Local Council Rates Surge to Unprecedented Levels Amid Economic Strain

Households across New Zealand are experiencing a historic increase in local council rates, with average payments rising by a staggering 34% during the 2022 to 2025 electoral term. This surge marks the largest percentage increase since the current local government system was established in 1989. The rising costs are compounded by higher interest rates, as indicated by the Reserve Bank, affecting many families already grappling with financial pressures.

According to an analysis by Newstalk ZB of data from Stats NZ, the current term’s rate hikes significantly exceed previous increases, which ranged from 8.8% to 23% over the last 11 three-year electoral terms. Notably, the previous term from 2019 to 2022, which was marked by the financial impacts of the Covid pandemic, saw an average increase of 18.4% in rates.

Economic Implications of Rising Rates

The escalation in local rates has had a direct effect on headline inflation, as noted by Paul Conway, chief economist at the Reserve Bank. He explained that as certain costs are excluded from the Consumer Price Index (CPI) basket, overall inflation figures appear lower. This dynamic results in reduced inflationary pressures and, consequently, lower interest rates.

Conway emphasized the complexity of these financial trends, stating, “It’s just maths. If you take things out of the CPI basket that went up quite strongly, then overall inflation is a bit lower.” He also highlighted the lag in removing fiscal support measures from the economic system, which contributed to sustained higher interest rates.

Former Reserve Bank governor Christian Hawkesby, who departed from his role recently, characterized the recent rate increases as an “echo” of prior years when inflation rates were high, albeit with more moderate increases.

Government’s Response and Future Plans

The rising costs of local governance have prompted Prime Minister Chris Luxon to announce plans aimed at capping future rate increases. Luxon asserted that the scale of these hikes is manageable, pointing out that, “Households have been managing that, businesses have been managing that, central Government has actually lowered taxes, and councils are still growing their rates.” He raised concerns for vulnerable populations, particularly those on fixed incomes or young families struggling with rising mortgage costs.

Significant rate increases have already been observed in various regions. For example, local rates in Gore surged by 21.4%, while the West Coast saw a staggering 27% increase. In the Greater Wellington area, Upper Hutt rates climbed by 19.93%, Wellington City rates rose by 18.5%, and Porirua experienced a 17.5% increase, in addition to a 20.55% rise in regional rates.

Amid these developments, the Government has proposed a major overhaul of the local government system established in 1989, which might result in the abolition of regional councillors and the potential amalgamation of certain councils. This proposal has met with significant opposition from some council leaders, particularly regarding the suggested caps on rate increases and restrictions on non-core spending.

The financial strain from these rate hikes, coupled with the implications of rising interest rates, underscores a critical moment for local economies and governance in New Zealand. As the Government moves forward with proposed reforms, the impact on households and businesses remains a pressing concern.