The abolition of a key NSW Government insurance tax has raised hopes other levies may also be up for review.

The state’s budget papers show the decade-old Insurance Protection Tax (IPT) – introduced after the HIH collapse to fund outstanding claims – will be removed on July 1 next year.

The move will save the insurance industry $69 million a year.

The fund’s outstanding liabilities are estimated at $189 million, but the NSW Government says it has recouped enough money to meet future claims.

It’s unlikely savings from axing of the IPT will result in cheaper premiums, as NSW legislation prevented insurers from passing on the cost of the IPT to consumers.

Savings from the decision will be spread across the industry, with IAG pocketing about $20 million, Suncorp $14 million and QBE $5 million. The insurers believe it signals a possible shift by the NSW Government following the release of the Henry Tax Review.

But the government of Premier Kristina Keneally is keeping coy on its future intentions, simply stating it “expects that the recommendations will be the subject of ongoing discussions between the Australian, state and territory governments”.

Insurance Council of Australia CEO Rob Whelan says the removal of the IPT is a “positive step towards the full implementation of the Henry Review recommendations to remove all insurance taxes”.

“The unequivocal recommendation from the Henry Review is that the states should abolish all taxes on insurance – whether they be fire and emergency services levies or stamp duties,” he said.

The Henry Review is the latest in a string of federal and state reports that have concluded a broad-based tax to replace fire service levies (FSL) is preferable.

NSW has previously baulked at abolishing insurance taxes. In 2008, a lack of political will and a local council campaign derailed any hope of removing the tax, despite a recommendation from the NSW Independent Pricing and Regulatory Tribunal.

National Insurance Brokers Association (NIBA) CEO Noel Pettersen says dumping the IPT is “nearly irrelevant” given the huge tax burden already borne by insurers.

NIBA says the NSW Government will reap $1.912 billion in taxes affecting insurance in 2010/11 – more than the “sin taxes” on gambling and betting of $1.804 billion.

While the state budget papers show NSW will directly collect $700 million in insurance taxes in 2010/11, insurers must also pay 73.7% of emergency service contributions, totalling $626 million.

“The budget papers say that the Government expects the Henry Review’s recommendations will be the subject of ‘on-going discussions’ between governments,” Mr Pettersen said.

“But there should be no need for further debate about replacing the levy with a fairer tax because the evidence is overwhelming.”