The NSW Government has backed down on a new fire and emergency services levy, admitting its modelling was wrong and the extra cost on fully insured small and medium businesses was unfair.

The new levy was set to come into effect on July 1 to replace the Emergency Services Levy on insurance policies.

It would have meant all landowners would have paid a contribution to fire and emergency services as the levy would have been attached to council rates.

Currently only those who are insured pay.

Premier Gladys Berejiklian said the new system aimed to make it fairer for all, but the modelling received from Treasury was wrong.

"It's become apparent to us that when we've looked at the advice on the modelling for industrial and commercial but [then] looked at the examples that were coming in, there is a mismatch," the Premier said.

She admitted the levy came from four years of work that would now be reviewed.

But the Premier also defended the backdown.

"What is the point of doing something if it doesn't make the system fairer?" she said.

The Opposition has seized on the decision and likened it to the about turn in relation to the Baird government's greyhound ban.

"They've had multiple warnings about this, they've had multiple opportunities about this," shadow treasurer Ryan Park said.

"They've been advised multiple times but just the same way, the attitude they took during the greyhound debate and so many other issues — they're smarter, they know better."

He also said the decision was politically motivated.

"Another backdown from a shambolic, out-of-touch government, running scared in the upcoming local government election."

The Government will now have to introduce legislation to stop the levy coming into place on July 1. The current system will then remain.

The Premier could not put a timeline on when a new system is likely to be put in place.