The ACT will wind down stamp duty on insurance to move away from what Treasurer Andrew Barr calls an “inefficient and unsustainable” tax system.

Mr Barr announced the move while presenting the territory’s Budget last week.

He says the cut will provide an incentive to make sure people do not underinsure because of the cost of insurance taxes.

At present the ACT imposes a 10% tax rate on general insurance and a 5% tax rate on life insurance. Mr Barr says both taxes will be scaled down by 20% a year for five years, starting from October 1.

Revenue from the insurance tax will be replaced with general rate increases for the ACT’s commercial and residential sectors. Residential rates will increase by an average $123 a year, or just over 9%.

Mr Barr says a household paying $1700 a year in insurance will save $34 in the first year of the reform, with the saving increasing to $170 in the fifth year when stamp duty on insurance is fully abolished.