The New Zealand Fire Service Commission has proposed increasing the levy on insurance contracts by almost 40%.

The New Zealand Fire Service, National Rural Fire Authority and 38 other rural fire authorities are to become one organisation from next July 1.

Commission Chairman Paul Swain says to maintain standards through the transition the levy needs to increase by about $NZ36 ($33.61) per year for the average homeowner.

“Bringing 626 operational units and more than 14,000 firefighters and support staff together is not a simple or quick task, so we need to invest the right amount of time and money to ensure we get it right,” he said. “The end result will be a unified fire service that can adapt as the risks and needs across our communities change.”

Insurance Council of New Zealand CEO Tim Grafton told insuranceNEWS.com.au the increase will affect people on low incomes.

“Taxing insurance to pay for fire services is totally unfair and out of step with international best practice,” he said. “For commercial property owners, the tax rate applies without any cap, unlike the $NZ100,000 ($93,973) cap that applies to residential property owners.

“This means some commercial property owners could face substantial increases. 

“Although the rate has not changed for eight years, it would be quite wrong to portray this as suggesting the tax take has remained static, because the value of insured property has increased over that time.”

Insurance Brokers Association of New Zealand (IBANZ) CEO Gary Young says the increases are concerning and “substantially higher than expected”.

IBANZ is supportive of the new fire service, he says, but a 40% increase is “huge” when inflation is running at 1-2%.

“More of the money consumers have to spend on insurance will go to fund [the new fire service] leaving less for actual insurance, thus resulting in greater underinsurance which is already an issue,” he told insuranceNEWS.com.au.

“Although we totally support [the new service] we do not support the funding model at all.

“Essentially this is an inefficient, unfair tax on some New Zealanders to provide a service everyone needs.

“We fail to understand why this model continues to be used when similar countries such as Australia and the UK have recognised its failings and moved on.”

Public submissions on the proposed increase can be made here until 5pm on November 30.