Government announces rates cap to keep councils ‘within their means’

Monday, 1 December 2025

The Government’s new model will set 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 Government is taking action to curb council rates rises, with plans to introduce a rates cap by 2029.

Speaking at Monday’s post-Cabinet press conference, Prime Minister Christopher Luxon said ratepayers have had enough.

“The message we are hearing is clear, ratepayers … are tired of having to prudently manage their own budgets while rates continue to go up, only to see their local council fail to demonstrate the same fiscal discipline,” he said.

“They are sick of seeing their rates spent on nice-to-haves rather than must-haves, building fancy public toilets rather than fixing the pipes, or installing endless speed bumps rather than maintaining the roads.”

The Government’s new model will set 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.

“Analysis suggests a target range of 2-4% per capita, per year. This means rates increases would be limited to a maximum of 4%,” Local Government Minister Simon Watts said.

This will leave zero rates increases out of the picture - with a minimum annual rates rise of 2%.

“It is simply acknowledging that actually there is a requirement for councils to invest and maintain assets that they have, and campaigning on 0% in the context of asset renewal was not necessarily going to be in the best interest,” Watts said.

The upper end of the range is designed to balance the need for sustainable growth with keeping rates increases affordable.

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.

“Nobody here is capping infrastructure. We are capping inefficiency,” Watts said.

Nicola Willis says inflation is tracking below 3% for the fourth straight quarter but warns rates hikes by councils are driving domestic pressure. She urges local authorities to cut back.

“Three waters assets are outside this remit of the rates cap,” Luxon said. “We've already put a programme in place to make sure we get long term debt financing in place for those long-lived assets.”

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.

The Government would expect permission would be granted only in exceptional circumstances, Watts said.

“The process would be that an individual council would need to make an application to the regulator, providing sufficient information in regards to the cause and reasons of why they are requiring to exceed the 4% cap. They would need to include - importantly - their plan to get back within band.”

Where councils need to raise revenue to pay for things outside of extreme circumstances, they will need to apply to a regulator for approval.

Councils will have a period to adapt to the changes before they come into force.

Watts said there will be a transition period for councils to adapt to the changes beginning on January 1, 2027.

CFO Ross Tucker says lower home valuations don’t guarantee lower rates. Auckland Council’s total budget stays the same—how much you pay depends on how your home’s change stacks up against the city average.

“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 is set to take effect by 2029; however, officials will be monitoring rate rises nationwide as soon as the legislation is enacted.

Where councils propose increases beyond the proposed cap, Watts said this may present grounds for intervention under the Local Government Act.

“The Local Government Minister does have powers to intervene, as you saw we did in Wellington… But again, that is an intervention that we want to use sparingly.”

Targeted consultation with stakeholders to finalise implementation, local considerations and legal details will begin today and run to February 2026.

Relevant legislation will be enacted during 2026.

Speaking after the Government’s press conference, Labour’s local government spokesperson Tangi Utikere confirmed his party would vote against the law.

“We've made it very clear that we won't expect local government to continue to work and take on additional responsibilities without the funding. So we don't support this rates cap,” he said.

“We accept the sort of rates increases that are facing communities right now are unaffordable in the long term. But what the Government should be doing is working alongside local government.”