Federal Government tax review chairman Ken Henry has slammed insurance stamp duty and the fire services levy as “bad taxes”.

Just two months out from a final report that will act as a blueprint for Australian tax reform, Dr Henry – who is also Secretary to the Federal Treasury – used an address to the Committee for Economic Development of Australia (CEDA) last week to single out state-based insurance taxes for criticism.

He says taxes such as property transfer and insurance taxes are generally recognised as “highly inefficient”. He also says the absence of “effective and targeted policy instruments” promotes costly, inequitable and ineffective alternatives.

“Some of the existing state taxes provide a clue,” Dr Henry said. “Many of these taxes – such as those on insurance policies and the transfer of property and motor vehicles – are generally recognised as being highly inefficient, sometimes even by the states themselves.

“What should we make of the fact that the burden of these taxes actually falls quite heavily on people who are more disenfranchised?”

He also acknowledged the existence of non-insured and underinsured property-owners, calling them “those who bear risk where they would prefer to be insured but aren’t, because of tax”.

More broadly based taxes “would be more efficient policy tools, probably more equitable and certainly more transparent ways of raising revenue,” Dr Henry said. “Without such tools, governments will continue to rely on bad taxes to achieve their spending objectives.”

The tax and transfer system was the most important means available to governments to increase the wellbeing of Australians, he said.

National Insurance Brokers Association CEO Noel Pettersen says Dr Henry’s assessment is “very encouraging”.

“The question is whether the states would run with whatever recommendations are eventually made and make the necessary changes to bring about a fairer situation for insurance buyers,” he told insuranceNEWS.com.au.