Rotorua businesses say they will lose customers when the district moves into the red setting of the new traffic light Covid-19 system on Friday.
A business leader was "absolutely devastated" by the decision and the city's mayor says vaccination rates must rise to allow a move into orange as soon as possible.
Rotorua, Taupō, Kawerau, Whakatāne and Ōpōtiki will move into the red traffic light system along with Northland, Auckland, Gisborne, Wairoa, Rangitikei, Whanganui and Ruapehu.
The rest of the North Island and the entire South Island will start at orange.
Prime Minister Jacinda Ardern said the red traffic light setting will "feel a lot like level 2".
Under red, 1m distancing must be used. Public facilities and retail can open for up to 100 people. Schools and early childhood education centres can open with restrictions and some outdoor events are allowed. Working from home is encouraged.
Generally, other businesses can operate with capacity limits and distancing if they require vaccination certificates. Businesses that opt not to use the certificates would have harsher restrictions and some - close contact businesses, events, gyms - would not be able to operate.
The settings will be reviewed every two weeks.
House of Elliott Hairdressing owner Craig Elliott said the red setting would have "a huge impact" on how the business operated. It would use the vaccine passes but he said the business would lose around 50 clients.
"It's a sad day when we have to say, 'Sorry, you can't come in' because of a personal health choice.
"We hope one day real soon that we can service all of the community that has supported us again."
Scope cafe owner Dana Greer said starting in red was "not ideal" but remained grateful for the ongoing support and encouragement from the community.
"We're already dealing with a diminished number of customers, so this will take it further."
Greer said she was awaiting further guidance on the New Zealand Business website about checking customers' vaccine passes in the cafe.
"We will survive this too - it's just another step in this amazingly crazy journey we've been on for almost two years now."
Greer said it was "imperative" to stay compliant with all requirements.
"We have staff that we have to keep safe, we have their families..."
Yoga Rotorua studio manager Nadine Prinsloo said starting in red would have a "negative financial effect on the studio".
"To comply with the red light traffic system, for our doors to be open we will have to cancel more or less 50 per cent of our classes."
Some classes could be moved to Zoom depending on how many people were interested in online classes, she said.
Prinsloo estimated that student numbers would drop about 30 per cent as unvaccinated members would no longer have access to the studio.
Rotorua mayor Steve Chadwick said red added "more layers" for managing schools, businesses and events.
"We shouldn't be surprised - our vaccination rates are moving but moving slowly.
"We want to go orange - we want to get those vaccination rates up, so come on Rotorua."
Rotorua Chamber of Commerce chief executive Bryce Heard said he was "absolutely devastated" that Rotorua would go to red.
"Rotorua is a tourism town - tourism depends upon people coming to visit the town. When we're zone red, that's a red flag for people not to come to Rotorua."
Heard said tourism was "on the line" and members were "devastated, angry, upset and confused by the whole thing".
Rotorua Economic Development chief executive Andrew Wilson anticipated there would be "minimal disruption" for businesses that used vaccine certificates.
"However, for places that choose not to use vaccination certificates, they will either have to close or put public health measures in place."
Wilson said this would create "significant issues" from a business continuity perspective, and could potentially cause perception issues around not being seen as "Covid-safe places to visit or do business".
He said many businesses were "heavily reliant" on visitors in summer, especially due to the impacts of lockdown restrictions this year.
Co-chairman of the Te Arawa Covid Hub Monty Morrison said moving to red was "the right decision for our rohe right now".
This would allow "a layer of protection" while continuing to get as many people as possible vaccinated before the Tamaki Makaurau border was lifted on December 15, he said.
"There are dozens of people working extremely hard to support whānau to get vaccinated – and to ensure we have the right plans in place to support people once we have wider community spread.
"Vaccination remains our best defence, but we will be here to support all whānau as we navigate our way through this next phase."
Rotorua MP Todd McClay said red would significantly impact small businesses in particular.
"We know in hospitality they already have fewer customers and have to employ more staff.
"The need for very close policing of vaccine passports is going to be a significant burden for many, and again makes it a lot harder."
McClay said there was "a huge amount of confusion" about how the traffic light system would work, and called for clear conditions for moving to orange and green.
"Orange is more restrictive for many businesses than the current level two. And red for some will feel like a step backwards."
Kawerau mayor Malcolm Campbell said starting in red would be "quite inconvenient" and hoped people would now realise the importance of vaccinations.
"I sincerely hope that they're going to be sensible enough to get it done … otherwise we'll all suffer for it."
Ardern said red provided extra protections against Covid-19 such as requiring both vaccine passes and some capacity limits in the most-high risk settings.
"That's because if someone has Covid-19, the virus will find it harder to spread among fewer people who are at a distance.
"The factors considered when setting the colours in each region include vaccination, the state of the health system, testing, contact tracing and case management capacity, as well as the rate and effect of Covid-19 transmission."
Ministry of Health data showed as of Sunday, 88 per cent of the eligible Lakes District Health Board population had received one dose, and 78 per cent were fully vaccinated.
The Lakes District Health Board was 1,998 doses away from reaching the 90 per cent target for first doses. Ministry of Health data showed it was 89.6 per cent as of November 28. In order to reach the 90 per cent fully vaccinated rate, 11,019 doses needed to be administered.
With no new cases of Covid-19 announced today , the Lakes region, which includes Taupō, had 26 cases of Covid-19, three of which had recovered and one being in Rotorua Hospital.
Lakes District Health Board chief operating officer Alan Wilson said the traffic light system was there to support the health system and ensure it could cope with the demands of Covid-19.
"The traffic light system has levers which can reduce the amounts of Covid in an area if the health system is overwhelmed."