Budgets had been prepared within a climate of high inflation and interest rates, a report by Dunedin City Council staff said.
Mayor Jules Radich said yesterday having to present such a number to the Dunedin public was "distressing".
"I also know how upsetting this will be for ratepayers.
"Financial sustainability for Dunedin is the goal and it would be preferable for our city to be in a position to halt its ever-growing debt and forge a pathway to reduction.”
Councillors will discuss the report next week.
There will be debate, before a proposed 2024-25 draft annual plan - including a proposed rates increase - is approved for public consultation.
"Savings have been found across the organisation, but these have largely been offset by rising costs," the report for councillors said.
"This increase in rates will maintain current service levels but also pay for an increased level of service for a new kerbside collection service."
The council decided last month it would defer preparation of its long-term plan.
It will run just an annual plan for 2024-25, followed by a nine-year long-term plan, because of uncertainty about Three Waters and transport funding.
A revamped rubbish and recycling kerbside collection service starts in July, replacing the black bag system.
Of the suggested 17.5% rates increase, 4.4% would cover the cost of this new service, the council said.
The report had a high-level breakdown of what would drive a rates rise of 17.5%.
It would be shared between Three Waters (5.4%), an increase in depreciation (excluding Three Waters, 4.9%), the new kerbside collection service (4.4%), interest (excluding Three Waters, 1.8%) and other (1%).
A balanced budget would not be delivered and there could instead be a net deficit exceeding $25 million.
Last month, Cr Lee Vandervis signalled a rates rise of about 20% could be coming.
He also railed against what he described as a debt crisis that was getting worse.
Cr Vandervis also said the council was again headed for an unbalanced budget and it would need to raise rates "by something like 35%" to avoid this.
The alternative involved pushing up borrowing, which would help "bring our rates increase down to something near 20%", he said.
In January, Cr Carmen Houlahan warned the public to "get ready" for a big rates rise.
"You’re not going to like it," she said.
"None of us are going to like it, but it’s going to be a higher rate than what anyone would want."
Cr Jim O’Malley had also signalled a large rates increase was on the cards, though not quite as big as had been projected for other cities.
The city council was dealing with the ramifications of previous councils deferring work, Cr O’Malley said.
