Insurance and other stamp duties are “inefficient, volatile and inequitable” and should be replaced, according to the Business Council of Australia.

“Insurance taxes can provide a disincentive to people to adequately insure,” it says in its submission to the Federal Government’s inquiry into tax reform.

“Insurance taxes are also regressive if they cause lower-income people to abandon insurance and expose themselves to more risk, because rates of non-insurance decline with higher income.

“The cost of underinsurance has broader social ramifications. For example, the cost of underinsurance when there is a large-scale natural disaster is often borne by taxpayers.”

Insurance taxes account for 8% of state income, raising about $6 billion, according to the submission.

The council recommends replacing “highly distorting state levies such as stamp duties and other transaction-based taxes with more neutral taxes”.

It also recommends broadening the base and increasing the rate of the GST, to reduce Australia’s reliance on taxes that inhibit growth.

“These forces make the broad directions for tax reform patently clear.”