Officials say the funding system for councils is "broken" as homeowners face an average rates rise of 15% according to a new report sourced from draft long-term plans from 48 councils across the country.
This could mean each household paying an average of $8 extra a week in rates.
Local Government NZ commissioned the report by Infometrics chief executive Brad Olsen — and the findings "starkly illustrate" the cost pressure that councils were under.
In the report, titled Analysing Increases in Local Government Costs, Olsen said some cost escalation was anticipated in 2020 but the gap between predicted and actual inflation was around 20%.
“In short, the cost escalation over the past three years, over and above prior expectations, means that a fifth of the prior capital budget may need to be cut back in order to fund cost escalation on the remaining 80% of projects.”
An additional $11 billion might be required "just to fund the gap in cost escalation".
Between 2002-2022, the average rates rise was 5.7% a year. In 2023, it was 9.8%, making it the largest single-year rates rise since 2003.
LGNZ vice-president Mayor Campbell Barry said councils were “acutely aware” of the need to balance investment and affordable rates increases but the pressure has reached "tipping point".
Over the past three years, costs have significantly gone up for construction of several key asset types.
Bridges were 38% more expensive, sewage systems were 30% more expensive, and roads and water supply systems were 27% more expensive.
All councils also faced increasing costs for existing assets and services due to inflation, the cost of servicing debt, and increasing insurance and audit costs.
Barry noted council’s share of overall tax revenue has remained at 2% of GDP for half a century despite "ever-increasing responsibilities".
"On top of the cost increases to existing assets and services, councils also face new pressures that require new spending."
'The funding system for local government is broken'
He said it was important to remember rates accounted for a "huge range" of infrastructure and services communities relied on, including many that were "invisible until something goes wrong".
"This includes meeting the demand for infrastructure in high-growth areas, coping with growth in tourism, adapting to climate change and increasing natural hazards, transitioning to a low carbon economy and dealing with emerging biosecurity threats.
"It’s no secret that the funding system for local government is broken. Rates account for more than half council funding, and relying so heavily on rates alone is unsustainable."
A "range of levers" were required to address funding and financing challenges, Barry said.
These could include an accommodation levy, GST sharing on new builds, congestion charging, and tourist levies.
"A four-year term of local government would also double the productivity across councils and provide certainty which would create a longer-term pipeline of work for the private sector to partner with councils on."
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