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Lower insurance premiums possible under NSW tax change

Flavio Brancaleone/AAP PHOTOS

A tax blamed for ballooning home-insurance premiums that have left nearly one in five houses in NSW without cover is again earmarked for the scrap-heap.

But whether it gets there depends on Premier Chris Minns finding another way to fund firefighters and the State Emergency Service in an era of more damaging and frequent natural disasters.

NSW is the only mainland state to tax insurance customers to fund emergency services, with numerous reports and reviews by past governments calling for the charge to be abolished.

About 18 per cent of NSW households do not have home and contents insurance, risking great loss during a natural disaster because of unaffordable premiums, the government said.

The levy's loudest critic - the Insurance Council of Australia - says the additional fee jacks home insurance premiums by 18 per cent and business cover by up to 40 per cent.

For every $100 raised, $73.70 comes from insurers through the levy on premiums, $11.70 from councils and $14.60 from the state government, raising about $1.9 billion this year.

Not an extra dollar will be raised under the new model, likely to be a state-wide contribution tied to property.

"Reforming the Emergency Services Levy is not easy, but it's the right thing to do," Mr Minns said on Thursday.

"For too long, this has been in the too-hard basket for NSW.

"But as we face the threat of more natural disasters, we have a significant opportunity to make the system fairer and more sustainable for the future."

However, the Minns government will have difficulty finding a replacement funding source, having promised no new taxes at the election and being in minority government.

The former Berejiklian government tried in 2017 to replace the levy with a fee based on the value of property owners' land.

But it was forced into an embarrassing backflip following concerns some ratepayers could be left out of pocket.

Treasurer Daniel Mookhey said the reform would not be rushed and consultations with industry and the community would begin soon.

"Far too many homeowners run the risk of leaving their biggest asset uninsured because of soaring costs," he said.

"Reforming the (levy) is one lever we can pull to help ease that burden."