The Government’s proposed rate cap is putting pressure on the Tauranga City Council to reduce spending and make savings. Photo / Tauranga City Council
Tauranga City Council will ask residents which services they would be willing to sacrifice after the Government proposed capping rates.
Local Government Minister Simon Watts announced on December 1 the Government would to progress a rates cap to help councils keep rates increases under control and reduce pressure on household budgets.
Watts said analysis suggested a target range of 2-4% per capita, per year.
“This means rates increases would be limited to a maximum of 4%.”
Tauranga’s council has estimated a 13% average rates rise for 2027 – higher than the 10.4% increase it forecast in the 2024-34 Long-Term Plan.
If implemented, the rates cap would not come into force until in 2028.
With annual rates increases of between 5% and 11% forecast between 2028 and 2034, a cap could have a big impact on Tauranga ratepayers’ bills.
The council has agreed to plan public consultation to help the community understand the ramifications of paying lower rates.
Tauranga Mayor Mahé Drysdale said the council could work towards lower rates; however, there would be consequences to cutting costs in terms of the level of services available.
Drysdale said the consultation would bring light to what the community would be open to living without and the compromises they would be willing to make to achieve the rates cap.
The council’s preliminary draft budget for the next year outlines four key cost drivers: rising depreciation due to significant asset growth; finance costs associated with about $112m in additional debt; operating costs for new assets; and water activity surpluses to meet Local Water Done Well legislative requirements.
Drysdale said options for reducing rates included cutting planned capital expenditure; adjusting the council’s water service revenue expectations; selling some council assets; and increasing the charges for using some public services and facilities.
A S&P Global Ratings report noted the proposed national rates cap could tighten councils’ financial flexibility, create underinvestment risks, increase reliance on debt, potentially trigger credit downgrades and leave little room to restore service cuts later.
A Tauranga City Council staff report to Tuesday’s meeting said the impact of low rates on council services would be ongoing as the cap would not readily enable higher spending at a later date.
At the meeting, the council discussed ways to reduce the rates requirement for the $306 million civic precinct project Te Manawataki o Te Papa – a collection of new and redeveloped buildings in the CBD.
The options included using surplus parking income, asset sales, and airport revenue.
RNZ reported the council decided to prioritise use of any profit from potential asset sales to offset new debt and rates-funded interest associated with Te Manawataki o Te Papa, and to seek more philanthropic support for the project.
Pāpāmoa councillor Steve Morris told SunLive he supported the rates cap as it limited the amount of new debt the council could take on for non-core infrastructure.
“I don’t think people believe they have got value for money in the past,” he said.
Morris said the commission increased rates by 43% during its tenure.
“They addressed amenity, but it’s debatable whether they meaningfully addressed the infrastructure deficit.
“Council will need to look inward at operational expenditure and outward in terms of services.
“Some cuts and increases to user-pays may not be palatable, that’s why it’s vital we hear from people during consultation.”
Watts said the rates cap would be based on a model with a target range for annual rates increases using long-term economic indicators such as inflation at the lower end, and GDP growth at the higher end.
Councils would not be able to increase rates beyond the upper end of the range, unless they had permission from a regulator appointed by central government.
Permission would only be granted in extreme circumstances, such as a natural disaster, and councils would need to show how they would return to the target range.
The cap would apply to all sources of rates – general rates, targeted rates and uniform annual charges – but would exclude water charges and other non-rates revenue such as fees and charges.
Legislation would be enacted during 2026 and would take effect on January 1, 2027.
This would mark the beginning of a transitional period, enabling councils to incorporate the cap into their long-term planning.
The gross average, net of growth and including volumetric water. As the council will begin separating volumetric water from the next Annual Plan, the average increase without water is
2026: 9.9% (minus water: 10.1%)
2025: 13.1% (minus water: 13.8%)
2024: 6.2% (minus water: 9.1%)
2023: 13.7% (minus water: 12.9%)
2022: 21.5% (minus water: 20%)
Ayla Yeoman is a journalist based in Tauranga. She holds a Bachelor of Arts degree majoring in Communications and Politics & International Relations from the University of Auckland, and has been a journalist since 2022.