The New Zealand insurance industry has come out swinging against a Government proposal to collect the fire services levy ("FSL"), as well as funding for rescue services, from an expanded base of insured property and a larger pool of motor vehicles.

The current system requires FSL to be collected only on properties insured for fire loss, and owners of third party insured vehicles do not pay a levy.

The proposal is for FSL to apply to properties insured against any kind of loss or damage, and to vehicles whether they are fully insured or third party only.

Insurance Council of New Zealand ("ICNZ") CEO Chris Ryan told Sunrise Exchange News the proposal is an outrage and discriminates against people who are prudent enough to insure.

Internal Affairs Minister Rick Barker last week released a public discussion paper – ‘New Fire Legislation’ – proposing new ways of managing fire risk and strengthening rescue services. He says the change would broaden the leviable base considerably, allowing the funding burden to be shared over a much larger group of assets being protected.

Mr Ryan says the restructuring of the fire service is unlikely to work because it remains "under-funded, under-resourced and likely to get worse. The Government has in fact increased the likelihood of a funding crisis by continuing a funding method that allows increasing numbers of people to opt out of paying for the fire service", he said. "This provides a free ride off those who care to insure their properties".

Mr Ryan says some government departments are exempt from FSL. For example, Housing New Zealand owns more than 60,000 houses and does not pay the levy.

However, Mr Barker says government departments may yet have to pay their share of fire protection costs under a revamp of fire and rescue services. Funding FSL only through fire-insured property does not reflect the mandate of modern fire services, which attend floods, hazardous substance incidents and vehicle crashes.

Mr Ryan says the proposal comes at a time when climate change calls for more New Zealanders to insure. Yet the Government has confirmed that people can avoid fire service taxes by not insuring.

Submissions relating to the discussion paper close on June 30.