"Festivals are currently experiencing a crisis from a combination of issues occurring at once, to create what we see as a perfect storm," Adelle Robinson from the Australian Festival Association said.
Insurance premiums have risen by as much as 10 times and operational costs have soared by up to 40 per cent, she told the hearing in Canberra on Tuesday.
The hearing is scrutinising the national cultural policy, a five-year federal government plan to revitalise the arts sector introduced in January 2023.
More than 25 music festivals across Australia have been cancelled since 2022, according to the association, with long running Splendour in the Grass recently cancelling its 2024 event.
Ms Robinson is behind events including Groovin the Moo, a regional festival held in several states, which was recently cancelled because of weak ticket sales.
She called on the Commonwealth to lead the states with measures including a government-supported insurance scheme, a longstanding ask of the industry.
Regulatory costs for running events in NSW in particular were far higher than the rest of the country and included expensive user-pays policing, she said.
Large numbers of police at events were also likely to put off younger punters going to festivals, said Adam Smith of Wollongong's Yours and Owls festival.
"That's going to really affect the demand and make it less appealing to go to," he said.
"So I think tackling those regulatory barriers is going to help straightaway with the demand side, it's going to make these events more appealing."
Government grants and backing given out to support new festivals were also distorting the market, the association's Mitch Wilson said.
The Victorian government's Always Live events program, which attracted big international acts to revive the market following the pandemic, simply meant established festivals had to compete against government-backed events, they said.
The senate committee hearing will also hear from the screen industry, with one of the main promises of the cultural policy to introduce local content quotas for international streaming giants.