Former Labour minister, now Wellington mayor, Andrew Little. Photo: RNZ / Mark Papalii
Mayors say complying with a 4 percent rates limit is achievable, but will require tradeoffs - and could mean higher fees for things like parking, libraries and pools.
The government on Monday announced plans for a rates cap, with a 4 percent maximum increase based loosely on long-term growth over the past 35 years, and a 2 percent minimum based on midpoint of the Reserve Bank's own target band for inflation.
The band would be reviewed every three years, but it was unclear what any change might be based on.
Councils' adherence to the limits would be monitored from 2027 and strictly enforced from 2029 - with the minister threatening to intervene before then if councils did not toe the line.
With the government having talked about the idea for months, Central Otago mayor Tamah Alley said the policy was no surprise and would likely appeal to the community - who wanted to see rates kept under control.
"It will work to reduce the rates rises. Will it work to provide the best services to our communities, to meet their wants and needs? Maybe, maybe not.
"It will mean that we are saying no to our communities more often and it will mean that we are deferring projects that they wanted to see go ahead - but that might be okay if it means that they've got more money in their back pocket."
She said the idea councils were "throwing money around willy nilly and wasting ratepayer dollars is not an accurate depication" for many.
Other jurisdictions that had imposed rates caps had seen decades of underinvestment in infrastructure, she said.
"We achieved that here in New Zealand without rates caps ... that's what we've been playing catch up on for a long time. So while it will control rates in the short term, I guess it will remain to be seen whether it's going to be sustainable for our communities.
"Here in Central Otago we had effectively a self-imposed rates cap of 5 percent for a number of years back in the sort of 2010s. It led to an 18 percent increase as we played catchup on what hadn't been paid for, when it should have been."
Selwyn mayor Lydia Gliddon was elected promising lower rates increases than the 7 percent baseline proposed by her predecessor.
She wanted to see more details from the policy, but seemed optimistic about making the government's plan work - while also warning it would be difficult.
"There's probably some challenges for us being a high growth council ... initially we were sort of indicated that there might have been carve-outs for high growth councils or that rates capping was only going to be on the general rate, but it looks like it's across everything bar water at this stage."
Gliddon said it would also be important to see how the RMA reforms and regional reforms - which could put additional pressure on councils - would tie in, although it made sense to do them all at once.
"It's a lot and it's a big workload, but you can see if you just drag things out, I don't think that's good for anyone, either.
"What's really hard is that it's not going to be the upfront implication straight away, it'll be three to six years down the track when everything's got a little bit tight. And think about if the cost of bitumen has gone up 30 percent and you're capped at rates at 3 percent are we going to be able to maintain what we currently have?"
Former Labour Minister turned Wellington mayor Andrew Little told RNZ all councils were struggling with the need to keep costs under control, and in Wellington's case one problem was a rates cap would also limit special levies - and the funding for services would need to come from somewhere else.
With construction costs typically sitting above inflation, councils would be limited in what they could do to keep infrastructure maintained, he said.
"This may create limits for that in the long run will see a deterioration of council assets."
He said many councils would likely consider increasing fees for things like swimming pools, recreation centres and other community facilities - which are exempt from the cap.
"Councils may well have to look to that. It will have an impact on people's access to those facilities where at the moment those facilities carry a bit of a cross subsidy."
Alley said councils would need to be looking at other revenue streams like that.
"The reality is rates alone are not going to be enough .... parking fees and charges are just one ... something like solar power or selling assets or rejigging the way that we work our rates, that's one of the big things that we are going to have to look at."
She said insurance and power were some of the biggest costs in Central Otago.
"It might be that our community has to have a conversation about the fact that we might not be able to provide a swimming pool year-round in one of the coldest places in New Zealand. It costs a huge amount of money to run our pools."
Prime Minister Christopher Luxon had called for councils to borrow for long-term infrastructure projects instead of trying to fund those from operational baselines.
Gliddon said some core infrastructure did need to be funded through debt, but "we can't keep doing that because you're just, you're passing the buck down to the next generation. So we've just got to be a bit smarter with what we do."
She said the government needed to be a good partner, and could help with things like not applying GST to rates, paying rates on Crown land, or refuding some GST from new builds back to councils.
Little also said borrowing was not always the best solution.
"When you borrow money, you still have to pay the cost of that. Costs of interest is quite a big cost for Wellington at the moment and of course, interest rates can fluctuate and the value of interest rates is dependent on what's happening elsewhere in the economy.
"I'm not sure just borrowing is the answer to keeping costs under control ... councils still have to do the job of running a city, building a city, making it attractive, assisting with economic growth."
He said it also was not fair the policy would essentially bed in councils' historical rates increases.
"Councils that have had lower rates because they've just chosen not to spend on infrastructure maintenance and upgrades will continue on that, but all it means is those those assets will deteriorate, and that'll create a crisis further down the track.
"For those councils on higher levels of rates, the future rate increases might be limited - but whether or not that allows council to meet the real increase in the cost of running council ... I think that remains to be seen."
A cap could also be too prescriptive, Little said.
"Councils [would then] get away with saying 'well, that's what the government mandated so that's what we're doing' and it doesn't bear any relation to what council actually needs to do."
Labour's local government spokesperson Tangi Utikere said a rates cap would mean councils choosing to either cut services, or increase fees.
He said Labour opposed a cap, but stopped short of promising to repeal it.
ACT leader David Seymour backed the rates cap, saying councils were effectively a monopoly. Photo: RNZ / Mark Papalii
The Greens' local government spokesperson Celia Wade-Brown, a former Wellington mayor, said a rates cap would do nothing to fix decades of underinvestment in council infrastructure, and was completely at odds with the government's "so-called localism approach".
"Today, the Government has effectively scapegoated local councils to distract from the cost-of-living pressures their own policies have made worse. This blunt instrument will almost certainly lead to increasing fees and charges which will be regressive for those on lowest incomes."
ACT leader David Seymour backed the rates cap, saying councils were effectively a monopoly.
"I opposed a strict cap. I'm very comfortable with these kinds of controls, because they're more like what is put in place for, say, an electricity lines company, an airport with landing fees. If one business effectively has a monopoly in a region, then there is a role for government to put controls on the price increases they can wield."
He pointed to many of the mayors or mayoral candidates who promised to keep rates under control having been elected as evidence the public was demanding stronger controls.
He said the costs councils faced would also reduce as a result of the government's resource management reforms, which would help make the rates cap viable.
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