Post-Cabinet Press Conference: Monday, 1 December 2025

Well, kia ora and good afternoon, everyone. Today I’m joined by Local Government Minister Simon Watts to announce our Government’s plan to introduce a rates cap. Recently, I signalled that local government was in for a shake-up, and the first part came last Tuesday when we announced that our Government is proposing to abolish regional councillors to simplify local Government. The second part is the rate caps that we are announcing today.

But first I’d just like to provide a little bit of context. When our Government took office in 2023, inflation was running at 5.6 percent and the official cash rate was 5.5 percent. As a result, household budgets were being hit by higher prices for everything and steeper mortgage payments. Households and businesses were having to make tough choices to rein in spending and to live within their means, and as responsible stewards of the economy, our Government did exactly the same. My team set to work to fix the basics in the economy by restoring the fiscal discipline that the Labour Government had abandoned and stopping the wasteful spending that had gotten out of control under their watch. The result is that two years on, inflation now sits at 3 percent and as of last Wednesday the OCR is at 2.25, the ninth cut by the Reserve Bank since we took office.

However, while inflation and interest rates have been falling under our Government, council rates have continued to shoot upwards. The average council rates increase for 2025 is 9.2 percent, which is three times annual inflation, running at 3 percent. Rates are making up an increasing share of household bills, with some communities facing double-digit increases year after year. This is unsustainable, and it’s adding significantly to the cost of living burden that Kiwis have been grappling with.

The message we are hearing is clear. Ratepayers are fed up. They’re tired of having to prudently manage their own budgets while rates continue to go up, only to see their local council fail to demonstrate the same fiscal discipline. They’re sick of seeing their rates being spent on nice-to-haves rather than must-haves, building fancy public toilets rather than fixing the pipes, or installing endless speed bumps rather than maintaining the roads. Many of our newly elected mayors and councillors campaigned on keeping rates low and that is proof that ratepayers want a better deal, and they do deserve a better deal. Ratepayers deserve councils who live within their means, stay focused on the basics, and remain accountable to their local community. The Government’s decision to introduce a rates cap will support that ambition, and help protect local Government’s social licence for the long term. And with that, I’ll hand over to Simon to take you through some of the detail of the rates cap model.

Well, thank you very much, Prime Minister. Today the Government is announcing proposals for a rates cap model to keep rates affordable for households and businesses. This is a win for ratepayers who are sick and are tired of skyrocketing rates increases with little to show for them. Our message to councils is clear: focus on the basics, live within your means, and be more transparent and accountable to the communities in which you serve.

The proposed model is designed to keep council rate increases affordable for households and businesses, while ensuring councils can maintain essential services and invest in infrastructure. The model sets a target range for annual rates increases based on long-term economic indicators like inflation and GDP growth. This approach balances affordability for ratepayers with the need for councils to maintain essential services and afford sustainable expansion. Analysis suggests a range of 2 to 4 percent per capita per year would provide a credible long-run guide for sustainable council revenue growth: 2 percent aligns with the midpoint for inflation, and 4 percent reflects long-term economic growth. The rates cap model will apply to all councils. It covers all sources of rates - general rates, targeted rates, and uniform annual charges - but will exclude water charges and other non-rates revenue.

Starting today, targeted consultation with stakeholders to finalise implementation and legal details will run through to February 2026. Legislation is expected to be enacted later next year. These new rules will be a big change and to many councils they will need time to adapt, which is why there will be a transition period starting from 1 January 2027. From 2027, councils will be required to consider the impact of rates cap on their long-term plans and report on areas of financial performance like the cost of wages and salaries, council rates as a percentage of local house prices, and estimates of local infrastructure deficits.

The full regulatory model will take effect by 2029. However, officials will be monitoring rate rises nationwide as soon as the legislation is enacted. Where councils propose increases beyond the proposed cap, this may present grounds for an intervention under the Local Government Act. I want to be clear with councils that they should not wait for the enactment of the rates capping model before controlling rates increases to their constituents. The responsibility of prudent financial management is not conditional on central Government legislation. Councils have the tools, the mandates and the direct relationships with their communities to be looking at every line item from today. We expect to see local leaders demonstrating fiscal discipline now, reviewing non-essential spending and seeking efficiencies in service delivery and prioritising core infrastructure.

I would like to acknowledge the members of the independent reference group, led by Cameron Bagrie, that helped develop this policy. And I’ll now hand back to the Prime Minister.

Well, thank you Simon. We’re happy to take your questions but can I suggest we start first with the announcement and then we’ll move to other questions of the day?

Yeah, so first and foremost, what we’re doing is we’re doing it within a band. Simon, maybe you can talk about some of the details, but really we’re anchoring it in two things. The advice has been to say, “Look at the, you know, medium-term inflation, around about 2 percent, look at long-run economic growth, even up to 4 percent, and say that we’re within that band.” Now, as to what’s calculated, do you want to talk a little bit more about that?

We will be undertaking consultation, which will finish in February. We expect that the review of that band will occur every three years.

So, the range, at the bottom end of the range will be the midpoint of the target inflation band, which is obviously 1 to 3 percent, and that will apply to national CPI. At the upper end, in terms of the 4 percent cap, that is based on a long-run GDP which, to be honest, over the last 35 years, has sat in the region of just over 5 percent. But when you take out aspects such as population growth, you get down to the 4 percent number.

That’s correct, yes.

Well, ultimately that’s a decision for each individual council to make. In the same way that families have had to make do with the budgets that they’ve got and the revenue that comes in and the income that comes in, they have to deal with their expenses, the same way that Government is doing that in central Government, we expect local governments to do the same thing. You know, I think that suffice to say, you can see in the last round of electoral results that actually the public are really wanting, and the ratepayers are really wanting low rate increases, and I think you’ve seen a number of politicians come through in that regard, you know, a number of councils wanting to anchor future rates increases at around the 3 percent level.

So, you know, from our point of view, you know, what we’re trying to make sure is that, like everything, you can do—as we’ve proven in Government, you can take the same school budget but by virtue of having standardised classrooms, deliver twice as many classrooms for the same amount of money. And so the question is—it’s what you do with the dollar and how you manage it and how efficient you are with it, that we’re expecting all councils to do now.

Yeah, well, first and foremost, we expect that that would only be in exceptional circumstances. If you envisage a natural disaster or something of that quantum would be a consideration. So the process would be that an individual council would need to make an application to the regulator providing sufficient information in regards to the cause and reasons of why they are requiring to exceed the 4 percent cap band, including and importantly their plan to get back within band. It would be the expectation of the regulator to ensure that that is over a defined period of time, which is important for the credibility of the scheme. But in other circumstances such as particular infrastructure deficits and other aspects—again, in exceptional circumstances. So it just is an acknowledgement that there will be times where that may be required. And some of the learnings that we’ve put in place by looking around the world, that has helped us to inform that policy.

It would depend on the event. It would depend on the event and the nature of that issue or, you know, how much damage was caused. But I think what Simon’s saying very clearly is: look, we expect—it’s not unreasonable, two to four percent. Be within the band going forward from here on through, immediately. Yes, it gets strengthened as we pass through the different—through the parts, the different gates of law, but also we’ll have some flexibility if there’s obvious things that we, you know, need to deal with, like, that come up unforeseen. But equally, we do expect people to deal with those exceptions for a while, and then we expect people to be back in the band again.

Well, again, you know, the Three Waters assets are outside this remit of the rates band, right? So we’re saying we’ve already put, you know, a programme in place to make sure we get long-term debt financing in place for long-lived assets. That’s a natural way that things should have been organised. They weren’t organised that way. Essentially, that’s what Simon’s created with the CCO model and actually creating proper water entities that then can borrow greater than what councils can, for assets that are 30, 50, 70 years long. You know, this is a level of sophistication that we’re having to bring to local government. There’s funding and financing tools that are available that they haven’t been deploying. We’re doing things like making sure development levies are possible. We’re making sure that long-term debt financing is in place and available to them as well, so that they can actually do that proper capital investment in the way that they should be doing it, not funding capex investments out of opex expenditure.

Well, you’ve seen us announce, you know, just last week with Chris and Simon talking about the Going for Growth where actually, you know, growth pays for growth. You know, I think that’s a good example of what we’re talking about in terms of new tools being available. But as we’ve said for this term, you know, a bed tax is not something that we’re considering at this point.

Sorry, again, you know, we’re not—we haven’t had those conversations at this point in time. We acknowledge that there might be—you know, we’re acknowledging that, you know, we can have those conversations, but the point is we want councils to focus on the money that they’ve got and make sure they’re doing a much better job of managing it. Some councils are doing a really good job. Some councils are doing a very, very poor job.

Yeah, well, we’ve taken it very seriously and that’s why we’ve had an independent reference group advising on the policy design, led by Cameron Bagrie. That also included representatives from Australia who had experience in the models that were adopted over there. We had representatives from local government here in New Zealand as well. It is important to acknowledge that the model that we’re adopting, to our knowledge, is actually one of the first in the world to adopt, in effect, a range or a target range basis. We’ve taken considerable learnings from other jurisdictions of where it hasn’t been effective.

I think when you stand back and look at what we’re doing here, first and foremost, we want to protect ratepayers. The fact of double-digit, significant increase in gross, particularly for those on fixed income, just is not sustainable and is not appropriate. The model we’ve put in place puts in place a range and we believe that it will be able to derive a stable and positive outcome for ratepayers. And it is predicated on the model that the Reserve Bank use for inflation, and that is an effective mechanism as well.

Look, we are confident, and I think you only have to look at the outcome of the recent local government elections and seeing the changes in personnel, primarily for individuals that were campaigning on reduced rates. So I think, you know, the democracy process has already fed in a number of new individuals. We’re now putting in a mechanism to enable them to operate with, in effect, guardrails. But at the end of the day, you know, we’ve set a clear signal around expectation. We’re helping them with also the systems improvement work around what we define as the basics. We’re doing other elements of reform, such as the water treatment consent standards that I announced in the last 48 hours, that take $1 billion of costs off local government, so think about this as a package for local government. But at the end of the day, this is about protecting ratepayers and ratepayers’ ability to be able to pay and contribute to that infrastructure, and that has to be [Inaudible].

Sorry, can we go to Adam?

My expectation is there’s sort of a couple of phases to this. The first is by today, you know, we’re making it very clear to councils, as we have been over the last 12, you know, 24 months: focus on the basics, get yourself within the 2 to 4 percent sort of band. As we enact the legislation that will come into effect 1 January 2027, we expect that councils are then basically got the training wheels on and they really are getting into the 2 to 4 percent band . And then by the time we come to 2029, we’re taking the training wheels off and they are now expected to be well and truly within that. From 2027 onwards, we can make interventions through the Local Government Act, for example, and there’s a number of remedies. Simon, do you want to talk about one or two of them?

Yeah. I mean, I think if you stand back and look, you know, New Zealand’s not got low productivity because councils were too disciplined, right? We’ve got in place a model here which is making sure that we’ve got a disciplined model around the range of caps, and we accept in the context of exceptions and process around that, that they are in exceptional circumstances. The Local Government Minister does have powers to intervene, as you saw what we did in Wellington in regards to a facilitator in that area. But again, that is an intervention that we want to use sparingly and seldomly. I have confidence in the local government sector, with the changes you’ve seen come through after the last election, that we’ve got individuals in place that understand the need to protect ratepayers and make sure rates are affordable, and we’re supporting them with this guidance.

So we’re going to be consulting and looking at the regulatory model that will come into play to deal with the specific rates capping that will be in place when we legislate by the 1st of January 2027. That may include additional ability for us to deal with those circumstances. But right here, right now, I do have powers as Minister around financial management of councils that, should we deem that appropriate to use, we can use. As I said, we use that seldomly, and in the times we do use it, it’s been reasonably effective.

Well, I think you’ve only got to go back to the point of what you’ve seen in terms of local democracy. We’ve seen a significant transition of new mayors and councillors in on the basis that they have campaigned for lower rates. I think at the end of the day, if in a hypothetical scenario that a council’s going to, you know, do something like that, I think the reality is they’d do so at their peril. You know, what we’ve seen is, you know, a large number of people have come into local government this year campaigning on low rates. We’re supporting them around the systems improvement, around focusing on the basics. Think about that as a package.

And I think—sorry, I think, Craig, when you’ve got inflation at 3 percent and you’ve got rates increases annualised at over 9 percent, three times the rate of inflation, you know, there’s something going wrong there. We’ve got councils that actually are expressing, post the elections, a desire to get into the band. You know, a couple of councils have talked about 3 percent as a target for where they want to go to. You know, that’s what we’re expecting them to do.

Well, we’re putting a range in there of 2 to 4 percent and giving them a target to shoot for. I think that’s an innovation that actually hasn’t existed in schemes that we’ve seen anywhere else around the world. I think that’s been the real benefit of having a bunch of five experts that have been working with Simon on this over the last wee while to say, “Look, we think we can make this work”, and I think the boundaries, the minimum and maximums actually sort of make sense.

So, you know, it’s not a surprise. I mean we are saying to everybody, look, this country has a productivity challenge. One of the major issues is RMA, and linked to that very closely, the companion piece to that is local government. We’ve got three layers of government. We’ve been over-governed, too much bureaucracy. We’re not getting things done. So that’s why we talked about removing regional councillors last week. That’s why we’re moving forward with RMA reform before the end of the year. That’s why we’re now moving forward with rates caps, because we’ve talked about doing the basics brilliantly. Good councils, good mayors are running their councils incredibly well and doing a great job, but there are others that need to step up their game, build their financial literacy, manage their balance sheets better, and think about where the money goes.

Well, look, the reality—and the independent reference group looked into this as well—it is simply acknowledging that actually there is a requirement for councils to invest and maintain assets that they have, and campaigning on 0 percent in the context of asset renewal was not necessarily going to be in the best interests of our long-term renewal. Some of the deficits that we were in the position of around infrastructure are a result of some of that aspect. Likewise, on the upper aspect, it’s aligned with economic growth. Local government is an enabler of economic growth as well and we want to make sure that they are also playing their part to support our broader growth agenda.

The minimum is 2 percent and the cap is 4 percent.

Right, Bridie, sorry, I thought you had a question.

Well, essentially, households are managing that. Businesses have been managing that. Central Government has actually had a tax cut and actually, you know, lowered taxes under this Government, and councils are still growing their rates over 9 percent, three times inflation. That doesn’t work for us. You know, we need to make sure that we’re acting on behalf of ratepayers. You know, think about the superannuitant there that’s on a fixed income that’s dealing with a 9 percent rate rise. Think about the young people that have actually stretched into a big house and a big mortgage and then can’t afford the rates bill. Think about some of the dumb stuff that’s happened. Here in Wellington we’ve had a classic, a $2 million-plus public toilet block with a light show, for goodness’ sake. We have jumped the shark at that point in time. So I’d just say to you we want things to get back to basics. It’s consistent with the messaging that we’ve been given right from day one, that we’re enacting here in central Government and we quite rightly expect that local Government will do exactly the same.

Well, as I said, we’ve picked a number that’s bounded by, you know, medium-term inflation and long-run economic growth, and I think pitching somewhere in the middle with a band rather than with a, you know, just a single number and a single cap is actually a smarter way to go about it. I think we’ve been well advised. We’ve had a number of people on that five-person panel from overseas, from local government, from economics, that have actually been working with Simon to build that model. And we’re supporting local governments to go through that transition because we want this to be enduring. We want this to be able to provide the riverbanks to say, “Within that, you feel free to articulate and make the investments that you need to make”. We’re also putting a number of things like big capital expenditure and Three Waters outside of it, so that’s being managed, I think, entirely appropriately. But we’re just lifting the professional management of a set of resources that ratepayers provide to make sure maximum value and maximum efficiency is being delivered.

Well, just actually better management. You know, stop doing dumb stuff, you know? Did you need to spend $2 million here in Wellington on a public toilet block? No, you didn’t. Do you need to spend money on, you know, judder bars, and, you know—rather than actually fixing roads? So, I mean, this is going to force—you know, when you’ve got scarcity, you know, as we find in central Government, having inherited the mess we got from the Labour Government, you know, when you’re actually paying a $9 billion interest bill and that’s, you know, four or five Dunedin Hospitals you can’t build each and every year because of that interest bill, thank you, Labour, we end up having to make some tougher choices. And you have to be more intentional about what you’re going to do with the money that you do have, and that’s all that this will force local governments to do as well.

Well, again, each council’s got a slightly different situation. As I’ve said, you know, partly what Simon’s been doing is by bringing balance sheet separation but also having local control over Three Waters assets, he’s enabling them to actually borrow long-term and secure long-term debt finance, which is the right way to fund a long-term asset. When you buy a house, you take out a 30-year mortgage because you pay a little bit off each time. Well, actually, then you’ve got some consistency in your planning, and that’s giving a much more strategic and a much better approach to managing, you know, Three Waters assets.

And then with respect to rates, which is the, you know, classic operational expenditure of a council, you know, we’re saying: look, there’s some pretty reasonable guidelines in there as to how you should be thinking about it. Inflation, growth. That’s not an unreasonable place to get to. So, you know, I want to see the literacy step up in terms of balance sheets being, you know, not lazy, but being well utilised. I want to make sure that people are using and accessing debt finance in the right way, that they’ve got good, healthy levels of, you know, revenue-to-debt ratios and all those sort of good financial measures and metrics. Some councils really understand their finances very well. Some don’t.

If I could just add to that, sorry—

Sorry?

Sorry, PM.

Well, why would they choose to do that, if they’re delivering for their rate payer?

Well, a council will make its own decisions, but what we’re saying is there’s a band of rates increase that will actually enable them to run their city or their council, and we would expect them to make those choices. As I’ve said to you before, you know, you can do dumb things with the same amount of money, you know, and you could actually deploy money in a much smarter, better way to get a better outcome for people as well.

Well, those are decisions for councils. I mean the bottom line is, you know, we subscribe to a minimum wage. That’s what we—is the law of the land. And if, you know, if their council, for goodness’ sake, decide they want to put extra money into that, that’s a decision for them. I would have thought it might have been better into something else, you know, but that’s a choice that they’ll get to make. But as long as they’re within the bands.

Well, I don’t see why that would need to be the case. We’ve got a transition period between now and 2029, when the law is fully enacted. The law gets enacted in 2027. Again, councils have a pool of money coming in, and just like Government does, just like families do, just like businesses do each and every day, in very difficult and tough times, you make choices about where you’re going to spend your money and where you think you get the best return and the best service that you can offer your ratepayers, or taxpayers in our case as well. So we have made decisions, for example, in central Government, to save $40 billion in the back office of this Government over the last two years, and we have deployed those funds into learning support education, into healthcare. And so those are examples of choices where we actually choose to do different things with the money than a previous Government did, and councils are free to do the same thing.

So, within our independent reference group we did have representatives from local government and who have worked in local government as part of that group. I want to go back to the question that you noted. Nobody here is capping infrastructure. We are capping inefficiency. It’s really important to draw that distinction. And so the engagement model that we’ve had from those within local government has very much been enabling and supported the formation of this policy. How is this going to work in practice? But that’s also why we’re going to also do a period of consultation to work through the legalities, make sure that this is going to land. It’s critically important for ratepayers that they have certainty and we want an enduring policy response, as again, this is an innovative approach modelled on something that works very effectively in the other aspects of the economy. And again, if ratepayers have certainty, particularly those on fixed income, then it takes away a lot of pressure and stress that they have in their lives, particularly around the impacts of this on cost of living.

I think you’ve got to understand that reform done fast and without care costs ratepayers more than reform done properly. This is significant reform, it’s complex, and, you know, we’re taking our time. It’s not slow, it’s staged, and that means that it is going to protect ratepayers from the very blowouts, I think, that we’re trying to fix here. We’re doing it in a staged manner, well thought-out, consultation. But I tell you what, if we can do this faster, then we absolutely will. And, you know, we’re going to get the legislation in play. We’ve got a transition period. But if there’s anywhere, any areas that we can identify to go faster and quicker, then, you know, you’ll have my commitment that we will be looking for those opportunities.

OK. Any other questions we want to move to before we close off the announcement?

No, I haven’t. It doesn’t sound like something I’d talk to him about.

No, not at this point. Not that I’m aware of, no.

Of course we’d be open to supporting anyone, as we often do, as you saw in Papua New Guinea, and obviously our services are available.

Look, it’s ultimately an employment matter. As you know, the Public Service Commissioner is the employer here. I know he’s working through it and I would expect him to say something shortly.

Again, that’ll be up to him, but I’m just expecting that. I know he’s been working through that issue.

Well, again, I’m not the employer, he is the employer, and in fairness he needs to go through due process and proper employment—it’s an employment matter and it needs to be managed as such.

Again, I’m not going to get ahead of it. You know, the Public Service Commissioner is doing his—treating this as an employment matter, as I’ve said before. It’s up for him to make that decision and to work out where he’s going with that. But it’s really over to him. It’s an employment matter at this point.

Look again, those are matters for the Pharmac board, who obviously employ the management team. As you can imagine, we don’t employ the public service staff, and in this case, you know, the executive team associated with Pharmac. There’s a board that does that job. It’s really their decision, and it’s them with their employment contracts that they have. But, yeah, it’s a lot of money.

Yeah, that’s something that we have had a previous conversation with the Public Service Commissioner about, is getting some consistency into CEO contracts over time.

Well, just making sure that we actually have a common template for those employment agreements and contracts, which would be normal practice in the private sector.

Well, I think it’s metaphorical but I think I’ve got a lot of sympathy for the reality that a capital gains tax will be an absolute disaster for New Zealand. What you’ve seen from a Labour Party is actually a confirmation that they’re going to carry on with the strategy they had last time they were in power: spend more, borrow more, tax more. It’s as simple as that. And that’s what got us into this mess. That’s what we’ve spent a lot of time fixing the basics to get ourselves out of this mess so that we can actually build out the future.

I think—I think if you—if you really—I wouldn’t take it literally, I’d just say he’s expressing very strongly that actually what happens is that actually it limits opportunities for New Zealanders. And I think that’s—you know, as we’ve seen over the last wee while, when spending gets out of whack, when taxing and borrowing gets out of whack, when New Zealanders now have to pay a $9 billion interest bill, thank you to Chris Hipkins and Labour, that denies a lot of opportunities that we could actually be building with more schools, roads, hospitals and support services for Kiwis. OK. Thank you, team. Appreciate it. Have a good week, take care.