the system. Its report says stamp duty on life insurance is the second most inefficient form of duty levied by states, behind motor vehicle tax.

“Attempts to have a ‘uniform’ methodology for the raising of the state tax have failed on a number of occasions,” the FSC submission says. “Australia is one of the few mature economies that taxes life insurance and life riders instead of giving a tax deduction.”

Only the ACT has agreed to abolish stamp duty of life insurance, starting in the next financial year.

Victoria announced it would abolish stamp duty, but the previous Coalition government ended up increasing it through changes to rules. During the recent state election campaign, the Labor Party would not comment on the change.

The FSC wants the inconsistent tax on life insurance reviewed in the Federal Government’s delayed tax white paper.