Abolishing state stamp duties on insurance premiums would result in a more efficient tax system, the Insurance Council of Australia (ICA) says in a submission on the Federal Government’s tax discussion paper.

It argues state governments could recoup the foregone revenue – estimated at $3.7 billion in 2012/13 – by removing all or a major portion of tax expenditures for payroll, land and gambling taxes.

“The best-suited taxes are exemption-free, broad-based taxes because these have the greatest potential to deliver simple, fair and low tax rates,” ICA says. “The council’s primary recommendation is that state stamp duties on general insurance premiums should be abolished.”

State governments raise about $5.7 billion a year from insurance taxes, which comprises 8% of the overall revenue base, according to the Federal Government’s discussion paper.

ICA says current threshold exemptions imposed on payroll, land and gambling should be removed.

“Overall threshold exemptions and exclusions from a broad tax base reduce the efficiency of the tax while requiring a higher rate of tax to fund a given level of government spending.”

The discussion paper, released in March, says insurance duties are among the most inefficient taxes in Australia.

“Insurance taxes increase the cost of insurance to consumers and place a large burden on home insurance,” the paper says. “They may lead to underinsurance or to people not insuring at all, particularly if householders are sensitive to price increases.”