Govt Moves to Cap Council Rates to Ease Cost Pressures on Households Nationwide

Rates—the primary source of funding for local councils—have been increasing at a pace outstripping both inflation and wage growth in many parts of the country.

The Government has confirmed it will move forward with a national rates cap to help rein in escalating council rates and ease financial pressure on households, Local Government Minister Simon Watts announced today. The decision comes amid growing concern over rising living costs and repeated double-digit rate increases in several communities, which Mr Watts says have placed unfair strain on ratepayers.

Rates—the primary source of funding for local councils—have been increasing at a pace outstripping both inflation and wage growth in many parts of the country. For households already grappling with higher mortgage repayments, rents, and everyday expenses, rising rates have become a major contributor to the cost-of-living challenge.

A New Framework to Keep Rates Affordable

The proposed rates cap introduces a structured target range for annual increases. This range is anchored to long-term economic indicators: inflation at the lower end and GDP growth at the upper end. Current analysis points to an annual per-capita target range of 2 to 4 percent, with the government making clear that 4 percent will be the maximum allowable increase without special approval.

“The lower end ensures councils can maintain essential services, while the upper limit protects ratepayers from unaffordable increases,” Watts said.

The cap will apply to all components of council rates, including general rates, targeted rates, and uniform annual charges. It will not apply to water charges, fees, or other non-rate revenue.

Ensuring Councils Deliver Essential Services

Mr Watts emphasised that the cap is not intended to starve councils of funding but to encourage responsible financial planning and reduce wasteful spending. Councils will retain the ability to cover core responsibilities such as:

• Rubbish and recycling services

• Local roading maintenance

• Water and wastewater network operations (where applicable)

• Maintenance of parks, libraries, and community facilities

• Public safety and civil defence functions

A minimum annual increase is built into the model to ensure councils can continue delivering these essential services without compromising quality or safety.

Exceptions Allowed Only in Extreme Circumstances

If a council faces exceptional circumstances—such as a natural disaster, major infrastructure failure, or emergency response requiring immediate investment—it will be able to apply to a central government–appointed regulator for permission to exceed the cap.

However, the threshold for approval will be high. Councils will need to demonstrate:

• The situation is truly extraordinary

• The cost cannot be delayed or absorbed within existing budgets

• A credible plan exists to return rates increases back into the target range

The same applies if councils need additional revenue to address historic underinvestment in infrastructure or overdue maintenance. Approval will not be automatic; councils must provide detailed justification and timelines.

Transition Period and Reporting Requirements

Recognising that many councils are already locked into long-term plans and rising cost pressures, the Government will introduce the reforms gradually.

• Transition period begins 1 January 2027

• Councils must incorporate the cap into their long-term plans (LTPs)

• New reporting requirements will assess council financial performance

Councils will need to publicly report on metrics such as:

• Wage and salary expenditure

• Rates as a percentage of local median house prices

• Local infrastructure deficits and renewal needs

This increased transparency aims to improve accountability and help communities better understand how their money is spent.

The full regulatory model will be operational by 2029, though officials will begin monitoring rates increases nationwide as soon as legislation is passed. Early interventions may occur where councils attempt to approve increases above the proposed cap.

Encouraging Councils to Act Now

Mr Watts urged councils not to wait until 2029 to begin adjusting their spending habits.

“Councils should not wait for the full enactment of the model before controlling rates increases,” he said. “Ratepayers deserve councils that live within their means and focus on core services.”

The Government sees the rates cap as essential to restoring public trust in local government and ensuring ratepayers receive value for money. By tying allowable increases to economic conditions, ministers hope to encourage disciplined financial management across all councils while protecting household budgets from further strain.

As the cost-of-living challenge continues, the introduction of a nationwide rates cap marks a significant shift in how local government finances are managed—one aimed squarely at ensuring fairness, affordability, and long-term accountability.