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% increases per capita, per year.
"This means rates increases will be limited to a maximum of 4%," Watts said on Monday.
Rates have been an ongoing, contentious topic - there has been public pushback against rate increases and the Government has made no secret that it was considering options when it came to controlling rate rises.
Back 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.
Watts said; "our message to councils is clear: focus on the basics, live within your means and be more transparent and accountable to the communities in which you serve."
Ratepayers deserve councils who live within their means, he said.
“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.
'We are capping inefficiency'
Speaking to reporters on Monday afternoon about the proposal, Watts said an independent reference group was set up to advise on the design of the rate caps policy.
When asked about reports from councils in places like Australia and the UK that have had to cut back on services due to rate caps, and how a rates cap system would work in New Zealand, Watts said; "we've taken considerable learnings from other jurisdictions of where it hasn't been effective".
Watts said the model they were going with, to their knowledge, was one of the first in the world to adopt a target range basis.
The target range would provide a “credible, long run guide for sustainable council revenue growth - 2% aligns with the midpoint for inflation and 4% reflects long-term economic growth", he said.
"We expect that the review of that band will occur every three years."
Asked about a 0% rates increase, Watts said the independent reference group looked into this.
By having this target range, Watts said: “It is simply acknowledging that actually there is a requirement for councils to invest and maintain assets that they have, and campaigning on 0% in the context of asset renewal was not necessarily going to be in the best interest of our long term renewal.”
When asked if the Government could guarantee that the services councils provide wouldn't be impacted or diminished as a result of rate caps, Prime Minister Christopher Luxon said: "Ultimately that's a decision for each council to make."
"In the same way that families have had to make do with the budgets that they've got and the revenue that comes in, and the income that comes in, they have to deal with their expenses the same way that [central] government is doing that ... We expect local governments to do the same thing."
Asked about infrastructure and how this would be a change to councils' budgets, Luxon said there needed to be better management.
"Stop doing dumb stuff."
Luxon said there were good mayors running their councils well and doing a great job.
"But there are others that need to step up their game, build their financial literacy, manage their balance sheets better and think about where that money goes."
Watts said "nobody here is capping infrastructure. We are capping inefficiency."
'A blow to the infrastructure sector'
Infrastructure New Zealand's Nick Leggett said any form of rate capping must not come at the expense of building new infrastructure that is needed, and maintaining the crucial assets local governments already own.
Infrastructure NZ said the Government's proposed policy; "risks weakening councils at a time when the country urgently needs stronger, better-resourced local government to maintain and build the infrastructure communities rely on".
Leggett said: "This is a blow to the infrastructure sector ... If the Government is going to keep beating councils with a stick, they need to start handing out some carrots."
“How are councils going to pay for new infrastructure or fix what they’ve already got when their primary funding tool is being restricted without any credible alternatives being offered?”
Local Government New Zealand (LGNZ) - an organisation that advocates for local councils - said having a targeted rates band promises greater flexibility but would restrict investment in core services like roads, bridges and public transport.
LGNZ interim chief executive Scott Necklen said: “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.”
“[Watts has] taken a pragmatic route and we want the same pragmatism to apply to exemptions.
“We will be working through the policy detail and with our members – and taking that feedback to the Government.”
'Distraction tactic'
Labour would be voting against the rates cap legislation, its local government spokesperson Tangi Utikere told reporters on Monday afternoon.
Utikere acknowledged there was a consultation to process to go through but as it was currently drafted, it's not something the party would consider.
“The money for essential services, like water and waste, libraries, parks and footpaths, has to come from somewhere,” Utikere said.
“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.
“People rely on their rubbish being taken away, clean water from their taps, rural roads being repaired and parks and footpaths being maintained. When that stuff stops happening, remember this decision by Christopher Luxon," Utikere said.
"We don't support a rates cap, what we do support is working alongside local government to give them the tools and the support to work hard for their communities."
The Green Party's local government spokesperson Celia Wade-Brown said the Government has "effectively scapegoated local councils" and called the proposal a "distraction tactic".
"Capping rates does nothing to fix the decades of significant underinvestment in local infrastructure, or the lack of alternative funding models across successive governments," Wade-Brown said.
"This blunt instrument will almost certainly lead to increasing fees and charges which will be regressive for those on lowest incomes."
'Councils now need to step up'
ACT leader David Seymour says the Government's proposal reflects the real strain households have been facing, but warns that a cap won't fix councils that refuse to control their own spending.
"ACT has consistently called on councils to find a rates solution because the pressure people are feeling is real," Seymour said.
"The Government recognises that ratepayers need relief, but councils now need to step up ... Councils need to tighten their belts like ratepayers have done for years."
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.
75 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 - them that know best and best to be obeyed, or else.
Those were always there.
Look for the changing parameter, when change is the issue. Not the constant.
It's just logic - makes most of the subsequent comments below, obsolete.
Falling EROEI and increasing entropy - all institutions, nations, everyone, are subject to the Laws of Physics.
Services are going to 'cost' more energy, until they are abandoned/triaged.
But even if the Minister knows - which by his countenance I doubt - he can't do a d---ed thing about it.
We can maintain growth through more efficient use of energy. My Toyota hybrid is a good example.
Not with a population of 8 billion
billions do not own a car an can never own an ne, not enough resources or debt
We got to 8 billion through more efficient use of arable land as well many other improved systems. We made plants much more efficient at producing yields.
We got to 8+ billion on the back of a one time source of dense mobile energy.
Nuclear can supply us with energy to make fertilizer and harvest crops for tens of thousands of years. We also have abundant fossil fuels left as well.
and the sahara keeps charging southwards
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!
Very little pressure? They are democratically elected!
Unfortunately that’s where the set up falls down and all due to the apathy and ignorance of the ratepayers who don’t bother to vote or thereby, invest in their own future. An election turnout of less than 50% allows well organised and active interest groups to gain more influence than their pro rātā representation. In our last election a hardly qualified candidate won about which our neighbours indignantly moaned. Did you vote? No, too busy!
So the solution to low voter turnout is dictatorship?
I feel like I’m the only one that sees the magnitude of what the government are doing here. Basically killing local representation completely.
Probably needed especially in Wellington
They could have voted right wing if that’s what they wanted.
Don’t think you meant that entirely? The suggestion being that a right wing result would have not seen said problems which in turn implies the left wing has been the cause. However leaving that aside it is pretty damn obvious that local government is not functioning very well in many catchments and as said that is aggravated by the poor attention to voting and this has become a longstanding problem that needs to be seriously addressed.
Maybe the said problems aren’t actually problems. I don’t live in Wellington, I only have the MSM telling me the council are awful. Yet they just voted left again, so I suspect the MSM are wrong as usual.
Yeah nah. They are saying focus on the basics (roads, rubbish, water, waste water, and basic infrastructure) and stop spending/wasting money on all the puedo political do goodery stuff.
Wasting money...the strange statue in Taupo comes to mind.
Can beat that one. The picturesque and well advertised Avon river has a statue planted midstream of what resembles an upturned dog turd which cost only $1mill, it is said. Of course it is an extremely effective catcher of floating weeds which requires the cost of regular cleaning.,Now if $1 mill had been spent instead on reviving the regular old weed cutting boats it might have solved that statue problem before it had even started , and also flooding issues further downstream at Fitzgerald Avenue.
I don't disagree that the Christchurch's river statue is stupid. But rates capping will not be solved by not doing the odd stupid thing. It will be 'solved' by the public getting used to roads being more potholed, water and sewer pipes being more leaky and flood defenses being more degraded.
National knows this. That is why rate capping will start in the never-never of 2029 not now. They get the political hit of announcing they have stopped rate increases whilst not facing the consequences of capping community infrastructure spending.
And of course the politicians have cheated on doing the hard work of investigating why infrastructure costs so much in NZ. As per usual they have half-arsed it.
Bang on
Only the councilors are elected, who have very little power over the unelected bureaucrats
Big nail hit fair and square, right there.
Which is exactly why it’s pointless voting.
It's not hard. The majority round the council table pass a resoltuion saying we want costs cut by X. Come back to us with options in Y time.
Not so sure about that. I just don't think the Councillors are aware of their powers. ie never read the local govt Act.
Speaking of parking - what's the bet that councils attempt to fill the spending gaps by increasing fees like parking charges? Could be a win-win for me, lower rates, more of my needs funded by drivers (or parkers at least), and get some cars off the road as they have to cover more of their societal costs. Good way to encourage active and public transport.
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
Yes and builders should still be building a house at 1980s prices too. The fact that materials and wages and expectations have increased shouldn’t matter.
I remember how much our first colour TV cost in 1980...as a % of average monthly wages
Today it's a % of average weekly wages
I wonder what the pension was then, we could revert that too.
JJ, I acknowledge your good intentions however I didn't suggest reverting 40+ years, just aiming to put more effort into control to the current budget/rates level - make an attempt to offset a decade of out of control virtue signaling, empire building -& resulting rates increases
It will be an interesting experiment, especially if competing cities in Aus continue to invest in virtue signalling (otherwise known as building a nicer city)
NSW & Victoria already have a rates cap.
Some fishhooks however promotes the fiscal discipline conspicuously absent from LGNZ in recent years
https://newsroom.co.nz/2025/08/21/on-rate-capping-lessons-from-across-t…
Both have just opened multi billion dollar underground public transport lines. Sydney did light rail not long before that. Tunnel to the airport too.
They have state governments to fund their infrastructure.
Yes and builders should still be building a house at 1980s prices too. The fact that materials and wages and expectations have increased shouldn’t matter.
Prices and money supply have increased at a greater rate than the hoi polloi's value of labor. That's why the Ponzi requires different constructs to prevent it from collapsing under its own weight.
It's also why a 1960s middle-class life in the Anglosphere in 2025, you need a “wealthy” household income.
https://www.yesigiveafig.com/p/part-1-my-life-is-a-lie?utm_campaign=pos…
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.
The entropy argument is very sophomoric. Life can only persist by exporting entropy to its surroundings. This will never change.
You know what else never changes?….
PDK's comments?
The Energy cost of energy is going up. Inexorably, because we used the best, first. So every 'next' option is 'worse'
Except its not - reference the price of oil in gold since the the 60's, or in bitcoin since the noughties. You'll see that whats actually happening is that money is getting cheaper. Driving up asset prices, including the price of land. This is putting pressure on wages and creating inflation. Councils are now forced to pass on inflation as three year contracts renew. They are choosing budget contractors to get work done at the lowest price. This competition is forcing established players to change. The answer is productivity and innovation, as it always has been.
Fusion
For everyone's edification I would like to expand upon the second law of thermodynamics and what seems like the inevitable road to total disorder. This law was first conceived in the mid nineteenth century however it has been expanded upon since. PDK is still stuck in the 1850s when Clausius and Boltzmann first established the principle.
We now know that organisms evolve to maximise energy flow. Life is an entropy-defying process, essentially negative entropy or negentropy. However, negentropy gets that way by exporting entropy. An unusual level of planetary background entropy is a key indicator of the existence of complex lifeforms and is now being explored as a way of detecting extraterrestrial life. The signature of biological complexity. It seems paradoxical but certain levels of entropy are a sure sign of increased information storage nearby. We will find life in zones of increased entropy whereas low entropy will indicate sterility.
Geez PDK, you take the long way round to explain a point. That loses you your audience.
In simple terms councils deliberately ignore the lack of income progress of their rate payers, simply viewing them as a bottomless pit of resources. They all have their own agendas, some significantly misguided ego projects, and they all use politics to get their way. Wealth generally impacts influence above all else, so the more well off councillors tend to get their way before the 'Back to Basics' cadre. And as we see too often the wealthy tend to believe they will not be impacted by the consequences of finite limits, and also believe they can dictate how others should spend their money.
I tend to think the cap will force councillors to seriously reconsider a lot of what they do. Deferring routine maintenance will lead to bigger costs and will run foul of limits. This may even force greater transparency.
Message: stick to your knitting or there will be consequences. That might not be a bad thing, considering the number of sparkly boondoggles local government get involved in.
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).
And will the Central Government be imposing a 2% to 4% cap on the increase to their tax take?
And I assume they will hold NZTA to 4% inflation max too? I think they would be struggling to build roads at less than 10% inflation at the moment, but councils have to manage it.
Councils could announce they are getting out of the road maintenance business and in the future NZTA will be fully responsible for this task because the public expect their fuel tax payments fully fund the roads they drive on.
Where's Muldoon when you need him. A whole wage and price freeze should be the. Worked way back in the day :)
yip, every year producers lined up with their reasons to increase prices and invariably won them. They loved it.
When I see a road close to us resealed and then 6 months later dug up for pipes and then resealed again - cost $1.3 million 2nd time, go to a reserve committee I'm on, 1.5 hours out of the city, and 3 council people turn up in separate cars, unprepared and frankly well below par, I do wonder....
Almost like buying some ferries then cancelling the contract at huge expense?
Seeing isn't knowing though
Excellent. Councils have ignored the realities of the people. The people who pay the compulsory rates. I have things that are 'necessary' but I don't have the money so that does not happen.
Councils had a different reality, and now, thank you Central Government, there is a new reality.
The people vote them in! If people wanted austerity councils they’d get them.
Often some right wing dude gets elected promising to keep rates low, then finds out it’s not possible.
Jimbo said. ".......If people wanted austerity councils they’d get them....."
You shot yourself in the foot with that one Jimbo.
The people of Otago indeed voted in a council which immediately voted in a zero future rates increase. And they voted in this government which imposes the cap
So consistent with your river of scoffing remarks here, you possibly will scoff at the people as well.
There were some changes at the recent Otago Regional Council elections. The new people have just this established a zero increase policy.
It’s obviously possible for a period, kind of like deferring maintenance on your house.
Boomers love to make the next generation pay; first infrastructure then housing then super and now council. I didn’t think they’d stoop to overriding democracy however!
The quality of our politicians (and consequently policy) diminishes by the day
Capitalism rewards profits not politicians
What does that even mean?
Your vote counts for very little
You are suggesting that capitalism is incompatible with democracy?
Yes
Just as well we dont (yet) have pure capitalism then.....there is hope for democracy still.
A 4% rates cap is a bit on the low side 5-6% seems more reasonable to me. Just as the govt is bot a household neither is the Council. The financial number that needs to be capped as well is Council debt. If Councils have a rates cap I'd suggest they'll just increase their debt levels to make up the shortfall.
Yeah, 5-6% seems more reasonable. Maybe 4% is just the opening gambit and it will go higher during consultation.
But even 6% will be hard to achieve. If your region is experiencing growth of population of 2% already, then that's not a lot of leeway for inflation. And construction inflation is higher than CPI by a way.
Then you've got backlog of work - usually maintenance and renewals that need doing but you've been putting off, so there's a "catch up" programme of work. Think Wellington water. There is lots of % per year increase needed for many years just for that.
Then there's the once in decade act of God weather event . There's no contingency fund, so it's usually borrowed for and put on debt.
Then there's debt and the interest you need to pay back. Even if ok now the % of interest you need to pay on future bonds depends on national and international economic factors. By the way, councils each have a credit rating so the higher the debt, the lower the rating, and the higher the interest rate.
It won't add up. So councils will need to cut staff, and reduce discretionary spend like arts, community grants, levels of service, ask for more cost recovery via charges. This will help for a few years, but you can only cut so much. I think this is part of the objective as current government doesn't value these things.
Risk is that councils will also defer maintenance and renewals and/or stop investing in growth projects. If capped at 4% then Auckland would never have built CRL, no stadium for ChCh, no busways for East Auckland, no flood protection schemes if your town is next to a river.
A council does not issue currency so it is indeed like a household.
Good move. Start by cutting the lazy overpaid staff. That will account for about 50% of them.
Anecdote: my wife's friend was paid 6 figures to do mostly her own personal stuff during work hours. There will be many more of those.
Cutting staff will help for a few years. Maybe they're 20% overstaffed? Might be good for 5 years of savings, if you can maintain service levels. After that the snake starts eating itself
It's entirely for councils to live within their available income. Yes it's a different mindset.
I am becoming very worried about New Zealander's determination to keep everything the same.
Is it an anxiety disorder of some sort?
Decades of cultural socialist dependency enabled by the MSM & academia to maintain Labours voter constituency means a significant % of the population can't think for themselves (& get off the couch).
It benefits those who know the current systems and the likes of developers and large contracting companies that are chummy with the council elites. They see a risk to future income and will do anything they can to influence it.
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