The Insurance Council of Australia has criticised an “unworkable” tax reform proposed as part of a federal government bid to lift productivity, instead backing a broader tax overhaul and recommendations to improve mitigation and efficiency.

The Productivity Commission, in one of five interim reports, says corporate tax changes including a net cash flow tax of 5% would improve “dynamism and resilience” and reward capital investment.

But ICA says the tax would be problematic for insurers, whose profits rise and fall with disaster cycles, and could increase costs for customers.

The commission recommendation to “pivot the corporate tax system to a more efficient mix” should consider reforms holistically, including how the federal government can incentivise states to remove inefficient insurance taxes, it says.

The Productivity Commission will submit final reports to the government in December covering climate issues, taxation and regulation, workforce skills, data and digital technology, and the care and support sector.

ICA deputy CEO Kylie Macfarlane says natural disasters have cost $34 billion in claims since 2010, mental health issues keep workers off the job for 30 weeks compared with six for physical injuries, and the regulatory burden wastes $68 billion in productivity.

“As the industry that provides financial protection when things go wrong, we see first-hand how red tape, skills shortages and poor climate planning slow down economic recovery and create the biggest barriers to productivity,” she said.

“Our recommendations show how working together across different areas can deliver real productivity gains, while measures like the net cash flow tax would undermine these benefits by reducing the money available for productive investment.”

ICA backs a climate resilience rating system for housing – based on property-level data reflecting hazard exposure and home characteristics – and says broader reforms should embed resilience in the construction code and fund a $30 billion 10-year flood defence fund.

It supports a commission proposal for a “national prevention investment framework” in the care sector, highlighting rising mental illness impacts in public liability, compulsory third party and workers’ compensation insurance.

ICA favours co-ordination of regulation, cautions against a new “data access pathway” and backs leveraging current legal frameworks to regulate artificial intelligence.

Governments should also make it easier to recognise trade skills from previous jobs and remove unnecessary licensing barriers, which could reduce recruitment time frames from six months to weeks, while improving labour mobility during disaster recovery, it says.