"It's having an impact on us in so far as our ability to upgrade and replace rescue vessels.
"In the short term the fleet is at a good standard. But starting in July this year our ability to replace vessels in the next year has been severely affected,'' he said.
A replacement engine for one of the rescue vessels cost $30,000 to $40,000, he said.
However, people's safety would not be risked because of the cuts, Mr Holmes stressed.
Last year volunteers donated 348,356 hours of time to the organisation, and attended to an average of nine calls of help a day.
Fifty lives were saved by Coastguard in SAR operations last year, Mr Holmes said.
The 2500 volunteers would continue to do their work to keep waterways safe: "we just have to keep going''.
Mr Holmes said they were told by the Search and Rescue Council the cuts were made to Coastguard funding because it is a "well run, well managed organisation''.
"It's slightly incredulous if we're penalised for being proficient.''
Raising more money would be especially difficult in an already highly competitive charity market, he said.
"We didn't see the cut coming so we really didn't have time to plan for it.
"The New Zealand public are very generous, but it's competitive chasing the charity dollar. It's very hard.
To make up for the shortfall, the organisation would continue to make appeals to the public for donations and possibly to corporate sponsors, said Mr Holmes.
Anyone wanting to make a donation to Coastguard can call 0900 SOS SOS (0900 767 767).
