The Victorian Government will remove a 10% stamp duty on agricultural insurance products, making it more affordable for farmers to cover crops, livestock and machinery.

“Farmers contribute close to $12 billion a year to the Victorian economy, and the Government is focused on the continued growth of this critical sector,” budget papers released last Tuesday say.

Insurance Council of Australia (ICA) CEO Rob Whelan says it is a great decision for the rural sector.

“Combined with GST, this tax adds more than 20% to premiums, increasing the incidence of underinsurance and non-insurance among farmers,” he said.

ICA is pressing for the removal of stamp duties on all other business and domestic insurance policies, as endorsed by the Henry tax review and the Black Saturday royal commission.

Victorian insurance taxes are expected to generate $1.3 billion of revenue in 2017/18, up 6% on the previous year but short of earlier expectations.

“Despite solid growth projected, this forecast represents a modest downgrade,” the budget papers say. “This is driven by slower growth expectations for 2016/17 due to a more gradual recovery in insurance premiums than anticipated.”

IAG EGM Agribusiness Andrew Beer says the stamp duty removal on agricultural policies will alleviate some of the financial pressures farmers face in managing volatile climate conditions.

“Farmers will be in a better position to adequately protect yield shortfall caused by natural perils such as flood, frost, drought and vermin,” he said.

Insurance taxes are expected to rise to $1.57 billion by 2020/21, with funds collected through the duty on policies such as motor vehicle and household cover.

The government says the forecasts reflect a return to increases “more in line with trend”, with the insurance industry anticipating economic and population growth will support stronger demand.

The budget includes $273.3 million to reduce the impact of bushfires by targeting high-risk areas, increasing firefighting capacity and using Aboriginal fire management practices.

It also allocates $25.4 million to emissions-reduction initiatives and production of detailed climate change impact projections.