Government needs to explain how councils are expected to bear the cost of amalgamation under its impending rates cap, Selwyn's Mayor Lydia Gliddon says.

Local Government Minister Simon Watts announced a 2-4 percent limit on rates rises will be in full effect by 2029, so councils need to begin incorporating the cap into their long-term plans.

The cap will apply to all rates, including general and targeted rates, but not water charges and non-rates user-pays charges.

Watts hasn’t addressed how councils will squeeze merger costs and the transition to take on regional council functions under the rates cap, Gliddon said.

It is one of the big questions government still needs to answer, she said.

“Taking on regional functions has real establishment, systems, staffing and transition costs,” she said.

“A four per cent cap cannot be looked at in isolation from the scale of reform councils are being asked to undertake.

“Constantly through the reforms we have talked about no unfunded mandates.

“It would be difficult to tell communities they must fund a government-driven restructure while at the same time being constrained in how they raise the money to do it.”

Where changes are mandated by central government, Gliddon said there is a strong case for central government to contribute to the transition cost.

“Selwyn ratepayers shouldn’t be left carrying the full cost of implementing a structure they did not initiate.”

Ashburton District Council chief executive Hamish Riach agreed that ideally any local government reform costs would be exempt from the cap. 

“But there’s been no indication that will happen”, he said.

He believes any new unitary council will simply have to inherit the regional functions and services within the cap.

In response, Watts said the Head Start process, where councils have proposed their own regional reorganisation and amalgamations, does not affect when the rates cap will apply.

“How the rates cap is applied to councils going through Head Start or other reorganisation processes will be addressed through the relevant legislation.”

Trying to fit the caps on now

Riach said government's intention is that a rates cap will become law in 2029 and “we will have to do that”.

“There’ll be some hard conversations coming up with the community about balancing services they expect with what can be achieved under a rates cap.

“It will presumably keep costs to the ratepayer down, but how we achieve that will only become apparent as we work through the budgets for the long-term plan.”

Riach also noted the cap requires a minimum two per cent increase as well as the four per cent increase, parameters that will be reviewed every six years.

In 2026/27 Ashburton’s rate rise was a 5.43 per cent average excluding water (9.15 per cent average including the 13 per cent increase in three waters costs).

Selwyn’s rise was 4.5 per cent (8.8 per cent once the 18 per cent increase in separate drinking water and wastewater charges is factored in).

Gliddon said the incoming cap will mean the council “need to keep tightening our focus on core services, value for money, and long-term affordability”.

“That direction is not new for us, we have already been working hard to reduce projected rates increases and challenge business as usual.

“A cap can help sharpen discipline, but it doesn’t make the underlying cost of infrastructure disappear.

“In a fast-growing district like Selwyn, the real test will be whether councils can still fund the roads, community infrastructure and services growth required without simply pushing costs into future years.”

There have been concerns that a cap will force councils to cut services, delay projects, or increase borrowing.

“Those are exactly the trade-offs we would need to work through openly with our community,” Gliddon said.

Those conversions were already happening as Selwyn is “building a long-term plan from scratch”.

“Our first step would always be to challenge costs, sequencing and priorities before looking at reducing services or increasing debt.”

Bye bye bed tax

Prior to the rates cap announcement, the National party announced it had scrapped its commitments over bed taxes.

Gliddon said a bed tax doesn’t have a big impact on Selwyn, but she was disappointed to see potential funding tools taken off the table as councils were simultaneously being asked to constrain rates and fund more infrastructure.

“I’m not wedded to any one mechanism, but local government needs a broader and more sustainable funding toolkit.”

Riach said the district did not have a huge number of Air BnBs “but rates capping means any additional revenue would be helpful”.