Explainer | Why Your Rates Keep Rising: How Local Government Funding Actually Works

Written by Andrew Yang

A higher rates bill can be difficult to reconcile with a road that still needs repairs or a library whose doors remain closed. Over the 12 months to June 2026, local authority rates and payments rose by 8.8%, compared with overall inflation of 4.1% (Stats NZ, 2026). For households across New Zealand already managing rising living costs, paying more invites an understandable expectation of seeing more reciprocated. Why, then, do our bills keep growing when so little appears to have changed? Answering that question requires looking at what councils are actually paying for, where their money comes from, and how these costs can benefit Kiwi families. 

Where the Money Comes From 

Rates are a tax on property that acts as a source of income, helping to fund roads, rubbish collection, libraries and parks. Councils also receive income from service fees, investments, government grants and subsidies, and contributions from developers towards infrastructure needed for economic growth. Having several forms of income, however, does not mean that all of it is available for the same purposes. A building consent fee helps cover the work of processing an application; a transport subsidy supports specified work. Rates help meet costs spread widely across a community. Therefore, the rising pressure on them reflects both what a council spends and how much it can fund through other sources (New Zealand Productivity Commission, 2019). 

Large projects then introduce a further question: how much should today’s ratepayers be expected to pay for something that will serve a community for decades to come? A new bridge, for example, will benefit people who were not there to help fund its construction. Borrowing allows councils to offset these immediate costs by spreading repayments over time, giving future ratepayers both a share of the cost and the benefit. Therefore, borrowing allows for the cost to be spread more fairly, but future ratepayers inherit more than just the bridge. They also take on the repayments and interest, which must be met from rates or other council income alongside the upkeep cost of keeping everyday services running (New Zealand Productivity Commission, 2019). 

Why the Costs Keep Rising 

The cost of services can rise even when said services themselves barely change. Through a review of councils’ finances for 2023/24, the Auditor-General identified inflation, higher insurance premiums, increased interest expense and the cost of meeting new drinking-water requirements as contributing factors (Controller and Auditor-General, 2025, p. 9). For example, a council paying more to insure a library faces an additional expense without having extended a single opening hour. For residents, then, that spending is invisible. Without the general public ever knowing, maintaining what a community already has can require a larger rate contribution before any noticeable improvements; councils spend in an attempt to maintain the status quo. 

At the same time, council budgets also make room for infrastructure that has reached the end of its useful lifespan. Years of underinvestment have left many councils with ageing assets in poor condition, while growing communities require additional capacity (Controller and Auditor-General, 2025, p. 10). Replacing a worn-out pipe may leave a household with much the same service, but with less risk of failure. Deferring that work can ease the immediate pressure on a budget, although the need for replacement remains. When that work can no longer wait, councils must find money alongside their existing commitments. For some communities, rising rates are a cost of catching up. 

How the Bill is Divided 

Once a council works out how much it needs from rates, it must then decide how that cost will be shared. This is where budget becomes a household bill. General rates are usually linked to property values, whilst targeted rates fund particular services or projects. Some charges are fixed amounts, so those specifically do not depend on a property’s valuation. Council can also apply different rates to different property categories; residential and business land, for example. Property values help allocate the cost, but the council’s spending and funding decisions determine how much must be collected (New Zealand Productivity Commission, 2019).

Auckland’s 2025 revaluation illustrates why falling property value does not necessarily bring about a lower rates bill. Despite residential values falling by 9% on average compared with previous valuations, the council approved an average increase in residential rates of 5.8% for 2025/26. A property whose value fell below the average could nonetheless face an increase above 5.8%. Its valuation fell, but it accounted for a larger share of residential property values. What matters is how its value compares with other properties, alongside the total amount the council needed to collect (Auckland Council, 2025). 

What Keeping Rates Down Involves

By understanding these pressures, ratepayers are given a better basis for questioning how our money is spent. Councils need to justify their priorities and explain what additional revenue achieves. Equally, a promise to keep rates down needs an explanation of its own. Delivering the same service for less, reducing what is offered and postponing repairs can all ease immediate budget pressure, but leave a community in quite different positions. Therefore, assessing value requires foresight to look beyond the size of an increase to the choices that produced it (New Zealand Productivity Commission, 2019).

The Government is now seeking to cap rates increases to make them more predictable. An initial 2-4% target range would apply to growth in councils’ average rates revenue per rated property, excluding water services. Full compliance would be required from 1 July 2029 unless an exemption was granted. However, the distinction illustrated by Auckland’s revaluation still matters; individual bills could rise by more than 4% as the cap would apply to the council average. Greater predictability for ratepayers is the intention, but councils would still need to reconcile limits on revenue with the cost of the services they provide (Ministry for Cities, Environment, Regions and Transport, 2026). 

To get the obvious out of the way, keeping rates affordable matters, but so does the condition of the services they fund. A smaller increase offers little lasting relief if necessary work is just left to become more expensive. Equally, a larger bill demands more justification than rising costs alone; residents deserve transparency and a clear plan. Councils need to be able to explain what the money will achieve, why the cost is fairly shared, and what decisions mean for both present and future residents. 

References

Auckland Council. (2025, June 9). Rating valuations released to Auckland ratepayers. OurAuckland. https://ourauckland.aucklandcouncil.govt.nz/media-centre/2025/june/rating-valuations-released-to-auckland-ratepayers/?v=mc

Controller and Auditor-General. (2025). Insights into local government: 2024. https://ao.parliament.nz/2025/local-govt/docs/local-govt.pdf

Ministry for Cities, Environment, Regions and Transport. (n.d.). Proposed rates cap: Technical questions and answers for local authorities. Retrieved September 22, 2026, from https://www.mcert.govt.nz/our-work/local-government/local-government-policy/proposed-rates-capping-system/proposed-rates-cap-technical-questions-and-answers-for-local-authorities/

New Zealand Productivity Commission. (2019). Local government funding and financing: Final report. https://www.treasury.govt.nz/sites/default/files/2024-05/pc-inq-lgff-final-report-local-government-funding-and-financing.pdf

Stats NZ. (2026, July 21). Annual inflation at 4.1 percent in June 2026. https://www.stats.govt.nz/news/annual-inflation-at-4-1-percent-in-june-2026/