New Zealand’s local government sector is pleading poverty. Rates rose at their fastest pace in 20 years in 2023, the government warned they were running at around 15% on average in 2024, and councils’ own long-term plans forecast rates revenue climbing 45% over the next decade. The story councils tell is one of infrastructure backlogs, rising debt, and a revenue base that hasn’t kept pace with costs.
That story is not entirely wrong. But it is incomplete. And the missing chapter is about $217 billion sitting on the other side of the ledger.
The balance sheet nobody talks about
According to Statistics New Zealand figures cited in a recent New Zealand Initiative report, local government’s total assets were provisionally valued at $217 billion as at June 2024, with net worth of $184 billion. That is not a rounding error or an accounting quirk. It is one of the largest pools of publicly owned assets in the country, held on behalf of ratepayers.
Most of that is infrastructure – pipes, roads, parks, and buildings that exist to deliver services rather than generate returns. Nobody seriously argues councils should sell the sewerage network. But a meaningful slice of that portfolio sits in commercial investments, financial assets, and strategic holdings that could, in principle, be governed and managed with the same discipline applied to serious institutional money.
The question is whether they are. And the evidence suggests, in many cases, they are not.
Debt is real, but so is the governance gap
The debt picture is genuinely troubling. Total council debt reached $29.9 billion in 2023/24, up 15% from $25.9 billion the year before and effectively double what it was in 2017. Auckland Council alone accounts for $12.9 billion, or 43% of all council debt. Across the 58 councils audited for their 2024-34 long-term plans, total debt is forecast to peak at $50.9 billion in 2032.
Interest payments have surged alongside it. Council interest costs topped $1.3 billion in the September 2023 year, up 64% on pre-pandemic levels and equal to 8.8% of operating income. That is a real constraint on what councils can do.
S&P Global’s Martin Foo has a point when he says councils face a structural problem, not just a spending one. “A lot of these costs are being passed down without matching funding tools or without matching revenue,” he told a recent webinar. S&P’s analysis shows local government rates have been flat as a share of GDP for roughly a century, even as central government taxation climbed from below 10% of GDP to over 30%. That is a structural mismatch that no amount of efficiency gains will fully close.
But structural underfunding and poor governance are not mutually exclusive. Councils can face a genuine revenue squeeze and still be running their investable assets badly. The question is not which problem is bigger. It is why we keep discussing one while ignoring the other.
What professional management actually looks like
Two councils are already providing an answer, and the contrast with the rest of the sector is instructive.
Auckland Council’s Auckland Future Fund was designed to diversify major investments and, in the words of council group treasurer John Bishop, “better protect value for future generations.” The fund was expected to add around $40 million to council revenue between 2025 and 2026, over and above the $26 million estimated from Auckland Airport dividends. Mayor Wayne Brown framed it as shifting the conversation toward “wealth creation and how to get the most out of what we have – rather than just budget holes and debt.”
That is a meaningful shift in framing. And it is not just Auckland.
Napier City Council has set up Ahuriri Investment Management Ltd as a standalone investment arm, explicitly created to generate “regular and growing income” to reduce rates dependency. The council’s own rationale is worth quoting directly: “This will deliver better results than if we managed the investments internally.” The logic is simple – professional investment managers outperform committees of elected officials making capital allocation decisions between agenda items.
If two councils have independently reached that conclusion and are acting on it, the obvious question is why the rest of the sector has not.
Ratepayers funding avoidable inefficiency
The answer, almost certainly, is that governance reform is harder than a rates increase. Raising rates requires a council vote. Restructuring investment governance requires admitting that the current approach is suboptimal, navigating internal politics, and taking on the complexity of arm’s-length management. Councils that choose the easier path are, in effect, asking ratepayers to fund the difference.
The government is pushing back, at least at the margins. Local Government Minister Simon Watts announced in December 2025 that a rates cap model with a target range of 2% to 4% per capita per year would require councils to factor the cap into long-term plans from 2027, with a regulator to approve exceptions. Watts has been direct: “Ratepayers deserve councils that live within their means, focus on the basics and are accountable to their community.”
LGNZ president Sam Broughton is sceptical. “One of the key drivers of rates increases is inflation in the costs of infrastructure as well as the cost of borrowing, and a rates cap would only put further pressure on this,” he said, adding that Australian experience shows blunt caps can backfire by lifting borrowing costs and deferring maintenance. S&P appeared to agree – in March 2025 it downgraded the New Zealand local government institutional framework score, triggering lower credit ratings for 18 councils and three council-controlled organisations.
Broughton is not wrong that a badly designed cap can store up costs rather than eliminate them. But that argument is being used to deflect a broader accountability question it does not actually answer.
The wrong fight
The political debate has settled into a familiar groove: government pushes caps, councils push back with infrastructure horror stories, and the underlying question of investment governance never quite surfaces. That suits councils. It does not suit ratepayers.
The Office of the Auditor-General’s analysis of the 58 audited long-term plans found forecast renewals expenditure averaging 85% of depreciation over 2024-34 – better than before, but still short of what is needed to maintain service levels. Those same councils are forecasting $91.9 billion in capital expenditure over the decade, with rates revenue to cover the lion’s share of $233.1 billion in total forecast revenue. Rates are doing enormous heavy lifting in these plans.
That is why the investment governance question matters more than it is being treated. Even modest improvements in returns on commercially managed assets could take meaningful pressure off rates. The New Zealand Initiative’s analysis frames this as a question about the entire public balance sheet – central and local government combined. At the local level, the question is more specific: which assets are strategic public infrastructure that must stay as-is, and which are being managed poorly because elected members are making investment decisions they are not equipped to make?
For business owners, the stakes are direct. Higher rates lift fixed costs for every SME, landlord, developer, retailer, and manufacturer operating in a council area. Higher council debt and weaker credit ratings increase financing costs and reduce future infrastructure delivery. A sector that manages its balance sheet better is one that can, at least in principle, take some of that pressure off.
The government’s push for performance metrics and financial transparency is a start. But metrics without consequences are just reporting. What the sector actually needs is the same discipline it would demand of any large institution managing other people’s money – professional governance, arm’s-length management where appropriate, and a clear account of what the investable portion of the public portfolio is earning and why.
Councils that want another rates rise should first be required to answer that question.
Sources
- The New Zealand Initiative: The People’s Portfolio report
- The New Zealand Initiative: The People’s Portfolio – a $571 billion question
- LGNZ: Analysing increases in local government costs (Infometrics report)
- LGNZ: Rate capping will drive up interest rates
- interest.co.nz: Local rates have flatlined for 100 years and councils need revenue, S&P Global Ratings says
- Beehive: Back to basics for local government
- Beehive: Getting rates under control for ratepayers
- RNZ: What does a Future Fund mean for Aucklanders?
- Napier City Council: New organisation formed to grow Council income
- Napier City Council: Ahuriri Investment Management Ltd
- Department of Internal Affairs: Local government performance metrics