Rates capping, also known as rates pegging, has been a contentious policy in New South Wales and Victoria for years. It limits councils’ ability to increase rates beyond a fixed percentage, ostensibly to protect ratepayers from excessive rate hikes. While the intention may be to create affordability, the policy often comes with significant challenges that can hinder councils’ ability to serve their communities effectively. Discussions about introducing similar measures in New Zealand make it worth examining the consequences rates capping has had across the Tasman.
One of the most pressing issues with rates capping is its impact on long-term financial sustainability. Councils rely on rates revenue to fund essential services and infrastructure, from road maintenance and waste collection to parks and community facilities. A fixed cap often fails to account for inflation, population growth, or the rising costs of delivering services. This forces councils to either cut services, defer critical projects, or find alternative revenue sources, which can disproportionately burden certain ratepayers or lead to increased debt.
Rates capping also undermines local decision-making. Councils are closest to their communities and best positioned to understand their needs. By imposing a blanket limit, rates capping removes flexibility and ignores the unique challenges faced by individual councils, such as those in rapidly growing or ageing populations.
NSW and Victoria offer cautionary tales. In many cases, rate capping has resulted in deferred maintenance and underinvestment in infrastructure, creating a backlog of issues that become more costly over time. Additionally, it has placed a strain on councils’ ability to adapt to emergencies or unforeseen economic pressures, such as natural disasters or economic downturns.
Introduced rates capping could pose similar risks for New Zealand, particularly in regions experiencing fast-paced growth or unique challenges. Ensuring that councils can maintain financial autonomy and plan for the future is critical to avoiding the pitfalls seen elsewhere.
Fostering transparency, community engagement, and robust financial planning processes may be a better approach than rates capping. These approaches empower councils to balance affordability with sustainability while maintaining the trust and confidence of their communities.
If your council is grappling with the implications of rates capping or exploring proactive financial planning strategies, contact Ibis Information Systems today. Our expertise in rates modelling and long-term financial planning can help ensure your council navigates these challenges effectively.
