Government reveals rate caps to be in place from 2029, limit set by GDP growth
Monday, 1 December 2025
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The Government is pursuing a 4% cap on rates for local councils from 2029 in a policy Labour says will force councils to charge for libraries and other essential services.
In efforts to push councils “back to basics”, councils will not be able to increase rates beyond a capped target range - 2 to 4% per capita, per year - unless they have permission from a regulator appointed by central government.
The limits are in line with inflation and GDP growth, with the inflation rate at the bottom of the range as the floor and GDP growth at the top of the range. This would mean councils would have to put up rates by at least inflation, but could not put them up by more than the GDP growth rate.
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The band is expected to be reviewed every three years.
Local Government Minister Simon Watts said the Government had introduced a rates rise floor as promises of zero rates rises had hurt councils and regions which hadn’t had infrastructure improvements.
A transition period from 2027 to 2029 would take place to give councils time to adapt, Watts said.
During this transition, councils are to consider the impact of rates caps on their long-term plans and report on financial performance, such as the cost of wages and salaries, council rates as a percentage of local house prices and estimates of local infrastructure deficits.
The cap will apply to general rates, targeted rates and uniform annual charges but will exclude water charges and other fees and charges.
The announcement is the second major reform made to local government in the past week, with a radical push by the Government to scrap regional councils in what is considered the largest shake-up to local government in decades. Resource Management Act (RMA) reform is also expected in coming weeks.
Watts said permission to increase rates above the limit would only be granted in extreme circumstances, such as in a natural disaster, and councils would need to show how they would return to the target range.
Any other reason that is not considered an “extreme circumstance”, such as catching up on past underinvestment in infrastructure, would need to be approved by the regulator, with justification provided and an explanation as to how it plans to return to the target range over time.
Proposed increases higher than the cap may present grounds for intervention under the Local Government Act, with Watts pointing to the Crown Observer appointed to the Wellington City Council this year.
“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,” Watts said.
He was confident councils could adjust their budgets within the cap, saying many mayors and councillors were elected on campaign promises to bring rates down in the last election.
“Nobody here is capping infrastructure, we are capping inefficiency,” he said.
Nice to haves and ‘fed up’ ratepayers
Prime Minister Christopher Luxon, introducing the rates cap with Watts at a post Cabinet press conference on Monday afternoon, said the average council rates increase in 2025 was 9.2%, which was three times inflation.
Ratepayers were tired of prudently managing their budgets while councils were spending on “nice to haves” rather than “must haves” - “building fancy toilets rather than fixing the pipes” - nodding to Wellington City Council’s $2m toilet block, which he pointed to three times throughout the stand-up as a way for councils to cut spending.
Mayors needed to “step up their game”, build their financial literacy, manage “lazy” balance sheets and stop “doing dumb stuff”, he said.
“The message we are hearing is clear, ratepayers are fed up.”
Luxon said the cap would not affect essential council services, but was less definitive on the Living Wage, saying he would have thought it would have been better spent elsewhere, but it was ultimately up to councils.
When questioned if councils would need to borrow more to bring themselves within this band, Luxon said each council’s situation was slightly different.
Rates caps will hit communities in the pocket
Labour local government spokesperson Tangi Utikere said councils would be left with no other option but to hike fees, charge for services which had always been free or cut them completely - which would “hit communities in the pocket”.
“The money for essential services, like water and waste, libraries, parks and footpaths, has to come from somewhere,” he said.
“People rely on their rubbish being taken away, clean water from their taps, rural roads being repaired and parks and footpaths being maintained.”
He did not agree with the policy but did not agree to repealing it either.
Looking to overseas
New South Wales, South Australia and the UK all enforce limits on rates.
The policy here offers a key difference to models adopted overseas by setting a range that tracks both inflation and GDP growth.
Warnings from local government leaders across the ditch suggest the caps have created significant strain, with councils from both states struggling to deliver essential services and maintain infrastructure under tight restrictions.
Watts has previously told The Post considerations around what has and has not worked in overseas jurisdictions is being built into the policy design. He said the Government was keen to strike a balance in settings to insure councils can deliver core services, but in a sustainable manner for households.
A recent RNZ poll showed clear support for rates capping, with 75% of New Zealanders supporting a 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.
Craig Renney, a Labour Wellington Bays candidate in the 2026 election, worked in the Audit Commission in the UK when a rates cap was imposed there.
In the 183 years before the 2018 rates cap, six local authorities went bankrupt. Twelve, including the Birmingham council, effectively went bankrupt since - 'essentially handed the keys back to central government'.
In Birmingham, 600 jobs were lost, 11 community centres shut and the council even dimmed the street lights to save money, he said.
The UK rates cap seemed stricter than the New Zealand proposal but a band system had its own problem as councils set the top of the band as a target and there was disparity between councils on different bands.
'We all understand the cost of living challenge but the devil is in the detail.'
Rates could be capped but the costs to councils would not go away, he said.
‘Blow to the infrastructure sector already under stress’
Infrastructure New Zealand chief executive Nick Leggett said rate capping must not come at the expense of desperately needed infrastructure and said the policy risked weakening councils at a time the country needed stronger infrastructure.
“This is a blow to the infrastructure sector already under immense stress,” he said. “How are councils going to pay for new infrastructure or fix what they’ve already got when their primary funding tool is being restricted without any credible alternatives being offered?”
Meanwhile, The Taxpayers’ Union said the cap should come into effect sooner, and ACT leader David Seymour said a cap wouldn’t fix councils “that refuse to control their own spending”.
“Councils now need to step up. They should focus on essential services like roads and pipes, not cycleways that nobody uses or fancy art installations that don't help the people paying the bills.”