Rates capping

The Government is proposing a cap on annual rates increases, requiring councils to seek approval to exceed set limits. The proposal aims to improve affordability and consistency, while potentially affecting how councils plan spending, prioritise services and manage long-term investment. The changes would be phased in from 2027 to 2029.  

Central government has recently consulted on a proposal to introduce a cap on how much councils can increase rates each year. 

At Horowhenua District Council, we reviewed the proposal and in a public Workshop on 21 January 2026. Council discussed what it could mean for our district and matters to raise in Council’s submission.   

What has been proposed?

The Government has proposed a cap on council rates increases, generally targeting a range of around 2 to 4 per cent per year. 

Under the proposal: 

• Councils would not be able to increase rates above the upper limit without approval from a new regulator 
• The cap would apply to general and targeted rates 
• Water charges and some other fees would sit outside the cap 

The intention is to provide greater certainty and help keep rates affordable. 

How it is intended to work? 

The proposed system aims to balance affordability with councils’ ability to fund essential services. 

If a council believes it needs to increase rates above the cap, it would need to: 

• Apply for approval 
• Demonstrate why the increase is necessary 
• Show how it plans to return to within the target range over time 

This process would be overseen by a new regulatory body. 

What this could mean?

If introduced, rates capping may: 

• Limit how much rates can increase in any single year 
• Influence how councils prioritise spending and projects 
• Lead to a reduction in service levels 

While the goal is to support affordability, it’s also important that councils can continue to maintain and renew infrastructure, deliver essential services, and meet community needs. 

What it means for Council?

If a rates cap is introduced, councils would be required to operate within tighter financial parameters. 

For Horowhenua District Council, this could mean: 

• carefully prioritising services and projects 
• looking for efficiencies and cost savings 
• reviewing long-term plans and funding approaches 

Council has made a submission on the proposal and is assessing what a rates cap could mean for our ability to sustainably deliver services and infrastructure. We will continue to advocate for settings that recognise the different pressures and circumstances faced by communities across the country. 

You can read Council’s submission here: 

Horowhenua District Council - Submission on Rates Capping model(PDF, 837KB)

Next steps 

• Public consultation on the proposal has now closed. 
• The Government is expected to make decisions in early 2026, with legislation anticipated later in 2026. 
• If progressed, the legislation could come into force from 1 January 2027, with councils required to take the rates cap into account from that date. 
• The full rates capping framework is proposed to be operational from 1 July 2029, at which point councils would be required to comply with the new system.  

Useful links 

• Local Government New Zealand – Rates Target Model Explainer(PDF, 162KB)