Rates cap and the business share: our submission to the Finance and Expenditure Committee (Part 2 of 2)

This is Part 2 of City Builders Association Limited’s submission to Parliament’s Finance and Expenditure Committee on the Local Government (Rates Capping) Amendment Bill, sent on 18 October 2026. It sets out our recommendations and proposed wording, our response to the Minister’s reply, and our request to appear before the committee.

Part 1 covers the summary of recommendations, who we are and the problem with the Bill.

4. Recommendations and proposed wording

The wording below is offered to assist drafters. It reuses the Bill’s existing terms and machinery, so the regulator can enforce it through the replacement-decision power in section 26Z.

R1: Stop councils raising the business share to stay inside the band

Insert a distribution constraint alongside section 26A, enforceable through section 26Z and the long-term plan test in section 93(9A).

It is the only hard limit we propose. It covers every rate in the section 26A sum, so a business-weighted targeted rate is caught as well as a differential.

The exception in subsection (4) is narrowed so that redrawing category boundaries cannot bypass the limit. A carve-out preserves targeted rates that businesses themselves ask for.

Proposed amendment: new section 26AB (insert in clause 8, after new section 26A)

26AB Business share of rates must not increase while target range applies

(1) In this section,—

business category means a category of rateable land, identified in a local authority’s funding impact statement under section 14 or 17, that is defined wholly or mainly by reference to the use of the land for business, commercial, or industrial purposes

business share, for a financial year, means the proportion of the sum used to calculate the rates price under section 26A (after the exclusions required by section 26A(2)) that is assessed on rating units in a business category.

(2) This section applies to a local authority for every financial year in which it must comply with, or have regard to, the target range (including under clause 10 of Schedule 1AA), and for the duration of any exemption.

(3) A local authority must not set rates, a uniform annual general charge, or penalties referred to in section 26A(1) for a financial year if the business share for that year would exceed the business share for the previous financial year.

(4) Subsection (3) does not apply to the extent that an increase in the business share results solely from—

(a) a revaluation under the Rating Valuations Act 1998; or

(b) the creation of new rating units, or a change in the actual use of a rating unit, that places a rating unit in a business category under category definitions that have not changed since the previous financial year,—

and the local authority has not increased the rate in the dollar for any business category relative to the corresponding non-business category.

(5) Subsection (3) does not apply to a targeted rate set for an activity that is undertaken at the request of, and primarily for the benefit of, the ratepayers liable for the rate (for example, a business improvement district rate), if the local authority has consulted those ratepayers on the rate.

Consequential: in section 26Z(3), add “(c) to set rates, or adopt a revenue and financing policy or funding impact statement, that would not comply with section 26AB.” In clause 13, add new section 93(9AA) of the Local Government Act 2002: “A local authority must not adopt or amend a long-term plan if its revenue and financing policy or funding impact statement provides for a business share that would not comply with section 26AB of the Local Government (Rating) Act 2002.”

R2: Make the business and residential split visible

The Bill adds no reporting on distribution. The regulator’s three-yearly reports (section 26ZA) begin only from 2029, and the information regulations (section 26ZB(1)(c)) cover exclusions and rating-unit counts, not who pays.

Proposed amendments: clauses 13 and 14 (Local Government Act 2002); sections 26ZA and 26ZB

New section 93(9D) (clause 13): “A long-term plan must include, for each financial year of the plan, a rates distribution statement that sets out—

(a) the business share and the non-business share (within the meaning of section 26AB of the Local Government (Rating) Act 2002) for that year and for each of the 3 preceding financial years; and

(b) each category of rateable land used to set a rate differentially under section 14 or 17 of that Act, and the ratio of its rate in the dollar to that of the base residential category; and

(c) any proposed change to a matter in paragraph (a) or (b), and the reasons for it; and

(d) whether, and to what extent, any change is attributable to complying with, or having regard to, the target range; and

(e) for each category of rateable land, the average change in rates for rating units that existed in the previous financial year; and

(f) rates remitted and postponed, by category; and

(g) any proposal to which section 26AC of that Act applies; and

(h) the amounts excluded under section 26A(2)(a) of that Act, the method used to allocate costs to water services, and the rating units figure used under section 26A(1) of that Act, with the method used to project it.”

New section 95(6D) (clause 14): “An annual plan must include a rates distribution statement for the financial year to which it relates, prepared in accordance with section 93(9D), and must identify and explain any variation from the statement in the long-term plan.”

Section 26ZA: insert new subsection (1A): “A report under subsection (1) must describe trends in the distribution of rates between business and non-business categories of rateable land, including changes to differentials.” Section 26ZB(1)(c)(i): add “(C) the information contained in a local authority’s rates distribution statement.”

Schedule 2, new clause 66: provide that section 93(9D) applies to the long-term plan for 1 July 2027 to 30 June 2037.

R3: Exemptions and variations must not embed higher business differentials

The exemption pathways allow councils to exceed the range, and the Minister and the regulator may substitute different amounts or durations (sections 26I(1)(c) and 26N(1)(c)). Section 26J(c) lets a council amend its long-term plan after a Type-1 exemption without the special consultative procedure. Section 26O(b) and Schedule 1AA clause 18(2)(c) also invite councils to use “other sources of revenue” and “alternative fiscal tools or policies”. Without a safeguard, any of these could be met by loading business.

Proposed amendments: sections 26G, 26I, 26J, 26L, 26N, 26O; Schedule 1AA clauses 14 and 18

Sections 26G and 26L: add a new paragraph: “set out the effect of the proposed exemption on the business share and on each differential for a business category, for each year of the proposed exemption.”

Sections 26I and 26N: add new subsection (4): “The Minister (or, under section 26N, the regulator) must not grant an exemption, or substitute their own decision, that would permit or result in an increase in the business share or in any differential for a business category during the period of the exemption, and every exemption is subject to the condition that the local authority comply with section 26AB for its duration.”

Section 26O: add a new paragraph “(ca) how the proposed increase is to be distributed between categories of rateable land, including any change to the business share or to differentials; and”.

Section 26J(c): add “, except an amendment that changes the local authority’s revenue and financing policy, any differential, or the business share”.

Schedule 1AA, clauses 14 and 18: add new subclause (4): “Section 26N(4) applies, with any necessary modifications, to an exemption granted under this clause.” In clause 18(2)(c), add: “but an increase in the business share or in any differential for a business category is not an alternative fiscal tool or policy for the purposes of this paragraph”.

New section 26QA (publication): “Within 20 working days after a decision is made on an application for an exemption (including under Part 3 of Schedule 1AA), the regulator must publish on an Internet site maintained by or on behalf of the regulator the application, any advice given by the regulator to the Minister on it, the decision, and any conditions of the exemption.” (The Bill currently has no publication requirement for exemptions.)

Supporting safeguards

The following two recommendations close routes that sit outside the rates the cap measures. Neither prohibits anything. They require disclosure and justification, and give the regulator a review role.

R4: Incidence integrity: shifts outside the capped rates

A cap on rates invites councils to move costs into fees and charges, contributions or excluded water-services rates. Some of that is legitimate user-pays policy. Section 101(3) of the Local Government Act 2002 already requires a benefit-based funding analysis. The gap is that nothing links that analysis to the cap, so a shift made only to fit inside the range is never tested.

Proposed amendment: new section 26AC (insert in clause 8, after new section 26AB)

26AC Shifts of funding outside the rates price must be identified and justified

(1) This section applies if, for a financial year to which section 26AB applies, a local authority proposes to fund an activity, or part of an activity, that was funded in the previous financial year from rates included in the rates price, instead from—

(a) fees and charges (including fees and charges of a council-controlled organisation); or

(b) development contributions or financial contributions; or

(c) rates, or any portion of rates, excluded under section 26A(2)(a); or

(d) lump sum contributions under Part 4A.

(2) The local authority must—

(a) identify the proposal, the amount concerned, and the classes of ratepayer or user expected to bear it, in the consultation document for the relevant long-term plan or annual plan; and

(b) explain, by reference to the matters in section 101(3) of the Local Government Act 2002, why the new funding source is appropriate apart from its effect on compliance with the target range; and

(c) give that explanation to the regulator.

(3) If the regulator is not satisfied that the explanation is reasonable, the regulator may direct the local authority to reconsider the proposal, and section 26Z(2) applies with all necessary modifications.

R5: Measurement integrity: the divisor and the water exclusion

The rates price depends on two inputs the council controls: its own projection of rating units, and its allocation of costs to excluded water services. The regulator can already ask for this information through regulations (section 26ZB(1)(c)(i)), but is not required to. A simple correction keeps the measure honest.

Proposed amendment: section 26A (clause 8)

Insert new subsections:

(3) If the number of rating units in the rating information database at the start of a financial year is less than the rating units figure projected for that year, the local authority must, when calculating the rates price for the next financial year, adjust for the difference in the manner specified in regulations or in guidance issued by the regulator.

(4) If the regulator is satisfied that an amount has been excluded under subsection (2)(a) that is not for the purpose of providing water services, the regulator may treat that amount as included for the purposes of section 26Z.

Publication of the figures and methods is covered by the rates distribution statement in R2, paragraph (h).

5. Response to the Minister’s reply

CBA raised these three points with the Minister of Local Government on 20 August 2026. The Minister’s office replied on 15 October 2026 (ref COR3328). The reply described the Bill, the 2–4% target range, new long-term plan reporting from 2027 and the full regime from 2029. It did not address any of our three asks.

Our reading of the Bill confirms the gap. The obligations from 2027 (Schedule 1AA clauses 8 and 10 of the Rating Act; new Schedule 1AA clauses 66 and 67 of the Local Government Act 2002) and full compliance from 2029/30 (new section 23(2)(c); clause 68) all operate on the average rates price. None of them requires a council to disclose, or limits, how that rates take is divided. Because the Minister’s office has not engaged with the issue, we ask the committee to address it directly.

6. Conclusion

A rates cap should give every ratepayer predictability, not just the average one. As drafted, the Bill can be complied with by moving more of the burden onto business. CBA asks the committee to adopt R1 to R3, so that the cap restrains the overall rates take without changing who pays it. We also ask it to adopt the supporting safeguards in R4 and R5, so that the same result cannot be reached by other routes. We would welcome the chance to work with officials on the wording.

7. Request to appear before the committee

City Builders Association Limited wishes to appear before the committee to speak to this submission. Mark Pervan, Founder and Director, will appear on its behalf, in person or by video conference.

Mark Pervan, Founder and Director, City Builders Association Limited · October 2026

Back to Part 1: summary and the problem

Further reading

• Local Government (Rates Capping) Amendment Bill (Parliament)
• Auckland rates explained
• Rates cap and the business differential: our letter to the Minister of Local Government (Council Watch · Issue 90)
• Local Government (Rates Capping) Amendment Bill text (legislation.govt.nz)

Related answer: Does the rates cap limit my Auckland rates bill?