The Government has announced it wants to bar councillors from lifting rates more than 4% annually, in a move to “protect local government’s social licence”.
Councils would also have a minimum rates rise level mandated for the first time, with local government instructed to keep annual rises in a modelled “target range”.
A proposed initial rates rises target range would be between 2% and 4%.
Local Government Minister Simon Watts said a full cap will apply from 2029, but with monitoring of rates and grounds for interventions as soon as 2027.
What the Govt’s proposed rates shake-up would mean for you – Watch on TVNZ+
The plan would be to set a target range for annual rates increases, “based on long-term economic indicators like inflation at the lower end and GDP growth at the higher end.”
The lower end of the range was intended to “ensure councils can maintain essential services, while the upper end balances the need for sustainable growth with keeping rates increases affordable,” Watts said.
“Analysis suggests a target range of 2% to 4% per capita, per year.
“This means rates increases would be limited to a maximum of 4%. A minimum increase is necessary so councils can continue to provide essential services like rubbish collection, council roads maintenance and the management of parks and libraries.”
Asked at his post-Cabinet briefing how the 2% to 4% band was chosen, Prime MInister Christopher Luxon said: “We’ve picked a number which is bounded by medium term inflation and long-run economic growth. I think pitching somewhere in the middle with a band rather than just a single number and a single cap is actually a smart way to go about it.”
“We’ve been supporting local government because we want this to be enduring. We want this to be able to provide the river banks – to say, within that, you need to articulate and make the investments you want to make. We’re also putting a number of things like big capital expenditure and three waters outside of it, so that’s been managed I think quite entirely appropriately.
“We’re just lifting the professional management of a set of resources that ratepayers provide to make sure maximum value and maximum efficiency is being delivered.”
Under the planned regime, elected councillors would be stripped of their ability to increase rates beyond the upper end of the range unless they had permission from a central government-appointed regulator, which would only be granted in extreme circumstances such as natural disasters.
They would then need to show how they would return to the target range for rates rises.
“Where councils need to raise revenue to pay for things outside of extreme circumstances, such as catching up on past underinvestment in infrastructure, they will need to apply to a regulator for approval,” according to Watts’ office.
Meanwhile, cash-strapped councils are welcoming a long-term funding option from the Government to deal with infrastructure challenges. (Source: 1News)
Today’s announcement is the second big shake-up to hit local government in the past several weeks, with the scrapping of regional councillors announced last month.
LGNZ: More flexibility but investment in core services a concern
Local Government NZ said moving away from earlier suggestions of a rates cap to a rates band would promise greater flexibility although it would restrict investment in core services such as roads, bridges and public transport.
The local government association’s interim chief executive Scott Necklen said LGNZ had been working to inform the Government around severe shortcomings of a hard rates cap model.
“[The Minister has] taken a pragmatic route and we want the same pragmatism to apply to exemptions. We need a common-sense, fast-track process for exemptions that enables investment in key infrastructure in economic growth in the regions, or when responding to natural disasters.”
LGNZ vice president Rehette Stoltz, also mayor of Gisborne, said many councils were rebuilding infrastructure following severe weather events and the policy needed to recognise specific needs of councils.
“Keeping rates low is a priority for all elected members. Our community’s expectation is also that we deliver the critical infrastructure and services they rely on in a timely way.”
Rates rises to be capped at 4% annually, in a move to “protect local government’s social licence”. (Source: 1News)
Recent rates rises have been unsustainable – Watts
The Local Government Minister justified the move, saying ratepayers in some regions had faced double-digit increases in recent years.
“Rates are taking up more of household bills, and some communities have faced double-digit increases year after year. This is unsustainable and is only adding to the cost of living for many Kiwis,” Watts said.
“Ratepayers deserve councils that live within their means, focus on the basics and are accountable to their community.
“The Government’s decision to introduce a cap on rates will support that ambition and protect local government’s social license for the long term.”
A rates cap has long been teased by the coalition government since it was elected, with concerns over spiking council rates amid the cost-of-living crisis.
Opponents of such a system – already used in parts of Australia – contended it stripped locally elected officials of control and might lead to underinvestment in council services.
Councillors could face govt intervention over proposals
The proposed new rates regime would be a “big change,” Watts said, and would therefore be phased in as part of a transition period starting.
Legislation was planned to be enacted next year and effective from January 2027.
Councillors would be expected to integrate the cap into their long-term planning from then onwards. The full rates capping regulatory model will take effect by July 2029.
Watts warned that officials would be monitoring rates rises nationwide as soon as the legislation is enacted. “Where councils propose increases beyond the proposed cap, this may present grounds for intervention under the Local Government Act.”
“Councils will report on financial metrics while the Department of Internal Affairs (DIA) monitors progress and provides guidance,” according to the minister’s office. “DIA will also develop the regulatory framework, including considerations for a permanent regulator.”
Targeted consultation with stakeholders to finalise “implementation, local considerations and legal details” starts today and runs to February 2026, according to the Government.
“Councils should not wait for the full enactment of the rates capping model before controlling rates increases for their constituents,” Watts said.
Opposition: Rate caps will hit communities
Labour’s local government spokesperson Tangi Utikere said the Government’s policy would mean local communities would face added charges for essential services.
“The money for essential services, like water and waste, libraries, parks and footpaths, has to come from somewhere. Councils will be left with no other option but to hike fees or start charging for services that have always been free. Or they’ll have to cut services altogether – either way, communities lose.”
Utikere accused National of blaming others for the cost of living it had made worse.
“Instead of the Government acting, they are pushing the problem onto local communities. It’s communities that will have to pay for services, or lose them.”
The Green Party’s local government spokesperson said limiting council rates rises to 4% would inevitably lead to poorer local services, and communities being worse off.
Celia Wade-Brown said: “Capping rates does nothing to fix the decades of significant underinvestment in local infrastructure, or the lack of alternative funding models across successive governments. It’s also completely at odds with the Government’s so-called ‘localism approach’.
“Local Government is responsible for 25% of public infrastructure. But councils are already struggling to fund these services and the infrastructure which support them. A huge driver of rate increases has been long-running failures to invest in proper infrastructure. The Government’s policies have only worsened this issue.”
