The Federal Government has abdicated responsibility for insurance tax reform to the state governments, despite conceding that stamp duty and the fire services levy are inefficient taxes.

In their response last week to the Australian Financial Centre Forum report Australia as a financial centre: Building on our strength, Financial Services Minister Chris Bowen and Assistant Treasurer Nick Sherry say the Government is “encouraging” the states to consider reform.

The report was released in January with the Federal Government issuing its response on Budget night.

In response to tax issues raised in the report, the Federal Government has given in-principle support to recommendation 3.7, which calls for the removal of state taxes and levies on insurance.

“The Government agrees that these are inefficient taxes but notes that this is a state government responsibility,” the Government said last week. “The Government encourages the states to consider this recommendation.”

The announcement is a blow to industry insiders who hoped the report and more recent Henry review recommendation to abolish insurance taxes would encourage the Federal Government to act.

National Insurance Brokers Association (NIBA) CEO Noel Pettersen told insuranceNEWS.com.au the Federal Government has “handballed” the issue of insurance tax reform to state governments.

“It seems they will do anything not to give up the cash cow provided by insurance taxes,” said. “NIBA has always said that we’re in this for the long haul and we will keep up the fight. It is simply unfair to penalise the prudent who take out insurance cover.”

KPMG tax partner Jeremy Hirschhorn says he’s also disappointed the Federal Government won’t act, despite “strong agreement” over the inefficiency of insurance stamp duties and the fire services levy charged in NSW, Victoria and Tasmania.

“The Government has simply announced that reform of insurance taxes is a state matter,” he said. “Although these are state taxes, reform in this area requires federal-level leadership.”