Christopher Luxon’s rates caps a very clever political time bomb

Tuesday, 2 December 2025

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OPINION: In the last year, 73 of New Zealand’s 78 councils raised rates by more than 4%.

Under the Government’s new rate capping measure announced on Monday all 73 of those councils would have broken the law.

You could read that data two ways.

Perhaps it proves the necessity of the caps. Councils are simply living beyond their means and need strict rules imposed on them by central Government in order to get things together. After all - why should existing services need income increases well above inflation to stay afloat?

Or it proves the absurdity of the Government’s over-reach here. Councils are the ones close to the ground, the ones that are directly elected by residents to fund services like footpaths, libraries, pools, and waste disposal. If the residents hate it so much they can vote for councillors who will lower rates and cut those services - rather than having it imposed from on high.

Polling suggests the public more readily fall into the first camp. Even if you quite like one service they provide, like rubbish collection or a pool, you can always find something to hate - like an expensive bathroom block or repairs to a bridge. Even if much of the rates rises go towards things you are a fan of, such as better water infrastructure, the extras you aren’t a fan of will make the rise that much tougher.

Read more:

• Government reveals rate caps to be in place from 2029, limit set by GDP growth

• Regional councils replaced by boards of mayors in radical Government push

The Government has designed the rates cap with some political skill. The caps don’t actually kick in until 2029, which means it will be at least the next electoral term before councils start to tell ratepayers exactly what will be cut to make them work. They also happen in concert with an effort to let councils pay for water infrastructure with different funding mechanisms not so reliant on rates.

Prime Minister Christopher Luxon was adamant that these cuts could be found through inefficiencies in the system and wouldn’t have to mean the end of services like pools or libraries, but the truth is that in many places those same services are very inefficient. Wellington City Council subsidises each swim by about $22, with particularly unpopular but expensive pools such as Khandallah needing a subsidy of closer to $80 if the original upgrade plan went ahead.

The long lead-in time also makes the issue troublesome for Labour. The party’s local government spokesperson, Tangi Utikere, held a very flat-footed press conference on Monday, saying Labour was against the policy but not promising any repeal. He made the point that rates caps would just force the costs of things like rubbish collection and libraries onto the community.

But the community already pays for these things - they just do them via rates, which hide all the subsidisation going on.

Rates are the only form of wealth tax New Zealand has, but the fact that they are both essential and apply principally to family homes - including of fixed income retirees - stops either side of the wealth tax debate from ever really making that point.

In truth Labour and plenty of voters are happy that wealthy homeowners pay a bit more so that everyone in the community can access things like libraries and free bin collection - all provided by workers paid for on a living wage. Meanwhile, National and plenty of other voters don’t mind the idea of voters being forced to directly pay for the services they want, whether that be through water metering or higher direct costs for pools and the like. But that is all a bit crass and direct for public debate.

In the past central Government was able to shrug its shoulders and leave that difficult bit of politics to the councillors well below them. With this rates cap it will undoubtedly be forced up the line, and prime ministers for years to come will be facing question after question about local pools and libraries and roads facing closure at the dozens of councils that are going to find it very hard to make this cap work.

It’s quite the political time bomb. It’ll be some time before we see who it ends up harming.