The Government has confirmed it will cap council rates increases at 4 per cent, but the legislation will not pass before the election and the cap will not take full effect until 1 July 2029. Officials estimate the average household will save $34 a year.
Local Government Minister Simon Watts announced the policy on Tuesday, saying councils would be required to keep annual rates rises inside an initial target range of 2 to 4 per cent.
“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,” Watts said in the announcement.
“Under this legislation, councils will be required to keep annual rates increases within an initial target range of 2-4 per cent, putting a brake on excessive increases and giving ratepayers greater certainty.”
He said the cap would “also sharpen the focus on delivering the services communities expect councils to get right, like fixing the potholes, collecting rubbish and running our pools and parks”.
The numbers behind the announcement are large. Watts said ratepayers had been hit with median increases of 14.2 per cent and 9.2 per cent over the past two years. ANZ economists have put council rates inflation at an average of 12.2 per cent in 2024, against an average of 4.7 per cent a year between 1992 and 2019.
The saving, though, is small. Watts confirmed to reporters that the average household would be about $34 a year better off, and said the real prize was predictability rather than cash.
“$34 is a savings for households, which is not immaterial. But the important thing here is around certainty,” he told RNZ.
Two large carve-outs sit inside the design. Water services, which include Watercare in Auckland and Tiaki Wai in Wellington, are excluded entirely and will keep being regulated separately. User charges are also outside the cap, so the price of a swim at the local pool or a library fee is untouched.
That second exclusion caused a tidy-up during the week. On Monday Prime Minister Christopher Luxon said rates caps were “very important, so you don’t have increases in fees and charges”. On Tuesday Watts corrected the record, saying Luxon had been talking about what Treasury classes as administrative costs.
“The rates cap will not apply to fees and charges on councils; they are explicitly excluded,” Watts said. Asked whether councils might simply lift those charges to make up the lost revenue, he said that was not his call. “I don’t, as Minister of Local Government, get involved in setting charges for how much you pay to go to your local pool.”
Councils will be able to apply to an independent regulator for time-bound exemptions in two situations. The first covers exceptional circumstances such as recovering from a natural disaster. The second covers a council that can show prudent financial management and a justified need to sit above or below the range, and that council must consult its community first.
“We recognise there will be limited circumstances where councils need greater flexibility, such as recovering from a natural disaster or responding to events outside their control,” Watts said. “Exemptions will not be granted lightly and will only be available in exceptional circumstances where there is strong justification.”
The floor of 2 per cent is deliberate. Watts told interest.co.nz that a zero increase would leave a problem behind. “If it was zero, then in effect there would be a risk that assets were not being upgraded and invested in, and they may deteriorate, and that is going to leave a problem for the future.”
The timing is the part ratepayers will notice most. Only the first reading of the bill will happen before the House rises, so whoever wins the election has to pass it. Councils must start factoring the target range into long-term plans from 1 July 2027, and the cap bites from 1 July 2029. The range will be reviewed every six years.
Watts insisted the policy had coalition backing, after New Zealand First and ACT declined to support the Government’s under-16s social media ban. “With respect, the policy that I’m announcing today is government policy and the coalition partners have been supportive alongside all members of that cabinet,” he said. “It has the support of government.”
ACT leader David Seymour, who faced a 7.9 per cent rise as an Aucklander, said 4 per cent sounded “pretty good” and that the change moved councils towards being treated like “electricity or fibre companies, where the returns are regulated”. He added a caveat. “Of course, it’s not a silver bullet. It will only work if councils face less cost from overregulation.”
New Zealand First leader Winston Peters also backed it. “If you look at some of the squanderous spending by local governments, something has to be done about it,” he said.
Local Government New Zealand was blunt. President Rehette Stoltz said in the organisation’s response that capping rates was a blunt tool. “Introducing a 4% cap when councils’ costs are increasing at a much higher rate will hamstring already-constrained councils’ ability to maintain investment in the services and infrastructure that people rely on them to provide.”
She pointed to the split between what councils collect and what they build. “Local government only gets 10% of the country’s tax take but councils are responsible for about a third of all public infrastructure investment in New Zealand.”
Stoltz also reached for the Australian record, where rates capping has been running for years. “In New South Wales, rates caps resulted in a $201 million maintenance funding shortfall across 62 councils in a single year. Just 46% of councils had sufficient funds to maintain acceptable building and infrastructure renewal levels.”
Greens co-leader Chlöe Swarbrick said the announcement did not square with National ruling out an accommodation levy weeks earlier. “Now they’re proposing that there’s going to be a rates cap. It just doesn’t add up, but clearly numbers aren’t this government’s strong suit.”
Labour has not landed on a position, with leader Chris Hipkins saying he wants to see the legislation. He said nobody liked paying higher rates, but local government had to fund the services “we all rely on”, and that a cap was “potentially” not going to deal with the biggest driver of rates rises, which is water, and which the Government has carved out.
With the bill parked until after the election, the rates cap becomes something voters decide rather than something Parliament has settled. If you are weighing up where the parties sit on this and other issues, our voting tool lets you compare policies side by side.
What do you think, would a 4 per cent cap keep your rates bill under control or just push the cost somewhere else? Leave a comment below and tell us how your council has treated you.
This article was written by AI, briefed to report the facts, hopefully without some of the bias people bring to the job π
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