The ACT government will cut about $25 million from insurance tax revenues in the next financial year.
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Treasurer Andrew Barr said the reduction in duties on general and life insurance in the budget being released on June 4 will save the average Canberra household $100 in 2013-14.
The government is phasing out taxes on insurance as part of its overhaul of the territory's tax system, which began last year and became the key battleground of the October election.
The reforms also include the phasing out of stamp duty over 20 years, with the tax burden shifted to the general rates base.
The territory government has committed to removing duties on general insurance - such as home, contents and motor vehicles - over five years, which began with a reduction from 10 to 8 per cent in 2012-13.
That levy will fall to 6 per cent in 2013-14.
The 5 per cent levy on life insurance dropped to 4 per cent in 2012-13 and will fall further to 3 per cent next financial year.
Insurance duties will be abolished from July 1, 2016, making the ACT the first jurisdiction to stop taxing insurance.
Mr Barr said on Tuesday the government would collect about $25 million less in insurance tax in 2013-14 as a result of the cuts.
"That $25 million goes back into the pockets of households and businesses," he said. "What this does is remove the financial disincentive for people to insure.
"We want people to take out insurance and so it's illogical if you want someone to do something to tax them for doing it.
"What that means in dollar terms is that an average Canberra household that has building, contents and motor vehicle insurance … they'll pay $100 less tax this year."
The government will recoup the lost revenue through increases to general rates.
The opposition has attacked rates rises, but Mr Barr said shifting the cost to the general rates base was a fairer way of sharing the tax burden.
"What was happening was those people who took out insurance were subsidising those who didn't," Mr Barr said.
"Because what happens, or what tends to happen, when there's an incident - be it a natural disaster or an event that's caused by us - is that those who don't have insurance come to government to be bailed out anyway.
"So the people who take out insurance end up paying twice.''
