In next month's Budget, the Government will allocate $303 million of new funding over four years to support the merger.
"This funding package shows our commitment to building a 21st century fire service that supports its career and volunteer workforce, that supports rural and urban communities, and that keeps strong links to civil defence and other emergency services," Mr Dunne said.
The $303 million package would be partly funded through a $161 million increase in the fire levy over three years, beginning in 2017-18.
Of the $161 million increase, about $30 million will come from broadening the fire levy to third party motor vehicle insurance.
At present, only those who take out house and contents or comprehensive vehicle insurance pay for the levy.
Under the proposed changes, the levy will be expanded in 2018-19 to vehicle owners who only have third party insurance.
About 79 per cent of motorists already pay the fire levy. The changes are expected to capture another 14 per cent of motorists.
Mr Dunne said the fire service now played a broader role than simply fighting fires, and it made call-outs to road accidents, natural disasters and medical emergencies. The changes to the levy recognised homeowners' frustration about paying for the fire service to extricate a person from a crashed car.
"We felt it was appropriate to put those charges where they might properly fall," Mr Dunne said.
The fire levy would also be broadened to include material damage, not just fire damage.
The remainder of the $303 million package would be covered by $30 million in Crown funding and a $112 million capital injection. The $112 million would have to be paid back over 10 years.
Legislation which governs the changes is expected to be introduced to Parliament in June or July.
Mr Dunne said the law changes would include "anti-avoidance measures" similar to the tax regime which would prevent individuals and companies from avoiding the fire levy - an issue which came up in a Supreme Court ruling last year.
The legislation would also feature a new offences and penalties regime, including heavy fines for people who deliberately lit fires.
Mr Dunne reassured firefighters that the reforms were focused on a change of governance, and would not have an impact on fire service jobs or entitlements.
"We will see some reorganisation of jobs but we have made it clear this is not a job-cutting exercise. This is not about changing conditions of service or employment."
Insurers were disappointed with the decision to limit the levy to people who paid insurance.
The Insurance Council of New Zealand said it was "blatantly unfair" and out of step with international practice.
Chief executive Tim Grafton said the funding model meant the burden of funding the fire service fell on insured people, and not "free-loaders" who did not take out insurance.
He said the levy should have been removed from insured drivers and applied instead to car registrations, which meant all road users would cover the costs of the fire service.
"The real problem that is not tackled is that is still leaves the 10 per cent of drivers who do not insure themselves not paying to fund the fire service."
During the review of the fire service, other funding alternatives were raised, including a levy on council rates.
Mr Dunne said a levy on insurance was the fairest, simplest system, and did not have some of the "distortions" of a rates-based system.
The New Zealand Fire Service board today said that the funding announcements would allow the transition to a new organisation to begin.
Chairman Paul Swain said the new funding gave a clear direction about how the board needed to begin the merger of the various fire brigades across the country.
"This is a once in a lifetime opportunity. It is a huge and complex job, but the board is ready for the challenge."
