A new national fire service will see the fire levies paid on insurance policies hiked by 40 per cent - an increase a lobby group says comes with "little or no increase" in services.

Internal Affairs Minister Peter Dunne says levy increases must be seen in the context of the overhaul - more than a rebrand, and one that addresses historic under investment in rural fire services.

"Currently some rural brigades operate out of sheds with no water or telephone and ageing vehicles. For reform to succeed the change process needs to be adequately funded," Dunne said.

The Taxpayers' Union is today releasing a report on the changes, saying non-residential insurance policy holders will be hit particularly hard, paying an extra $66.4 million next year.

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The group advocates for a fire service funded by a levy on all property - not insurance - and claims the fire levy hikes will raise $80m more than is needed to run the new fire service.

"The levels of service are almost certainly not enough to justify the higher costs, and are particularly aggravating considering that levy revenues have been increasing each year since 1999 as insurance cover goes up," the report states.

The overhaul of the fire service comes after a 2012 review called for reform and cited a lack of support for rural firefighters. The current fire service is about 84 per cent volunteer.

The main funding source - levies on property and vehicle owners who take out insurance - will not change.

After public consultation the Government opted for the radical step of establishing a single, national fire service. Urban, rural, volunteer and career fire services will be integrated into one national organisation that will come into effect from July.

New Zealanders with house and contents insurance will have their levy increase by about 40 per cent ($36 a year) to a total of $127.20 a year.

And the car insurance levy will increase by $2.37 to $8.45 a year.

The Taxpayers' Union report said non-residential insurance payers will bear the largest burden, because they are not protected by a maximum cap that means the fire levy only applies to the first $100,000 of house and content cover.

Internal Affairs Minister Peter Dunne. New Zealand Herald photograph by Mark Mitchell
Internal Affairs Minister Peter Dunne. New Zealand Herald photograph by Mark Mitchell

It gave an example of an apartment building that is half residential, half commercial with both halves of equal value and insured for the same amount. If there were 10 residential occupants they would pay an extra $36.20 each, with the commercial half paying an extra $3000.

Dunne said the transition to the new fire service could cost up to $112m over four years, and this cost would be paid back by levy payers over nine years, interest free.

There will be additional costs in the longer term, with the levy covering the cost of rural services, which are currently paid for by local government. The Government expects those savings to be passed on to ratepayers.

Dunne said efficiencies would be found over time, but cutting costs on day one would be a "catastrophic mistake".

"Change needs to be evolutionary to give time to new initiatives to bed in, for cultural issues within different organisations to be addressed, and, critically, to ensure there is no interruption to frontline services."

The Insurance Council has strongly criticised the overhaul process, saying all three options considered ignored the fairest funding model, which was through taxation and not insurance levies.

The Fire and Emergency New Zealand Bill, which will establish the new service, is due to have its committee stage reading completed this week. Only New Zealand First opposed it at its second reading.