Few councils have been able to keep their rates rises below the proposed 4 percent a year cap in recent years. And commentators say something will have to give if they are expected to try to do so, writes Susan Edmunds.

This story was originally published on RNZ

The government said this week it was moving ahead with plans to cap the amount councils could increase rates to a maximum of 4 percent. It would not apply to fees and charges or water services.

Only nine of just under 70 councils had proposed rates increases of less than 4 percent for the 2026/27 year. The average increase was 6.9 percent.

The largest increase was more than 20 percent for the Clutha District Council, followed by 17 percent at Waitaki District Council and 11 percent for Gore District Council.

The smallest was at Wairoa District Council, up 2.8 percent, followed by Carterton at 3.2 percent.

Wairoa has had some of the largest per-capita spending in recent years, partly due to the recovery efforts from severe weather.

Simplicity economist Shamubeel Eaqub calculated Wellington had the largest rates bill across the country at almost $12,000 on average, including water entity charges, regional council and council rate, as well as other user charges and fees. Porirua was next, followed by Queenstown-Lakes.

The cheapest were in Opotiki and Invercargill.

Andy Asquith, a local government expert and adjunct research fellow at the University of Western Australia, said the rates cap plan was unlikely to be a success.

“They haven’t done their homework and simply don’t understand local government.

“I’m unaware of any example of rate capping bringing benefits to local government anywhere. It is simply a case of short term political show boating with a very blunt instrument.

“Local government, local self determination and local communities all suffer because central government isn’t prepared or willing to think of a long term sustainable financial system for our councils.

“It is time for a cross party supported Royal Commission with terms of reference similar to the Inquiry chaired by David Shand almost 20 years ago.”

He said council rates varied significantly across the country because each council would make the decisions it perceived to be best at any certain time for its community.

“For a long, long time now virtually all councils ignored infrastructure and depreciation. That is the reason why in the last couple of years you’ve had a number of councils with significant rates increase because they finally bit the bullet and realised that their predecessors have been asleep at the wheel, often knowingly.

“The driving objective of many councils has been to keep rates down irrespective of what the long-term cost is. That’s a reflection of the short-termism that underscores a lot of politics in New Zealand, that’s partly down to the three-year electoral cycle.”

He said there needed to be a “grown up discussion” about what local government was, what it should be, what it should be doing and how it should be funded. “The current system isn’t sustainable… when you’re in a situation like you have at the moment where the Crown doesn’t pay rates, you’ve got vast parts of the state that don’t pay rates as well, it’s a nonsense. No one seems to be prepared to step up and address this.”

Eaqub said there had been an average rates increase in the past 10 years of just under 8 percent a year.

“If you have a rates cap, you must decide what is going to cut in terms of spending. This is the gutless nature of these kinds of revenue caps. They don’t say which responsibilities or expenditures of local government will be removed as a result. They’re saying we’ll centralise the rates bit but everything else is your problem… when you’re turning off the water or whatever, it’s the local council that’s incompetent. It’s very convenient and very cynical.”

He said the conversation was pointless and there had not been a serious conversation about the purpose of local government. “Local government has a huge amount of responsibilities but it doesn’t have the resources to do it.”

Infometrics principal economist Brad Olsen said there had been generational underfunding of infrastructure that councils were now grappling with.

As that was worked through, it should mean lower rates increases in future.

But he said the fact that proposed rates caps did not cover water was important.

“Both operating and capital costs for water have gone up… it’s hard to compare previous increases to what we might see in the future, given that water is excluded.

“If water costs have been increasing at a far faster clip than otherwise, and clearly they have, the government’s current approach, which is quite right to split out water and make water pay for water, could well mean that actually those local government costs over time are larger than before or larger than anticipated purely because those water costs might well have to go up quite a bit to do all of the maintenance work, the upgrades, the renewals that New Zealand generally hasn’t done for 30 years or so.”

He said 4 percent seemed a simplistic number to settle on.

“There’s no recognition for actual costs to local government. There’s no recognition for the fact that, for example, we’ve seen that both central and local government, activity has grown as a stronger share of economic activity over the last decade. So it’s a very simplistic policy.

“And I wouldn’t be surprised if you see some pretty challenging outcomes. That means that if there’s going to be rates caps, communities will have to go without on some things. And at the same time as government’s more than happy to take more and more tax off us in terms of income tax … I still find it highly ironic that central government thinks that it should cap rates, but it’s not willing to cap taxes.”

This story was first published on rnz.co.nz