States holding up tax reform

High-taxing State governments could be clawing back some of the benefits provided by the Federal Government tax reforms according to Rod Atfield, head of Mercantile Mutual.

Atfield says the slowness of state governments to take up the challenge of tax reform may damage the "reasonably equitable, transparent and viable" Federal tax system.

"The state governments now need to follow the lead set up by the Federal Government on tax reform to ensure consumers benefit from greater business competitiveness," Atfield says.

He says the insurance industry in particular is being put at risk by taxes on products such as home and contents that vary widely from State to State.

"In NSW state taxes account for an additional 46 per cent on top of general insurance premiums. To the initial premium is added a fire service levy paid only by insured people, the GST is then levied on this whole amount and State stamp duty is applied to the lot," Atfield says.

"This tax on a tax on a tax is a huge disincentive for people to insure themselves adequately and ease the burden on the rest of the community."

Atfield says unless State governments attack this problem consumers will search elsewhere for insurance, perhaps even buying cover offshore on the internet.

"If Australia is to compete globally we need this tax reform."