The Government’s proposal on Monday to cap council rates increases at between 2% and 4% will sound great to most households. Everyone is feeling the pressure, and no one enjoys opening their rates bill. On the surface, it is clever politics. But dig a little deeper and the policy creates more problems than it solves.
We have already seen what happens when councils apply hard caps to rates. For decades, many councils across the country (ours included) set self-imposed targets to keep rates at or below inflation. Those policies were popular at the time. They kept rates low and delivered short-term wins. But the long-term result was underinvestment in the essentials, from ageing water networks to roads and community facilities. Deferring renewals doesn’t make them disappear, it simply passes a bigger bill to the next generation.
That is the position councils now find themselves in, and the Government’s proposed cap risks locking in the very behaviour that created today’s backlog. Councils are expected to front up to decades of underinvestment, deliver major infrastructure programmes, respond to growth and climate pressures, and now do it with their hands tied behind their backs. A blanket 2–4% limit, especially one not even tied to council cost inflation, leaves very little room to catch up, let alone not go backwards.
And cost inflation really matters. Households face real pressure and councils absolutely need to stay focused on the basics. But the reality is that councils experience a very different type of inflation. We don’t buy loaves of bread, coffees or netflix subscriptions, we buy pipes, pumps, asphalt, concrete, steel, and specialist labour.
These costs are tracked through the Local Government Cost Index, an independently produced index that uses transparent national data. It reflects the real price movements for the core materials and services needed to keep water networks, roads, and community facilities functioning. And for many years now, those costs have consistently risen faster than general inflation.
A rates cap that isn’t linked to this reality doesn’t make the costs go away, it simply means councils fall further behind. You cannot maintain ageing infrastructure, prepare for growth, or catch up on years of deferred renewals when your core costs are rising faster than the revenue you are legally allowed to collect.
Then there is the issue of starting points. Let’s use an example: Our neighbours in Porirua have an average residential rates bill of about $5,500. In Lower Hutt it is around $4,300. A 2% cap sounds the same, but it isn’t. The same percentage rise gives Porirua roughly $110 per household, and Lower Hutt about $86. A flat cap locks in historic differences forever and makes it even harder for councils with lower starting rates to fund the catch-up work everyone knows is needed.
The bigger problem is that rates are the wrong tool for the job. Local government still collects only about 2% of GDP through rates, and that number has barely shifted in decades, even as responsibilities have grown. Central government collects around 28% of GDP every year. If the Government thinks rates cannot keep carrying the load, I agree. But the answer is giving councils better tools, not taking options away.
There are credible alternatives. User charges (things like tip fees, paid parking, dog registration, building consents and other service-based fees) already help spread the load more fairly. But if councils are capped at 2–4%, those charges will inevitably rise faster as councils shift costs away from rates and onto individual services. Longer term, New Zealand needs a serious conversation about new funding tools, whether that is a modest share of existing national taxes or other mechanisms that match the scale of the infrastructure challenge everyone agrees needs addressing.
Councils are already highly accountable. Every three years councils consult the public on our Long-Term Plans, spelling out every major project, how we will fund it, and what it means for rates. We hold hearings, receive submissions, publish our budgets in full, and adjust based on the community’s feedback. When was the last time central government consulted New Zealanders on its Budget?
All of this is landing at the same time as last week’s announcement proposing to replace one level of regional council governance with a new, potentially more complicated and more expensive layer of governance. Local government is already facing massive change on multiple fronts. A cap on rates risks being another well-intentioned idea that does not survive first contact with real-world infrastructure costs.
I understand why the Government wants to act. Households are struggling, and councils cannot expect people to carry endless increases. Rates are also one of the drivers of continued cost-of-living struggles so many of us are facing. But a one-size-fits-all cap will not fix the real issues. It will simply make it harder for councils to maintain the basics, let alone plan for the future.
If we want better value for money, transparency, and long-term affordability, the answer is a serious rethink of how local government is funded in this country. Rates are part of the solution, but they cannot be the only tool left in the toolbox.