In a major shift for local government funding, the New Zealand Government has confirmed plans to restrict annual council rate increases to between 2% and 4% per capita. The move aims to protect what the Government calls local government's “social licence” while addressing concerns over rising household costs due to steep rates hikes.
Local Government Minister Simon Watts said the full cap will be in place by 2029, though councils will start adapting from January 2027. From that date, councils will need to consider the cap’s impact in their long-term plans and report on key financial metrics like wage costs, local infrastructure deficits, and rates as a percentage of local house prices.
The proposed model sets a target range based on long-term economic indicators. “We’ve picked a number which is bounded by medium-term inflation and long-run economic growth,” said Prime Minister Christopher Luxon. “Pitching somewhere in the middle with a band rather than just a single number and a single cap is actually a smart way to go about it.”
Watts added, “Analysis suggests a target range of 2% to 4% per capita, per year. This means rates increases would be limited to a maximum of 4%. A minimum increase is necessary so councils can continue to provide essential services like rubbish collection, council roads maintenance and the management of parks and libraries.”
Luxon said the cap would ensure ratepayers aren’t burdened with unaffordable increases, noting that “some communities have faced double-digit increases year after year. This is unsustainable.” He also stated that the government had no plans to allow councils to charge tourists through local levies such as bed taxes.
The cap will apply to all sources of rates, including general rates, targeted rates and uniform annual charges. It will not apply to water charges or non-rates revenue like fees. Councils wanting to exceed the 4% upper limit will need special permission from a government-appointed regulator, and only under extreme conditions such as natural disasters.
The new regulator will be established during the transition period from 2027 to 2029, with the Department of Internal Affairs overseeing the early monitoring. Councils will need to justify any exceptions and demonstrate how they will return to the capped range over time.
Luxon said ratepayers were "fed up", and that local authorities must mirror the same financial discipline expected of families and central government. Watts emphasised that the cap should not be viewed as a tool to freeze rates, stating, “We are capping inefficiency.”
Consultation with stakeholders has already begun and will run until February 2026. Legislation is expected to pass that same year, making the cap law from 1 January 2027.