Government to introduce rates cap for local councils

The Government has agreed to progress a rates cap to help councils keep rates increases under control and reduce pressure on household budgets, Local Government Minister Simon Watts says.

“Rates are taking up more of household bills, and some communities have faced double-digit increases year after year. This is unsustainable and is only adding to the cost of living for many Kiwis,” Mr Watts says.

“Ratepayers deserve councils that live within their means, focus on the basics and are accountable to their community. 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.”

The model sets a target range for annual rates increases, based on long-term economic indicators like inflation at the lower end and GDP 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.

“Analysis suggests a target range of 2 to 4 per cent per capita, per year. This means rates increases would be limited to a maximum of 4 per cent,” Mr Watts says.

“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.”

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 will not be able to increase rates beyond the upper end of the range, unless they have permission from a regulator appointed by central government. Permission will only be granted in extreme circumstances, such as a natural disaster, and councils will need to show how they will return to the target range.

Where councils need to raise revenue to pay for things outside of extreme circumstances, such as catching up on past underinvestment in infrastructure, they will need to apply to a regulator for approval. Again, councils would need to provide justification and explain how they will return to the target range over time.

“These new rules will be a big change, and many councils will need time to adapt, which is why there will be a transition period starting from 1 January 2027,” Mr Watts says.

“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.

“The full regulatory model will take effect by 2029. However, officials will be monitoring rates rises nationwide as soon as the legislation is enacted. 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,” Mr Watts says.

Next steps:

• Targeted consultation with stakeholders to finalise implementation, local considerations and legal details starts today and runs to February 2026.
• Relevant legislation will be enacted during 2026 and be law from 1 January 2027. This will be the start of a transition period, allowing councils to integrate the cap into their long-term planning. During this time, councils will report on financial metrics while the Department of Internal Affairs (DIA) monitors progress and provides guidance.
• DIA will also develop the regulatory framework, including considerations for a permanent regulator.
• The full regulatory model will be in place by 1 July 2029.