Rates capping risks undermining regional services

The delivery of critical services and infrastructure – like public transport and flood protection – will be compromised in the Wellington Region unless the Government reconsiders its proposed rates capping model, Greater Wellington says.

In its submission on the proposal, the regional council warns the model does not reflect the cost realities of local government. Its recommendations include:

• Replacing economic indicators to reflect council cost drivers and circumstances.
• Adopting benchmarks that better reflect local government inflationary and financing pressures.
• Enabling councils to adopt asset condition as a core economic indicator. 
• Combining independent oversight, transparency, and flexibility into a sustainable rating model.
• Excluding public transport expenditure; or allowing rates increases aligned with NZ Transport Agency cost indices to fund public transport operations, to reflect mandated cost drivers and minimise the need for recurring variation or exemption processes.

“This model will ultimately harm the very communities it seeks to protect,” says Greater Wellington Chair Daran Ponter. “While we understand its intent and support the need for lowering the rates burden on our communities, the model does not reflect the environments councils operate in.

“Our region faces unique challenges, from major infrastructure renewals, like the Tūhono trains programme – to building resilience from natural hazards, including RiverLink for which Greater Wellington has committed $295 million so far. 

“A blunt cap will undermine our ability to protect our communities and deliver the essential services they need.”

The submission argues that the model’s benchmarks, the Consumer Price Index (CPI) and Gross Domestic Product (GDP), are poorly aligned with council cost drivers, which include construction inflation, insurance premiums, and financing costs – factors that routinely rise faster than consumer inflation.

The submission also warns that the proposed 4% maximum cap would constrain the region’s ability to deliver major projects such as Te Wai Takamori o Te Awa Kairangi / RiverLink, which alone represents approximately 7% of projected future rates increases. To increase affordability, local government needs different funding tools and shared funding from Government. 

“The benchmarks don’t align with the inputs councils actually use to plan responsibly,” says Greater Wellington Finance, Risk and Assurance Committee Chair Yadana Saw.

“We all know that using the wrong tools can lead to costly or dangerous consequences. In this case, ever expanding funding gaps will expose communities to harm from natural hazards like floods and slips, as well as economic decline through the degradation of public transport.

“CPI and GDP may be useful macro-metrics, but they bear little resemblance to the costs we face renewing infrastructure, complying with national standards, and delivering services. The model proposed by the government needs a lot of refining by experts within local government if it is to succeed.”

Rather than a model that sets rigid limits, the submission proposes a transparent and flexible rating system with independent oversight, that recognises asset condition as a core economic indicator.

It calls for lessons to be learned from Australia, where hard caps led to under investment and administrative burdens, and points to more balanced regulatory models such as the framework overseen by the Essential Services Commission of South Australia.

Greater Wellington Public Transport Committee Chair Ros Connelly says public transport should be exempt from the model, or affordable rates increases to fund Metlink operations should be allowed. 

“Public transport makes up around 63 percent of our operating expenditure and is largely set by national funding agencies and market forces, meaning we have limited ability to control this cost,” Cr Connelly says.

“Public transport is critical infrastructure that allows cities to grow and businesses to thrive. It provides a low carbon transport solution, while allowing individuals who cannot or choose not to drive to travel and participate in our community.  

“A rigid cap would leave us choosing between service cuts, pushing more costs onto users, and creating more reliance on cars. None of these are acceptable choices for community wellbeing, economic health, or climate sustainability.”