Rates Capping
In December 2025, the Government announced a series of proposed legislative changes that could significantly reshape local government. One of those proposals is rates capping, which would set a limit on how much councils can increase rates each year.
The Government is proposing a rule that would limit annual rates increases to between 2% and 4%. This cap would apply to all general and targeted rates. It will exclude water charges and non-rates revenues like fees and charges.
At this stage, this is only a proposal. The Government sought feedback and decisions are expected middle of this year. Starting 1 January 2027, councils will be required to consider the target while setting rates. This will be monitored by the Department of Internal Affairs. The law is expected to fully take effect by mid‑2029.
Will this mean lower rates in the future?
Official advice from the Department of Internal Affairs to the Minister for Local Government forecasts that on average ratepayers would save around $2.79/month, which is enough to buy a can of baked beans, with rates being capped at 4% (excluding water rates). Their advice further adds that not every ratepayer will see savings under a rates target.
Why is the range 2% to 4%?
The Government has linked the proposed range to national economic measures. The lower end (2%) is linked to household inflation, while the upper end (4%) reflects long‑term economic growth per person.
However, councils are not households. Councils fund and maintain long‑term infrastructure such as roads, bridges, pipes, wastewater plants and parks. The costs of these assets do not always move in line with household inflation.
Can councils increase rates more than 4%?
Yes, under extreme circumstances like a global economic crisis or recovery from a natural disaster, councils will be allowed to breach the rates cap.
Outside extreme circumstances, councils would be able to apply to the regulator for a variation to the rates range. This process would require councils to justify this.
Council's submission
Council has made a submission to the Government on the proposed rates cap. We believe that while the proposal might lead to predictability when it comes to rates increases and encourage councils to find efficiencies, the overall impact is potentially risky and will have unforeseen and unintended consequences.
Key recommendations
1. Increased costs, decreased funding
Council acknowledges the cost of living pressures faced by our residents and ratepayers. While the Government blames rates for these pressures, that is an oversimplified view. Rates do not increase in isolation; they reflect the increasing cost of delivering essential services.
It is now 38% more expensive to build bridges and 27.3% more expensive to construct or upgrade water and wastewater systems compared with just three years ago.
On top of this, the Government has reduced several funding streams, including subsidies for local roads.
2. Comparing apples to apples
We are not afraid to enter the debate on keeping rates as low as possible. However, the proposed cap is detached from reality. It relies on Consumer Price Index (CPI) which measures inflation for household goods and services. But councils are not households. They pay for things like pipes, roads, wastewater plants, bridges and parks; costs that are not reflected in the CPI.
Instead, these costs are better tracked through the Local Government Cost Index (LGCI), which more accurately measures the inflation councils face. Council has recommended that the Government use LGCI rather than CPI when setting any rates cap.
Linking rates increases to the price of butter and chips (general inflation) risks putting councils on the backfoot. It will require them to either borrow at much higher rates or reduce levels of service. It will also adversely impact councils’ ability to maintain and fund critical infrastructure over the long term.
3. Unfunded mandates need to stop
Local government has long needed sensible reform. But the proposed reforms, stacked on top of one another, risk pushing an already stretched sector to breaking point. Reorganising regional government, rates capping, emergency management, resource management, building, local government systems improvements, along with implementation of Local Water Done Well, when viewed together, the scale is unlike anything seen before.
Our biggest challenge is the increase in these unfunded mandates; reforms that we are required to implement without the funding needed to do so. The Government has signalled that funding for implementing all reforms need to come from existing council budgets. That leaves ratepayers footing the bill for programmes designed nationally but imposed locally. True reform must recognise the different realities of cities and rural communities and ensure that costs and benefits are shared fairly.
