NSW Treasurer Mike Baird has announced a review of the state’s fire and emergency services funding that is expected to result in the abolition of the contentious fire services levy (FSL).

Presenting the Budget in State Parliament in Sydney this afternoon, he called the FSL “one of the most inefficient taxes in the state”.

He says he will release a discussion paper on new funding arrangements for the levy and consult with the community before finalising any reform.

The decision comes a week after ACT Treasurer Andrew Barr announced stamp duty on insurance in the territory will be abolished over a five-year period. See ACT to abolish insurance tax

Weekend media reports said Mr Baird wants to follow the recommendation of the 2010 Henry Review of taxation to scrap taxes on insurance premiums.

The FSL is charged on premiums to fund more than 70% of the state’s fire services and the State Emergency Service. The Budget papers released this afternoon say any change to the sources of fire services funding in NSW will not change the overall level of funding.

Revenue from the emergency services contribution is projected to be $695 million in 2012/13, decreasing an average of 1.5% a year over the four-year forward estimates.

All other states but Victoria and Tasmania have already abolished the FSL system. Victoria is in the first stages of making the transition to a property-based tax by July 1 next year.

Mr Baird was quoted in the Australian Financial Review as saying: “I’m very keen to see the levy removed and place it onto a more property-based tax, and that is obviously going to require discussion across the community.”

The community discussion paper will call for submissions by September 30 and the Government will make a decision on abolition towards the end of the year.

If a new funding system is adopted, the decision will include detail on replacement revenue sources and a timetable for transitional arrangements.

The Budget papers say taxing insurance is economically inefficient and may lead to non-insurance and underinsurance, and the tax system should not discourage people from protecting their assets.

About a third of NSW households – more than any other state – do not have home contents insurance, and the papers say the current system is unfair as the uninsured receive the same benefits as the insured.

The papers say the designing of replacement revenue sources raises “various trade-offs, including the relative contributions from different types of property-owners and different parts of the state”.

“The Government seeks the community’s views on those contributions.”