The Government last week proposed a 4% annual rates increase cap but it would not be fully in force until 2029.
After a 6.49% increase for the average household in Christchurch this year, rates are projected to rise by 9.2% in the next Annual Plan in June but this is likely to decrease as city councillors look for savings.
The rates increase was 9.52% in the 2024/25 year and 6.6% in 2023/24.
Local Government Minister Simon Watts announced the long-promised “rates cap” policy.
The proposal is to limit councils’ annual rate increases to a range between inflation and GDP growth, with water services charges and targeted rates excluded from the cap. Under the policy, the minimum increase would be set at 2% and the maximum at 4%.
While key aspects of the policy remain uncertain, including who would regulate council rates rises, the minister confirmed the Government intends to legislate to enforce the cap.
The council has undertaken initial modelling to understand the potential implications of the proposed cap. The mayor and councillors were updated on this during a workshop on Tuesday.
These results are assumed positions only and will require updating as further details of central Government’s legislation and policy updates become available.
“We will continue to refine our modelling as more information becomes available from Central Government,” Mayor Phil Mauger said.
Key findings from our modelling include:
- The lower the rates cap, the less the Council is able to fund itself through rates, compared to current projections.
- With a 4.0% rates cap commencing in 2027/28, council rates in 2029/30 would need to be reduced by 12.6% an amount of $80.3 million from the current forecast.
- With a 2.0% rates cap commencing in 2027/28, council rates in 2029/30 would need to be reduced by 17.5% an amount of $112 million compared to current forecasts.
- The cumulative impact of a rates cap significantly reduces the amount of rates revenue that can be collected over time compared to current projections.
- 4.0% rates cap commencing in 2027/28 would require savings of $28.0 million (from current projections) in 2027/28. By 2033/34, the required savings increase to $122.4 million.
“Cost reductions or other funding sources will be required to achieve the rates cap. Temporary or one off-savings will not address a rates cap, savings achieved need to be permanent,” Mauger said.
“Any rates cap will have significant implications for funding of key services and infrastructure across the city.”
For example, the 2027/28 projected council annual net operational budget for libraries is about $34.8 million, for recreation facilities is $28.4 million, and events and economic development initiatives is $18.4 million. Paying back our borrowing for our capital programme is $102.8 million in rates per annum.
Photo: Lyttelton Port Company
Could a rates cap mean asset sales?
And the drum for asset sales has started beating with right-leaning Waimairi Ward city councillor Sam MacDonald calling for the sale of city council-owned fibre broadband company Enable.
He believes it could have a $1 billion market value.
Using the sale proceeds, MacDonald would like to form a protected investment fund for the city and pay down Christchurch City Holdings Ltd’s debt which is $2.4 billion.
However, MacDonald backs Mayor Phil Mauger’s position against selling Lyttelton Port Company, Orion, and Christchurch Airport.
Any proposed sale of Enable is likely to ignite intense debate between left and right-leaning city councillors as asset sales are a typical political faultline.
Council will be required to consider the rates cap in 10-year-budgets starting in 2027.
Mauger did not comment directly on MacDonald’s Enable proposal when asked by The Star, but said he is open to “exploring any options” to keep rates down and to look at how the city council’s key services can be funded going forward.
“I know ratepayers are feeling the pinch, and that’s why we’re checking every dollar we spend and carefully weighing the impacts on ratepayers.”
However, Mauger warned if too many cuts are made, the whole city will feel the impact of key services and infrastructure being underfunded.
“It’s also important that Crown starts paying its shares of rates on property in our district, so every day families don’t carry the load alone,” he said.
MacDonald, who is finance committee chair, would like the city council to plan ahead and sees a sale of Enable as the best pathway to avoid damaging cuts to services and infrastructure renewals.
“I think the rates cap will help us have a conversation about Enable and see what sort of appetite is out there,” he said.
MacDonald supports the rates cap and says the Government has sent a strong signal to councils to “live within their means”.
Left-leaning The People’s Choice co-chair Paul McMahon says MacDonald’s goal to sell Enable is shortsighted.
“It’s no surprise we’re seeing asset sales spring up in response to the rates cap,” he said.
"Very few people seem to understand Enable’s worth and the need for a council-owned reliable fibre network is only going to increase in an unstable world.”
McMahon said the Government’s rates cap is no solution to the cost of living crisis.
"It will mean reduced budgets for everything, including for road renewals and infrastructure.”
Harewood Ward city councillor Aaron Keown would back MacDonald’s proposal to sell Enable if it stacks up financially.
He strongly supports the rates cap but is disappointed it will not come into full force until 2029.
"Ratepayers are hurting right now. People need council to rein in spending right now, not in a few years time,” said Keown.
Halswell Ward city councillor Andrei Moore said he had not given any thought yet to MacDonald’s Enable proposal and would need to see more detail.
He said the rates cap would encourage the city council to look at a range of options to decrease rates increases, but he wants to focus on reducing spending rather than “resorting to selling off things.”
Moore welcomed the Government’s rates cap as a method to reduce rates rises, but said more change is need to make it feasible.
“If central Government continue to impose more costs but no additional revenue streams, then it won't be achievable.”
-Allied Media
