Can Councils be Capped?

The status quo is unsustainable

Cameron Bagrie is a proud son of Central Otago who’s become one of the most influential economic voices in New Zealand. Back near his old home town of Clyde this week, he told a business audience in Cromwell that local councils “just have to learn to live within their means.” He wasn’t making small talk. He was signalling a shift in the way local government is about to be run — and funded.

Bagrie is part of a small group of advisers helping draft new legislation to cap local authority rates rises. The goal is simple: rein in what has become one of the biggest and most consistent drivers of household cost increases. In the past year, local body rates have been a major contributor to inflation, pushing the Consumer Price Index above the 3 percent target band that the Reserve Bank is supposed to maintain.

Councils have treated ratepayers as a reliable source of fresh cash whenever costs went up. The result has been a spiral of higher spending, higher staffing, and grander projects — all funded by property owners who by law cannot say no.

Bagrie’s message in Cromwell to councils around the country was blunt: stop asking for more and start managing what you already have.

But that message doesn’t go down well in Wellington or council chambers around the country. Local Government New Zealand (LGNZ), the lobby group for councils, has launched a vigorous pushback against rates capping. They argue it’s a “threat to local democracy” and that it strips elected representatives of the power to decide how much to charge and what to spend. Their preferred framing is one of control: communities, they say, should determine their own investment levels, not have central government dictate limits from afar.

It’s a clever line, but it misses the point. Ratepayers aren’t angry about democracy. They’re angry about waste. When costs explode and projects stall, nobody in the public sector gets fired or held accountable. The bills just get passed on. Bagrie’s call for “asset recycling” — selling or repurposing under-used property and other assets to fund core services — is exactly what any sensible business would do in the same situation. Councils, he says, have to start looking at their balance sheets and ask what actually delivers value - either social or economic - and what doesn’t?

The Otago Regional Council (ORC) is a perfect case study. Under its new political reality — dominated by Michael Laws and his Vision Otago team with one time ACT MP Hilary Calvert now installed as chair — the council has promised a new era of restraint. Laws has talked about rates reductions and even suggested some senior staff might want to start looking for other jobs. Yet, at the same time, the ORC is moving into a newly refurbished Dunedin headquarters that has cost around $54.5 million.

The kicker? The building is owned by Port Otago, which is itself a 100 percent subsidiary of the ORC. In other words, the council is leasing a building from itself — at an annual rent of $2.59 million, locked in for up to 40 years.

Only in local government could that arrangement be dressed up as financial prudence. Ratepayers’ money goes out the front door as rent and comes back, in smaller doses, as dividends after the Port’s expenses and taxes. It’s circular economics at its finest — a paper shuffle that does nothing to ease the burden on households.

So when Bagrie talks about the need for councils to live within their means, the ORC’s new office is exactly the sort of example he’s referring to. If local authorities want credibility in the debate over rates capping, they need to demonstrate discipline — not sign themselves into multimillion-dollar leases that will outlive most councillors’ careers.

Yes, rates caps come with risks. If set too low or too rigidly, they can force councils to defer maintenance or cut essential services. But the current model — endless annual increases well above inflation — is equally unsustainable. Ratepayers are tapped out, and councils are part of the reason the cost of living remains stubbornly high.

The next few months will be telling. If the new legislation succeeds, local authorities will finally have to confront the kind of fiscal discipline that the rest of the country already lives by. For years, councils have said they can’t be expected to run like businesses. Maybe not. But they could at least stop running like monopolies.

As Bagrie put it, the time for excuses is over. Councils have to decide what’s genuinely for the public good — and what’s just self-interest wrapped in bureaucracy. And if that means fewer managers, fewer vanity projects, and a few less-than-comfortable job reviews in Dunedin, well — that’s what living within your means actually looks like.

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