A warning from across the ditch on rates caps

Saturday, 20 September 2025

Council staff in North Sydney have grown used to dodging buckets on the way to their desks ‒ a temporary fix for a persistent leak their council says it cannot afford to repair.

Across Australia, local councils are warning rates capping ‒ a policy limiting how much they can increase rates ‒ has undermined their ability to deliver essential services and maintain infrastructure.

The Government here is expected unveil its rates capping policy by the end of the year, part of a push for councils to get “back to basics”.

A recent poll shows clear support, with 75% of New Zealanders supporting a rates cap, 14% opposing it and 11% unsure. The move promises predictability at a time when Kiwis are feeling the squeeze, many of whom have faced double-digit rates rises in recent years.

North Sydney Council deputy mayor Godfrey Santer says the organisation cannot afford to fix leaky roofs, fix pot holes or maintain sports fields ‒ and he blames the rates cap.

“It’s bricks and mortar that need maintenance and we just don’t have the money to be able to keep them in good order.”

North Sydney Council applied for a 87% increase to rates across the next two years (not a typo) to repair its financial position ‒ which was met with opposition from the public and ultimately declined by the Independent Pricing and Regulatory Tribunal for insufficient evidence. (The tribunal is an independent body that can reject or accept applications of rates higher than the capped percent, which this year sits between 3.6% to 5.1% in New South Wales)

New South Wales and Victoria are the two states in Australia with a rates cap.

But a major driver of financial woes is the North Sydney Olympic Pool redevelopment. The heritage project blew out to more than double its original $57 million budget and has put the council $56 million in debt ‒ taking more than five years to complete.

The blowout bears a striking resemblance to earthquake fixups such as Wellington’s Town Hall project, raising questions over whether core services and infrastructure could be sacrificed in favour of costly developments if a rates cap was introduced.

Santer says the traditional view of council is “roads, rates and rubbish” and while that remains a core activities, they are expected to do a “hell of a lot more”

In his view, the “blanket approach” of rates capping is not working and each council needs an individual approach. For example, North Sydney had kept its rates fairly low before a cap was introduced, which he believes put the council at a disadvantage.

“If the New Zealand Government is contemplating introducing a rates pegging system, good luck.”

Local Government Minister Simon Watts says considerations around what has and has not worked in overseas jurisdictions is being built into the policy design.

“We don’t want to be in a position where the councils are unable to provide core services.

“The policy work we’re currently working through is making sure we can get the balance and the settings right to assure that councils can deliver their core services, but in a sustainable manner.”

Rates capping was first introduced in New South Wales nearly 50 years ago. NSW Local Government president Phyliss Miller says councils are now starting to hit the wall.

“Make sure it’s sensible, keep pace with the cash rate, otherwise it will have the same legacy as New South Wales.”

A 2006 inquiry concluded councils across the state needed to find an extra $900 million a year to overcome infrastructure renewal needs, not taking into account additional infrastructure needed to support population growth.

Then, a study from 2013 revealed about one third of all NSW councils suffered from weak revenues, infrastructure backlogs and declining populations.

Between 1989 and 2019, NSW rates per capita grew by just $139 ‒ an average increase of just 1% every year and the lowest in Australia.

Taxpayers’ Union head of communications Tory Relf is welcoming a rates cap, saying where families are being asked to tighten their belts, councils aren’t doing the same.

In just three years, the average household bill is up more than a third, while inflation is less than half that.

New projects should be put to voters, she says, whether at the ballot box or through a referendum. A rates cap would not only protect households from constant hikes, it would force councils to focus on the basics.

“Rates caps aren’t just about how much the ratepayer is paying, they’re also about forcing councils to take a long, hard look at their books and making the necessary adjustments.

“Without that discipline, the temptation is always to reach for more money from ratepayers instead of fixing underlying waste.”

Local Government New Zealand (LGNZ) president Sam Broughton says decades of underinvestment in infrastructure during the 1980s and 90s is now catching up with councils ‒ and communities still deserve quality facilities.

All parties want rates to be lower, he says.

“As an ambition that’s a great thing, but what we’ve seen internationally is that it doesn’t work.

“Artificially holding rates lower than what’s required means at some point you have to catch up.”

LGNZ has released a list of tools that act as alternative funding sources for councils.

Of the list, the Government has committed to sharing GST on new builds, congestion charging, tolls, a regional infrastructure fund, public and private partnerships, improving development contributions, regional deals, increasing borrowing capacity through Local Water Done Well and the Infrastructure Funding and Financing Act reform.

In February, Local Government New Zealand hosted a conference, attended by Watts, intended to help the Government learn lessons from across the ditch.

Speaking at the forum was Clinton Jury, chief executive of LGA South Australia (LGASA), who said rates capping was not a “silver bullet” to improve efficiency, but a political position many governments used as a vote-winning exercise.

Rates capping was key to South Australia’s elections in 2018, with the SA Liberal Party pushing the policy to legislation after being elected.

But a campaign from LGASA against the policy saw the Government back down, and a reform was proposed in its place, including tightening staff and elected members travel and credit card use, having independent tribunals set CEO salaries and giving the Auditor General new investigative powers.

A Local Government Australia South Australia spokesperson told The Post there was little evidence to support rate capping as a solution to keeping rates low and improving efficiency.

“The evidence from both research and Australian examples shows that the approach risks seriously undermining council capacity, infrastructure sustainability, and community service quality.”

A cap on how much councils can invest in infrastructure or deliver services was a “blunt policy instrument” and eroded local autonomy, the spokesperson said.

In South Australia, councils generally keep rates in line with inflationary pressures as part of a balanced response to determining budgets to meet community needs.

Keeping rates low

While Australian councils warn rates caps leave them unable to fund the basics, one council in New Zealand has managed to keep rates below inflation.

Whanganui District Council rates rise is 2.2% this year ‒ the lowest in the country, albeit on a smaller scale than most.

Mayor Andrew Tripe says it is the result of a deliberate strategy to keep costs under control and a “death by a thousand cuts”.

A six-point plan was developed early in the electoral term alongside the council’s chief executive. It included restructuring around 20 council staff, cutting services, growing the population more residents share the load, plus exploring alternative funding models such as philanthropic grants and government funding and optimising asset returns.

The restructure saved $1.2m.

It dropped its food scrap collection service from the long-term plan, which saved around $1m (or 1.2% in rates). Savings weren’t just found in big items, the council cut its grass four times a year rather than six and kept flowers out of the flower bed.

Tripe says it is “bizarre” no other mayors have approached him to ask how he has done it.

While saying “an extreme amount of waste and inefficiency, and poor cost management across councils”, he believes a hard rates cap might not be the answer, unless gradually introduced over time.