"Are councils going to be able to be involved in providing fireworks displays? Yes, if that's their choice, that is a range of public service.
"Where I think councils will have difficulty, because we've got some councils out there buying farms, I think that's pretty difficult," Dr Smith said.
He highlighted councils setting targets for NCEA pass rates, greenhouse gas emission reductions and reduced child-abuse targets as other no-go areas.
One of the biggest changes will be Government-imposed regulations around council debt levels, which have increased from $2 billion to $8 billion over the past 10 years - to be set in consultation with Local Government New Zealand.
Dr Smith refused to comment on the Auckland Council's plans to raise debt from $3 billion to $8 billion over the next 10 years, but highlighted the Kaipara District Council's $78.5 million debt as not sustainable.
The package gives councils a clear steer on rates increases, expecting them to limit new spending to no more than inflation, population growth and extraordinary items, such as disaster costs and leaky homes.
The number and level of spending on council staff - councils' salary bill rose from $884 million to $1.6 billion between 2002 and 2012 - will be placed in the hands of councillors to determine, although there is nothing to stop consultants earning thousands of dollars a day and claiming commercial sensitivity and privacy provisions to keep their payments hidden from ratepayers.
Concern about chief executive salaries - particularly a $68,000 pay rise to Christchurch chief executive Tony Marryatt that he declined only after a public backlash - has resulted in councils having to declare the number of staff employed by salary bands in their annual reports.
All mayors will also have the power given to Auckland Super City Mayor Len Brown to appoint deputies, set up and appoint committees and be in overall charge of council plans and budgets.
The reforms will make it easier for councils to merge along the lines of the Super City, but there will be no forced amalgamations.
The eight-point programme will be implemented in two bites.
The first four points of redefining the purpose of local government, tighter fiscal controls, stronger governance and making it easier for councils to merge will be introduced to Parliament in May and is expected to be passed by September.
The next four points of reviewing the extensive planning documents required of councils, clarifying central and local government regulatory roles, exploring better ways to provide water, roads and other infrastructure and reviewing the use of development contributions will feed into a second bill next year.
Mr Brown said the proposed changes sought to redefine the role of councils, saying the Government needed to be careful that it did not throw the baby out with the bathwater when clamping down on community development activities.
"I would be concerned if new restrictions on the activities of council meant that we had to stop developing infrastructure like roading, public transport or wastewater, or delivering the types of social and community activities that make a city great," the Auckland mayor said.
"Imagine Auckland without the ability to fund the Rugby World Cup or the Volvo Ocean Race. Those types of exciting events bring a city to life."
