By Geoff Kreegher (Hamilton Ratepayer)
Exempt From Rates Cap
As the Government advances its proposed rates-capping regime for local authorities, a significant question has emerged: will the new generation of water Council-Controlled Organisations (CCOs) created under the Local Water Done Well reforms effectively be exempt from those limits?
The answer appears to be largely yes — and the implications could be profound for ratepayers, local government accountability, and the future cost of water services.
A New Water Governance Model
Under the Government’s Local Water Done Well reforms, councils have been encouraged to move water assets into dedicated water services organisations, many structured as Council-Controlled Organisations (CCOs). These entities are legally separate from councils, governed by independent boards and focused solely on delivering drinking water, wastewater and stormwater services.
By late 2025, the Government confirmed that most New Zealanders would receive water services through a CCO model, with dozens of councils combining into regional entities and several others establishing standalone water companies.
The reforms were promoted as a way to improve access to borrowing, meet environmental standards and address decades of infrastructure underinvestment. However, they also create a significant separation between water charges and traditional council rates.
The Rates Cap Proposal
The Government’s proposed rates-cap legislation is intended to restrain local government spending by limiting annual rates increases.
Yet available policy statements indicate that while general rates, targeted rates and uniform annual charges may be capped, water charges are expected to sit outside those restrictions. Commentary surrounding the policy repeatedly notes that water fees and other non-rates revenue streams would not be subject to the cap.
This distinction is critical.
If water services are delivered through a separate CCO, the organisation can levy water charges directly on consumers rather than relying on council rates. Those charges can then increase independently of any cap imposed on councils.
In effect, councils may face limits on raising rates while the water entities they own retain substantial flexibility to increase water bills.
A Structural Loophole?
This creates a structural loophole.
The Government can claim it is controlling rates increases while major infrastructure costs continue to be recovered through water charges. For household budgets, the distinction may be largely semantic. Whether a homeowner pays through rates or through a separate water invoice, the money still leaves the same wallet.
Public commentary on the reforms has repeatedly highlighted concerns that rates caps could simply drive costs into separate water bills.
The issue becomes more significant when viewed against the scale of future investment requirements.
The Infrastructure Funding Challenge
New Zealand’s water infrastructure faces enormous capital requirements.
Government-approved water service plans have shown investment needs substantially exceeding earlier council forecasts. By December 2025, the Government acknowledged that projected spending under Local Water Done Well was nearly NZ$9 billion higher than previously anticipated.
That investment must ultimately be funded through one of three mechanisms:
- Rates;
- Water charges;
- Borrowing repaid by future customers.
If rates are capped while water CCOs remain free to adjust charges, the pressure naturally shifts toward user-pays water billing.
Some councils already operate under similar models. Auckland’s water services, for example, have long been funded through separate charges rather than general rates. The Local Water Done Well reforms extend that concept nationally.
Accountability Questions
The move also raises questions about democratic accountability.
Traditional council rates are set by elected councillors and scrutinised through annual and long-term planning processes. Water CCOs, however, are intentionally designed to operate at arm’s length from elected members, with independent boards making many operational and financial decisions.
Supporters argue this separation protects long-term infrastructure investment from short-term political pressures.
Critics counter that it places some of the largest future household charges outside direct electoral control.
The concern is not merely theoretical. Rating agencies have already warned that water reform models may not remove the financial pressures facing councils and could create new uncertainties around borrowing and affordability.
The Political Optics
The politics are delicate.
A Government seeking to demonstrate restraint on council spending can point to capped rates increases. Councils can show compliance with the cap. Yet household costs may continue to rise through separate water invoices issued by newly established water CCOs.
Whether that represents sound infrastructure financing or an accounting distinction depends largely on one’s perspective.
What is clear is that the proposed rates cap does not appear likely to constrain the future pricing decisions of water CCOs in the same way it would constrain councils themselves. As New Zealand moves further into the Local Water Done Well era, many ratepayers will discover that while rates increases are limited, the cost of water remains a different story.
Very much like lipstick on a pig.
References
- Dunedin City Council – What is a Water Services CCO?. Accessed June 2026.
- Government statements on Local Water Done Well implementation and approved water service plans, reported December 2025.
- Public discussion and reporting on proposed rates-cap legislation and exclusion of water charges from the cap.
- Commentary on the financial implications of Local Water Done Well and council funding pressures.
- Local Government (Water Services) reform framework as summarised by Dunedin City Council.
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Further reading on this issue
OPINION: Bad Faith, a Missing Graph, and the Creation of the IAWAI Water Company
Household Water Costs in Hamilton City Projected to Triple within 9-years under New Water Company
