Rate hikes and reforms force councils into tough decisions

NZ Herald

5 hours ago

The sector faces unprecedented fiscal pressure – and ratepayers are running out of patience.
This is not business as usual.
Come October, newly elected mayors and councillors will inherit this perfect storm. But unlike their predecessors, they are running out of road – growth in debt is becoming unsustainable and the Government is taking an ever-closer interest in council performance. The next three years will demand brutal choices: which services to cut, which projects to abandon, and how to navigate the most sweeping government reforms in decades.
Those who succeed will need more than management skills. They will need the political courage to tell their communities hard truths.
The financial reckoning is stark. Department of Internal Affairs benchmarks published last week reveal dramatic disparities between councils in rates per household, debt per capita and capital spending. In many cases, debt is rising faster than revenues.
Some councils face massive infrastructure deficits while pursuing new facilities. Others watch transport and water project costs blow out while basic maintenance gets deferred. Across the country, councils with grand ambitions are being mugged by grinding reality.
Making matters worse, the 2025-28 council term coincides with multiple central government reforms that will reshape local government's foundations.
First comes the Resource Management Act replacement. The new system will shift responsibilities from individual councils to regional entities and national standards. While potentially streamlining planning processes, the transition will demand new skills and complex co-ordination, along with significant upfront costs.
Then there is water reform. The coalition's 'Local Water Done Well' leaves councils responsible for delivering viable water services alone or through shared entities. By September, every council must produce a Water Services Delivery Plan that satisfies the new water regulator and the Commerce Commission.
Some councils are pursuing joint ventures with neighbours, hoping to achieve economies of scale. Others are establishing at-arm's-length, council-controlled organisations, seeing it as the best way to maintain local control while meeting new standards. Still others plan to soldier on in the status quo, somehow convinced they can manage the regulatory burden in-house. Each path has its challenges.
The Local Government (System Improvements) Bill adds another layer of change. It scraps councils' broad 'wellbeings' mandate – the ability to promote spending on loosely-asserted social, economic, environmental and cultural benefits – in favour of the Prime Minister's 'doing the basics brilliantly'. The bill prioritises core services, introduces new financial performance measures, mandatory disclosure of contractor and consultant spending and standardised codes of conduct.
Most controversially, it opens the door to rates capping, which the minister says is being developed 'at pace'.
Capping rates is appealing to angry ratepayers, but international experience shows it can be a blunt instrument. Councils in capped jurisdictions often defer maintenance, cut core services or find creative workarounds that cost more.
Ratepayer referendums on major non-core projects could prove more effective, giving communities direct say over expensive projects while preserving councils' ability to fund essentials.
Newly elected mayors face tough choices on services and projects due to unsustainable debt growth. Photo / NZME
Democratic decay compounds these challenges. Voter turnout at local elections barely reaches half that of national elections. Despite last-minute surges, some councils couldn't fill all seats. Several mayoralties attracted just one candidate.
This reflects decades of centralisation that have hollowed out local government's relevance. Why would talented people seek office when councils control less and matter less? Why would voters care?
The erosion shows in public discourse. Councillors face increasing criticism and abuse, much of it personal and vitriolic. Social media amplifies every rates increase, every pothole, every perceived failure. Yet councils desperately need capable people who can absorb regulatory complexity, scrutinise multi-million dollar infrastructure proposals, and communicate financial realities to their communities.
Those elected in October face three immediate priorities.
Cost growth must be controlled without gutting essential services, a delicate balance requiring financial acumen and political skill. Reforms will test their ability to shape change rather than resist. Most importantly, they must rebuild trust with communities exhausted by rate hikes and service failures.
Ratepayers being mugged by reality should be watching closely. They should not accept more empty promises, excuses, delays or double-digit rate increases.
Success in the next council term will require a different kind of leadership. The old model, where councils could muddle through and keep hiking rates, is dead. The new environment demands leaders who can make hard choices quickly, communicate them clearly, and stick to them despite the inevitable backlash.
This means not making their own costly promises, being prepared to say no to others' dreams and schemes, and telling uncomfortable truths about what councils can and cannot afford.
The question is whether enough of them have stepped forward – and, crucially, whether enough voters will notice and reward them.