Whoever wins the election inherits a rates bill nobody will own

Councils are not on the ballot this year, but the 2026 general election will shape how local government is run and funded for years to come. Both tiers of government have spent the better part of a decade pointing at each other over rates, pipes and potholes. Voters, it turns out, have stopped caring whose fault it is. Businesses should care even less, because they pay either way.

Voters have picked a side

Fresh polling released by Local Government New Zealand this week found two-thirds of voters think central government should fund the costs it creates for councils and ratepayers. Only 11% disagree. LGNZ President Rehette Stoltz says “the public has recognised councils unfairly bear the brunt of reform” and wants an end to “policy flip-flopping that wastes money and leaves communities with nothing to show for it”.

She has a point. LGNZ cites Tasman District Council, where spatial planning obligations under the new resource management system are eating 1-2% of rates revenue. That is a central government rule, paid for by local ratepayers. The same poll found just 19% want central government deciding how councils are reformed or sized, so any incoming government planning a top-down restructure should expect resistance.

The debt pile keeps growing regardless

The most recent Audit Office figures show how deep the hole already is. Total council debt hit $29.9 billion in 2023/24, up 15% in a single year and double the 2017 level. Auckland alone carried $12.9 billion. Operating spending came in 14% over budget, finance costs 13% over, and most councils missed their balanced budget benchmark. Rates brought in $8.7 billion, 45% of all revenue.

Then look forward. Across 58 audited long-term plans, councils are forecasting $91.9 billion in capital spending between 2024 and 2034, 34% more than the previous decade’s plan. That money gets borrowed, and borrowed money gets serviced through rates.

The same report shows the cost of Wellington changing its mind. The repeal of the Three Waters entities forced every council to produce its own water services delivery plan by September 2025. Councils carried the transition cost and risk. Ratepayers carried the councils.

Everyone agrees it is broken

The striking thing is how little disagreement there is about the diagnosis. In 2023, then-Local Government Minister Kieran McAnulty accepted the finding that “rates, as the sole source of revenue for councils, is unsustainable” and admitted central government had told councils “to do more, but not funded you to do it”. He also predicted the outcome would depend on who held power. Three years on, the review’s 17 recommendations remain largely a reading list.

In 2025, Campbell Barry, then mayor of Lower Hutt, put the national infrastructure deferral backlog at roughly $52 billion and argued that removing GST from rates would cut the average bill by $450 to $650. He also noted Crown-owned schools and hospitals pay no rates, costing his city alone $20-30 million a year.

The problem is not new. Treasury’s 2024 report recorded that back in 2016 councils were already running $9.3 billion of operating expenditure against $8.9 billion of income. A 2024 analysis put average council debt-to-revenue ratios around 180%, well above comparable northern European authorities.

Councils are not off the hook

Letting councils play victim would be too easy. In 2025, the New Zealand Initiative’s Nick Clark warned newly elected councils faced a “perfect storm” of double-digit rates rises and unsustainable debt, demanding “brutal choices: which services to cut, which projects to abandon”. Blowing operating budgets by 14% is not an unfunded mandate. It is a cost control problem. More money from Wellington without more discipline at the council table simply moves the bill from ratepayers to taxpayers, who are mostly the same people.

What business should watch for

For firms, rates are an occupancy cost that compounds. A decade of heavy capital spending financed by debt means rates pressure is baked in regardless of who wins. Developers and tourism operators face a further risk: infrastructure sequencing that shifts every time a government changes its mind.

The tests for the parties are concrete. Will they commit to costing new obligations before imposing them on councils? Will they rate Crown land, or share GST on rates? Will they enable alternative tools such as tourist levies and congestion charging, while holding councils to tighter spending benchmarks? A party that offers none of these is offering the status quo, which means more mandates, more debt and rates rising faster than incomes. The blame game is free for politicians. For business, it has a price, and it arrives every quarter.

Sources

• Stuff: Central and local government love blaming each other. Voters don’t care (2026-10-17)
• LGNZ: Majority say ratepayers shouldn’t foot the bill for government-imposed costs (2026-10-15)
• Audit Office: Part 2 – Councils’ financial performance in 2023/24 (2025)
• Audit Office: Part 1 – Our audits of councils’ 2024-34 long-term plans (2025)
• Newsroom: The government we elect will shape the councils that decide our rates, roads and water (2023-08-02)
• RNZ: Local councils and the battle for money (2025-05-26)
• Treasury: Local government funding and financing (final report) (2024-05)
• The Conversation: There is a ceiling on rate increases. It’s time to look for alternatives to local government funding (2024-04-04)
• NZ Herald: Rate hikes and reforms force councils into tough decisions – Nick Clark (2025-08-06)