Building cost inflation is raising the stakes for the removal of the emergency services levy on premiums, the Insurance Council of Australia told a NSW parliamentary inquiry today.

CEO Andrew Hall said the inflation trend is unlikely to change, with the Brisbane Olympics and new data centres adding to material and trades costs that are driving premium increases.

“That’s only going to be compounded and made worse by the ESL on homeowners and small businesses,” he said. “We’re in a scenario where NSW residents are going to be the ones that are going to be effectively taxed out of insurance in quite a short period of time.”

Mr Hall said NSW needs a fairer, broader property-based arrangement for funding emergency services, noting that expanding international conglomerates are often not captured in the current system.

“Increasingly, a lot of those companies have self-insurance arrangements, or it’s offshored through their parent companies overseas, and so they don’t pay a cent in ESL,” he said.

National Insurance Brokers Association president Nick Cook said building costs are increasing about 30% but home portfolio sums insured in NSW are rising only about 4% on average, and small business cover levels are also failing to keep pace.

“Our members watch clients here trade down their cover, or walk away from it, because the levy, with stamp duty and GST compounding on top, adds more to the price of protection than it does anywhere else in this country,” he said.

The Property Council of Australia said funding should continue to involve contributions from motor vehicles and include state consolidated revenue.

Its NSW executive director Katie Stevenson said significant cost impacts on commercial and industrial properties will be passed on under proposed options.

“For consumers, although these reforms are being positioned as a savings and a cost-of-living and affordability measure, in fact they will experience increased costs at multiple steps,” she told the inquiry.

“We think it’s vital that the modelling looks at those downstream impacts across all sectors that are proposed to be impacted by this, because we think this focus solely on property really is problematic.”

The NSW parliamentary inquiry into emergency services funding reform is holding two days of hearings this week after receiving submissions on a Treasury options paper for a property-based levy.