Key Points:

Auckland City Council's running costs are dropping to the extent that Mayor John Banks is tipping a rates rise of 2 per cent for 2009-10 - half of the figure forecast in November.

"It's 2 per cent but we haven't given up on just that," Mr Banks said last night. "We are monitoring costs day by day, line by line, dollar by dollar.

"We are recognising the difficulty people will have paying their rates this year and being cautious about rates rises."

Mr Banks said cost-cutting extended to a freeze on staff wage and salary increases, and a demand for council consultants, contractors and suppliers to "sharpen their pencils" if they wanted to keep the council's custom. However, he promised the second biggest spend on capital works in the city's history - at about $450 million.

"We see our responsibility to support the economy by upholding a much overdue capital works programme."

Deputy Mayor David Hay said the council was taking a lead in difficult times.

"We are very aware of the strain on household budgets and people's ability to pay their rates bills, so we have worked hard to find savings in the budget."

Holding staff wage and salary levels is one of the factors which led council staff to expect a halving in the organisation's costs for at least the next three years. They also expect lower costs in raw materials, depreciation and interest rates. Yesterday, North Shore City councillors approved a draft city plan which shows rates increases of 5.9 per cent in 2009/10, with about the same predicted for two subsequent years. The rise means an average rates bill of $1929 this coming

year, in addition to a 7 per cent increase in the water rate which brings the average water bill to $276.

Mayor Andrew Williams said it had been a difficult exercise clawing back the rate rise to average about 5.4 per cent for the next 15 years.

Asked to compare the performance of his city with Auckland's, he said: "Of course Auckland City has for the last two years used its water rates to conveniently hide behind. If its rates were true they would have double-digit increases." Controversial "charitable payments" from the council-owned water company, Metrowater, are being phased out.

Auckland City Council will vote accepting the rates proposal on February 20.

Council finance chairman Doug Armstrong said Citizens & Ratepayers councillors were sticking to their 2007 election pledge of increasing the rates by no more than the council's inflation figure.

He said the council's inflation costs differed from those of households because it bought different items, construction materials like bitumen, concrete and steel which went up or down at a different rate to the consumer price index.

Mr Armstrong said he expected households water bills to follow through on the 2.5 per cent cost rise.

C&R councillors still have to push through raising the uniform annual general charge for each property from $162 to $350. Such a move will mean low value properties will pay more than 2 per cent and high-value properties less.

wAbout 55 per cent of Auckland City's rating income is from general rates and the rest comes from targeted rates and water charges.

Mr Armstrong said raising the charge depended on what the public says in submissions on the draft 10-year plan.

This will be available in April for a month-long consultation, before the council adopts the final plan in June.