Taituarā has made a submission to the Department of Internal Affairs on the Government’s proposed rates target model, raising concerns about how the model would work in practice and the potential impacts on councils’ ability to fund essential services and infrastructure.
The submission focuses on whether the proposed model is workable, transparent, and aligned with the realities councils face.
Rates remain councils’ main funding source
Rates make up around 60 per cent of council revenue, funding core local services such as roads, water infrastructure, parks, libraries and community facilities. Taituarā notes that any changes to how rates are constrained or monitored need to reflect the critical role rates play in supporting local communities.
The submission also highlights that councils are operating in a challenging environment, with rising costs, increasing service expectations, and multiple reform programmes underway at the same time.
Concerns about how the model is designed
A key concern raised by Taituarā is that the proposed model relies heavily on headline inflation and national economic indicators, which do not reflect the real cost pressures councils face.
Infrastructure and construction costs, in particular, have increased much faster than CPI. Taituarā cautions that using broad national measures risks underestimating councils’ actual cost drivers, potentially limiting their ability to maintain and renew assets.
The submission also notes that the model applies a largely one-size-fits-all approach, despite significant variation across councils. Growth pressures, population change, and service demands differ widely between regions, and Taituarā argues the model does not sufficiently recognise these differences.
Risks to infrastructure and long-term planning
Taituarā highlights international evidence showing that strict rate limits can lead to deferred maintenance and under-investment in infrastructure, increasing long-term costs for communities.
There is also a risk that councils constrained on rates may shift towards higher fees and charges, changing who pays for local services and potentially reducing access for some communities.
The submission notes that artificial constraints on revenue can affect councils’ financial sustainability, including their credit ratings and borrowing capacity, which are essential for funding long-term infrastructure investment.
Need for clarity and independence
The submission raises concerns about the complexity and transparency of the proposed model, including how targets would be calculated and applied.
Taituarā supports the principle of an independent regulator, but stresses the importance of clear, simple methods that councils and communities can easily understand. It also notes the need for clarity about how the model would interact with councils’ existing statutory obligations, including requirements for balanced budgets and prudent financial management.
Recommendations for improvement
While acknowledging the intent behind the model, Taituarā has recommended a number of changes, including:
- Greater flexibility for the regulator to respond to genuine cost pressures and external shocks
- Broader and more relevant cost measures, particularly for infrastructure and construction
- Adjustments that better reflect population growth and density
- Clear exclusions for services and funding mechanisms already governed by other legislation
- Early guidance to support councils preparing their next long-term plans
Supporting sustainable local government
Taituarā’s submission recognises the Government’s focus on affordability and accountability, but emphasises that any rates framework must also support long-term planning, infrastructure investment, and local decision-making.
