The abolition of cascading taxes on insurance has been recommended by a long-awaited cross-bench inquiry into the Victorian Government’s tax regime.

The 14-month inquiry into state government taxation and debt, undertaken by the Economic Development and Infrastructure Committee, has also struck a progressive note on other insurance taxes, supporting the end of the fire services levy (FSL) and calling for insurance taxes to be “minimised or abolished over the long term”.

An IAG spokesman today welcomed the committee’s findings.

“IAG’s position is that a reduction of the taxation burden on insurance should be a high priority for any reform of Australia’s tax system,” he told insuranceNEWS.com.au.

The Insurance Council of Australia was unavailable for comment.

The 105-page report was quietly released by the committee last Thursday and delivered eight recommendations in total, three directly affecting insurance taxes, which contribute more than 10% of state revenue, or $1.478 billion annually.

Swelling the insurance contribution to state government coffers was the “cascade effect” whereby multiple taxes are applied in a compounded fashion. In Victoria, the costs of insurance premiums are increased by the FSL, then the GST on top of the total and finally stamp duty on top of both taxes.

Insurers have argued that if taxes must be applied, they should be calculated on the cost of the premium alone, and not the final cost including other taxes.

Not only does the committee recommend minimising the practice of cascading taxes “where possible”, but it has also called on the Government to minimise or abolish all insurance taxes in the future.

“The committee believes that opportunities for abolishing stamp duties on insurance should be seriously examined by the Victorian Government,” it says.

While the committee’s recommendation to abolish the FSL was accepted by the Brumby Government in August – a property-based levy is due to replace the FSL by July 1 2012 – the imposition of an additional levy on motor vehicles has also been proposed in the report.

Funding fire services through a property and motor vehicle levy was suggested by the Victorian Farmers’ Federation (VFF) in its submission to the inquiry. The VFF justifies its position on Country Fire Authority figures stating 15-22% of callouts involve motor vehicle accidents.

The VFF says a “small levy” applied on car registrations would “provide the means to recover the costs associated with vehicle accidents”.

The inquiry received 43 submissions, including from IAG, the Insurance Council of Australia, CGU Insurance, RACV and the National Insurance Brokers Association.