Key Takeaways:
- The government plans to cap annual rates increases at 4% to protect local government’s social license.
- A minimum rates rise level will be mandated for the first time, with a proposed initial target range of 2% to 4%.
- The new rates regime will be phased in, with legislation planned to be enacted next year and effective from January 2027.
- Councillors will be stripped of their ability to increase rates beyond the upper end of the range unless they have permission from a central government-appointed regulator.
- The government believes the cap will support councils in living within their means, focusing on the basics, and being accountable to their community.
Introduction to the Rates Cap
The government has announced plans to cap annual rates increases at 4% in an effort to protect local government’s social license. This move is intended to ensure that councils can maintain essential services while keeping rates increases affordable for ratepayers. The proposed initial target range for annual rates increases is between 2% and 4%, with the lower end intended to ensure councils can maintain essential services and the upper end balancing the need for sustainable growth with keeping rates increases affordable.
The Rationale Behind the Rates Cap
Local Government Minister Simon Watts justified the move, saying that ratepayers in some regions have faced double-digit increases in recent years, which is unsustainable and adds to the cost of living for many Kiwis. The government believes that the cap will support councils in living within their means, focusing on the basics, and being accountable to their community. Prime Minister Christopher Luxon said that the 2% to 4% band was chosen because it is bounded by medium-term inflation and long-run economic growth, and that pitching somewhere in the middle with a band rather than a single number and a single cap is a smart way to go about it.
Implications of the Rates Cap
The proposed new rates regime would be a big change, and would therefore be phased in as part of a transition period starting next year. Legislation is planned to be enacted next year and effective from January 2027, with the full rates capping regulatory model taking effect by July 2029. Councillors would be expected to integrate the cap into their long-term planning from January 2027 onwards. The government would monitor rates rises nationwide as soon as the legislation is enacted, and officials would have the power to intervene if councils propose increases beyond the proposed cap.
Reaction from Local Government
Local Government NZ said that moving away from earlier suggestions of a rates cap to a rates band would promise greater flexibility, although it would restrict investment in core services such as roads, bridges, and public transport. The local government association’s interim chief executive, Scott Necklen, said that LGNZ had been working to inform the government around severe shortcomings of a hard rates cap model. LGNZ vice president Rehette Stoltz said that many councils were rebuilding infrastructure following severe weather events, and the policy needed to recognize the specific needs of councils.
Opposition to the Rates Cap
The opposition has criticized the government’s policy, saying that it would mean local communities would face added charges for essential services. Labour’s local government spokesperson, Tangi Utikere, said that the government’s policy would mean that councils would be left with no other option but to hike fees or start charging for services that have always been free, or cut services altogether. The Green Party’s local government spokesperson, Celia Wade-Brown, said that limiting council rates rises to 4% would inevitably lead to poorer local services, and communities being worse off.
Conclusion
The government’s plan to cap annual rates increases at 4% is a significant move that aims to protect local government’s social license. While the government believes that the cap will support councils in living within their means and being accountable to their community, the opposition has criticized the policy, saying that it would lead to added charges for essential services and poorer local services. The proposed new rates regime would be phased in, with legislation planned to be enacted next year and effective from January 2027. The government would monitor rates rises nationwide and have the power to intervene if councils propose increases beyond the proposed cap.
