In December 2025 we wrote about the Government's proposal to introduce a rates cap for local authorities, and commented on the New South Wales rate peg system, which provides a useful close-to-home example of how rates capping could work in New Zealand.
That proposal is now one step closer to being law, with the introduction yesterday of the Local Government (Rates Capping) Amendment Bill. The Bill amends the Local Government (Rating) Act 2002 (LGRA) and Local Government Act 2002 (LGA) to introduce a new rates capping framework that would apply to all local authorities.
As set out in the explanatory note of the Bill, the Bill should be considered in light of other changes the Government is seeking to make through the Local Government (System Improvements) Amendment Bill. If that Bill is enacted, the purpose of local government will be narrowed along with the core services that local authorities should consider in their role.
We've done an initial review of the Bill, and note that what is set out in the Bill does not significantly differ from what was announced by Government last year. We comment on some of the key features of the proposed rates capping framework in the Bill below:
The purpose of the rates cap is described as being to "promote fiscal responsibility, and predictability of costs to ratepayers". The Bill will add this purpose to the LGRA
The Bill includes the concept of a "target range", being a minimum to maximum allowable annual rates increase compared to the previous years. Local authorities will be required to set rates so that any increases fall within the "target range". The rate-capping mechanism will apply to all general rates, uniform annual general charges, targeted rates, and penalties on unpaid rates
The initial "interim target" range of 2% to 4% would apply from 1 March 2027 to 30 June 2029, and so will need to inform upcoming long-term plans
The "target range" will, from 1 July 2029, be set out in an Order in Council on the recommendation of the Minister. Before recommending the minimum and maximum allowable annual rate of increase, the Minister must consult local authorities, consider advice from the regulator, and consider the "the costs to local authorities of carrying out their functions". These costs can include future costs due to "government decisions or legislative change", and costs incurred by local authorities as a consequence of "unanticipated economic trends or indicators" such as "higher than expected inflation or interest rates" (indicating that expected inflation/interest rates are not a relevant consideration)
A new regulatory position (called the "regulator" for now) will be created, who will be a statutory officer within the new Ministry for Cities, Environment, Regions, and Transport (MCERT). The regulator will advise the Minister on the target range, develop a cost index to help guide that advice, make decisions on Type 2 exemptions, be responsible for ensuring compliance by local authorities, including that the regulator can issue directions requiring a local authority to make a compliant decision, and report on the implementation of the rates capping framework
Exemptions can be given from the "target range" requirement. There are two main types of exemptions:
Type 1 exemptions can be granted by the Minister if there are exceptional circumstances, such as a major emergency
Type 2 exemptions can be granted by the regulator to support fiscally prudent decisions to be made in an upcoming long-term plan process. An application must be made before the local authority consults on its long-term plan, and no later than 11 months before the long-term plan is due to commence. If a local authority applies to increase rates above the "target range", the regulator will take into account whether the local authority has considered other financial options and asset recycling. If a local authority applies to increase rates below the range, the regulator will take into account whether depreciation is being funded appropriately, and whether assets are being maintained. Exemptions are time-bound and can be given in part and subject to conditions.
The Bill sets out mandatory considerations regarding the assessment of exemption applications, and specifies that the Minister and the regulator must make decisions on each application within 60 calendar days of receiving it. The Minister has said "Exemptions will not be granted lightly and will only be available in exceptional circumstances where there is strong justification."
Costs arising from the provision of water services (now governed by the Local Government (Water Services) Act 2025) and rates set under section 115 of the LGA (which relates to rates as security for loans) are excluded from the rates cap
The Bill addresses the inevitable flow on effects of local authority reorganisation (including under Head Start), by requiring a new local authority to determine an indicative rates price across the new local authority area as a baseline to measure future rates increases against.
What's next?
We expect that the Government will ensure that the Bill has its first reading and is referred to Select Committee before Parliament sits for the last time on 24 September 2026. Parliament will be dissolved shortly after that in anticipation of the general election on 7 November 2026.
Under the Constitution Act 1986, all bills introduced to Parliament lapse when Parliament is dissolved. A new Parliament will generally pass a motion reinstating a lot of business of the previous Parliament during its first sitting. Generally, most bills are reinstated; however, if there is a change in government, it's possible that some bills introduced by the previous government may not be reinstated.
We await the first reading and referral to Select Committee with interest.