Local Government Minister Simon Watts says the Government is progressing a rates cap for local councils, with analysis suggesting a target range of 2% to 4% per capita, per year.
"This means rates increases will be limited to a maximum of 4%," Watts said on Monday.
“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.
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.”
How will the rates cap system work?
The Government said the proposed model will set a target range for annual rates increases, based on long-term economic indicators like inflation at the lower end and GDP (Gross Domestic Product) growth at the higher end.
The lower end of the range is designed to ensure councils can maintain essential services, while the upper end balances “the need for sustainable growth with keeping rates increases affordable,” the Government said.
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,” Watts said.
The cap will apply to all sources of rates – general rates, targeted rates and uniform annual charges – but will exclude water charges and other non-rates revenue like fees and charges.
Councils won’t be able to increase rates beyond the upper end of the range, unless they get permission from a regulator that is appointed by the central government.
The Government said permission would only be granted under extreme circumstances such as a natural disaster, and councils will need to show how they plan to return to the target range.
The Government said if councils need to raise revenue to pay for things outside of extreme circumstances - for example, catching up on past underinvestment in infrastructure - they will need to apply to a regulator for approval.
Councils, again, would need to give justification and show how they plan to return to the target range over time, the Government said.
Contentious
Rates have been a contentious topic - there has been public pushback against rate increases and the Government has made it no secret that it was considering options when it came to controlling rate rises.
Earlier on Monday, Prime Minister Christopher Luxon told RNZ that they would be introducing rate caps and it’s important the Government does this to help people with their cost-of-living.
In July, ANZ economists said council rates inflation hit a record high last year - averaging 12.2% across Aotearoa. This came after three years of annual increases between 7% and 10% - up from the 4.7% average per year between 1992 and 2019.
And while council rates are likely to increase over the next few years, this would be at a slowing pace, according to ANZ economists.
The topic even had the Taxpayers’ Union and Green Party-affiliated councillors on the same side at one point as they both supported basing rates solely on the value of the underlying land instead of taxing properties on their total value (including buildings and improvements).
'Not the solution'
Local Government New Zealand - an organisation that advocates for local government - has been outspoken on a proposed rates cap, with then-president Sam Broughton in February saying: “We all want rates to be affordable but we know rates capping is not the solution; outcomes we’ve seen internationally have been disastrous for councils who have taken this route.”
“What councils need is more funding and financing tools in their toolbox, alongside better transparency tools that are proven to provide the accountability communities need - while not compromising on the delivery of essential infrastructure,” Broughton said.
“It’s important that councils remain responsible for determining their rates, so we can make investment decisions that are right for our own local communities."
“But it’s equally important we have a sharp local government sector that central government wants to partner with.”
And in March, Local Government New Zealand warned that a rate cap on councils would increase debt costs and plan an additional burden on communities.
At the time, Broughton said: “We’ve previously signalled to government that while a blunt instrument like a rates cap might sound good politically, there are better transparency tools and measures for ratepayers to understand how their council is investing in their community.”
“One of the key drivers of rates increases is inflation in the costs of infrastructure as well as the cost of borrowing, and a rates cap would only put further pressure on this.
“From the international analysis it is clear that a rates cap will have unintended consequences on communities; it will restrict the ability of councils to invest in infrastructure and risks their financial instability, and we need to avoid this.”
Timeline
A targeted consultation starts on Tuesday and runs until February 2026, and relevant legislation will be enacted during 2026 and be law from January 1, 2027.
Watts said there will be a transition period from January 1, 2027.
“From 2027, councils will be required to consider the impact of rates caps on their long-term plans and report on areas of financial performance, like the cost of wages and salaries, council rates as a percentage of local house prices and estimates of local infrastructure deficits,” he said.
The full regulatory model will be in place by July 1, 2029.
“However, officials will be monitoring rates rises nationwide as soon as the legislation is enacted,” Watts said.
“Where councils propose increases beyond the proposed cap, this may present grounds for intervention under the Local Government Act.”
“Councils should not wait for the full enactment of the rates capping model before controlling rates increases for their constituents,” Watts said.
The rates cap announcement follows another Government proposal released last Thursday which involves removing regional councils and replacing these councillors with combined territories boards.
These boards would be made up of mayors from the region’s city and district councils, and they would take the lead on regional issues.
7 Comments
I, Canute, order the incoming tide to halt.
You see it has to; my High Priests say it will (at a certain price-point).
My religion says it will (fundamental, don't you know).
And I won't get voted-for if I look like a drip
It will take a tad more than a dose of Canutism to stem the flow of the power and say so of the cabals and covens secreted away in rooms without windows, and in typical council lore - those who know best and best to be obeyed, or else.
Had to happen. There seems to be very little pressure on local government to focus services, be more productive, or look for ways to lower spend otherwise.
Maybe this will stop councils from turning roads with paid car parks into cycle lanes, lowering parking revenue and reducing the viability of local businesses... after all if they need more funding for something a thriving CBD is going to be important!
A x% cap will immediately be a x% target.
Why not zero?
In my decades as a multinational division manager we were required to generate annual savings plans that offset the incremental operational costs arising from eg wage & salary, IT, interest rates, distribution, material suppliers increases...& our annual performance /salary reviews required these plans achievement
Let me explain the problem - for the ignorant.
The Energy cost of energy is going up. Inexorably, because we used the best, first. So every 'next' option is 'worse'.
Entropy - essentially the trend to randomness, be it to low-grade heat or rust or corrosion - has never been a bigger demand. Think increasing maintenance.
And money is a keystroke-issued debt-token. Not a physical thing.
The Government therefore have bigger problems and have thus far completely misidentified them. Sure, some of their 'philosophy' includes the rich getting richer at the expense of the rest - and this may seem like progressing that trend. But the ramifications for the proxy they count their status in, are terminal. That, they don't realise.
Message: stick to your knitting or there will be consequences.
The "consultation" period is far too long. Capping needs to start now. Councils will fatten their budgets for the next two years before any law change takes effect. Next, there needs to be GST revenue sharing with councils as o vurs in NSW, Australia. Faster growing cities get more GST share to reflect increased populations (caused in part by central govt immigration policies).
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