Government proposes 4% rates cap, mayors warn of service cuts
The Government has proposed a rates cap that would restrict annual increases to an initial target range of 2% to 4%, a move Local Government Minister Simon Watts said was a response to "steep and unexpected" rates increases that have pressured household budgets.
Speaking about the proposal, Watts said that "for too long, ratepayers have been hit with steep and unexpected rates increases, adding pressure to household budgets at a time many New Zealanders are already feeling the squeeze." He noted that councils had imposed median rates increases of 14.2% and 9.2% over the past two years, according to figures he cited. The Government, he said, was "focused on easing cost-of-living pressures and getting councils back to basics."
Under the proposed system, first put forward late last year, councils would be required to keep annual rates increases within the target range. The minimum 2% increase is intended to "support councils to continue delivering essential services and investing in infrastructure." Watts said the cap would "sharpen the focus" on core council services, such as "fixing the potholes, collecting rubbish and running our pools and parks."
The regime includes some flexibility. Councils may be granted exemptions in exceptional circumstances, including when recovering from a natural disaster or when they can demonstrate a "prudent financial management" reason for operating above or below the target range. "Exemptions will not be granted lightly and will only be available in exceptional circumstances where there is strong justification," Watts said. The target range will be reviewed every six years and updated where necessary to reflect costs outside councils' control. Councils will also be required to consult their communities before setting rates.
The timeline for implementation was not fully detailed, but councils will need to consider the target range from July 1, 2027, with the caps expected to take full effect from July 1, 2029.
Mayors warn of service impacts
Two South Island mayors have expressed concern that the cap could affect public services as councils face additional costs from new government reforms.
Waitaki Mayor Mel Tavendale acknowledged that the economic climate was tough "and councils certainly aren't exempt to that," but said new reforms such as the Resource Management Act reform and the Emergency Management Bill would add to council bills. "There's going to be millions in that for councils, and that's not part of the status quo we're looking at right now," she said. She warned that extra tasks without additional funding would "eat into our community and what they can actually afford to do."
Gore Mayor Ben Bell said his council was in a similar situation, citing figures of $860 million for the new RMA system across the country and $83 million for emergency management changes. "Four per cent might be fine now, but with all these extra additions, it'll make it really tough," he said. Bell said community access to pools, parks, and gardens would be affected, and that such services might need to be funded through fees and user charges, with debt as another option. "Those families on lower incomes are going to not be able to go to the pool anymore," he said.
Tavendale also pointed to a "real disconnect" between costs and funding, noting that councils have about 30% of the nation's infrastructure but receive about 10% of funding. She suggested the conversation should start with discussing the wider infrastructure issue with central government.
Water infrastructure was flagged as a particular concern. Bell said the cost of water infrastructure would "massively" increase bills in the coming years, though water services were excluded from the rates cap scheme. Tavendale described water as a "massive driver" for increases.
The government's framing presents the cap as bringing fiscal discipline and relief for ratepayers. Watts said the cap "is about driving greater fiscal discipline, keeping rates affordable, and ensuring councils are focused on delivering the services ratepayers rely on." The mayors, while acknowledging the need to manage costs, argue that the cap, combined with new unfunded mandates and an infrastructure funding gap, could force difficult trade-offs for communities.