Council rate increases will be capped at 4 per cent under proposed legislation aimed at easing financial pressure on households and businesses.

Local Government Minister Simon Watts said councils would initially be required to keep annual rate increases within a target range of 2 to 4 per cent.

“For too long, ratepayers have been hit with steep and unexpected rates increases, adding pressure to household budgets at a time many New Zealanders are already feeling the squeeze,” Watts said.

“Our Government is focused on easing cost-of-living pressures and getting councils back to basics.”

Watts said the cap would give ratepayers greater certainty and encourage councils to focus on essential services, including road maintenance, rubbish collection, pools and parks.

Ratepayers nationwide had faced median increases of 14.2 per cent and 9.2 per cent during the past two years, he said.

“This rates cap is about driving greater fiscal discipline, keeping rates affordable, and ensuring councils are focused on delivering the services ratepayers rely on.”

The target range would include a minimum increase of 2 per cent, which the Government said would help councils continue providing essential services and investing in infrastructure.

However, councils could apply for time-limited exemptions in exceptional circumstances, including when recovering from a natural disaster or responding to events beyond their control.

A second exemption would be available when a council could demonstrate prudent financial management and a justified need to set rates above or below the target range.

Watts said exemptions would not be granted lightly and councils would be required to consult their communities before setting rates.

Water services would be excluded from the cap and would continue to be regulated separately.

The legislation would also establish an independent regulator responsible for monitoring compliance, considering exemption applications, advising on future target ranges and guiding councils through the transition.

The 2 to 4 per cent range would be reviewed every six years and could be adjusted to reflect costs outside councils’ control.

Councils would need to consider the proposed range from July 1, 2027, when preparing their long-term plans. The caps would take full effect from July 1, 2029.