The government's long-awaited rates cap will be a variable target band, and would be enforced by a new regulator.
Likely starting with minimum increases of two percent and a maximum of four percent, the cap would take effect from 1 January 2027.
It was not clear from the initial written statement how often the target might change, or exactly how it would be calculated, only that this could include "indicators like inflation at the lower end and GDP growth at the higher end".
Announcing the move at the weekly post-Cabinet briefing, Local Government Minister Simon Watts soon clarified the 2 percent minimum reflected the midpoint of the Reserve Bank's inflation target, while the 4 percent maximum reflected "long-term economic growth".
"That is based on long-run GDP which to be honest over the last 35 years has sat in the region of just over 5 percent but when you take out aspects such as population growth you get down to the 4 percent number."
He said the government expected the band would be reviewed every three years, but that was subject to consultation, and he confirmed the growth figure would not be flexible for councils whose local areas achieved higher rates of growth.
Prime Minister Christopher Luxon said ratepayers were "fed up".
"They're tired of having to prudently manage their own budgets while rates continue to go up, only to see their local council fail to demonstrate the same fiscal discipline."
He said the government was not considering allowing councils to raise revenue through a levy on tourists, like a bed tax.
"We want councils to be focused on the money that they've got and make sure they're doing a much better job of managing it. Some councils are doing a really good job, some councils are doing a very very poor job."
However, Watts noted that mayoral or council electoral campaigns on a zero percent rates increase was "not necessarily going to be in the best interests of our long-term renewal".
"Some of the deficits that we're in, in the position around infrastructure, are a result of some of that."
"We are capping inefficiency."
Asked if they could guarantee services including parks, pools and public toilets would not be impacted by the rates cap, Luxon said that would depend on each council.
"In the same way that families have had to make do with the budgets that they've got ... in the same way that government is doing that in central government, we expect local governments to do the same thing."
Watts said councils will need to seek permission from a new regulator to go above the maximum, and that permission would only be granted in "extreme" circumstances.
Local Government Minister Simon Watts Photo: RNZ/Mark Papalii
Consultation on the changes opened immediately, and was set to close in February 2026 with the legislation expecting to be passed by the end of that year.
The target would begin from 2027, and would be fully enforced by 1 July 2029, with Luxon saying the councils would start with "training wheels" on.
Watts noted he had powers as the local government minister to intervene if councils were not performing well financially, which could be used in the meantime.
The announcement follows last week's unveiling of the government's plan to abolish regional councillors, replacing them with panels of mayors from city and district councils.
In a statement, Watts said rates increases that recently had been in double digits was "unsustainable and is only adding to the cost of living for many Kiwis".
"Ratepayers deserve councils that live within their means, focus on the basics and are accountable to their community. The Government's decision to introduce a cap on rates will support that ambition and protect local government's social license for the long term," he said.
"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.
"From 2027, councils will be required to consider the impact of rates caps on their long-term plans and report on areas of financial performance, like the cost of wages and salaries, council rates as a percentage of local house prices and estimates of local infrastructure deficits.
"The full regulatory model will take effect by 2029. However, officials will be monitoring rates rises nationwide as soon as the legislation is enacted. Where councils propose increases beyond the proposed cap, this may present grounds for intervention under the Local Government Act."
He said councils should not wait for the full enactment of the rates capping model before controlling rates increases for their constituents.
Sign up for Ngā Pitopito Kōrero, a daily newsletter curated by our editors and delivered straight to your inbox every weekday.
