International ratings agency S&P has warned councils could struggle to apply the Government’s incoming cap on rates rises without cutting into core services.

The Government announced the cap in December last year, saying it wanted to stop “inefficiency” and “failed fiscal discipline”.

Prime Minister Christopher Luxon said at the time that ratepayers were “sick of seeing their rates spent on nice to haves rather than must haves, building fancy public toilets rather than fixing the pipes”.

But a new report from S&P said by its estimates, “councils’ aggregate spending on what the Crown defines as nice-to-haves could be as low as 10% of spending”.

In a previous report, S&P warned councils that wanted to proceed with large capital investment programmes might be forced to take on more debt.

In its latest report, it has warned the incoming cap could see more councils reduce library and pool hours and do grass mowing and reserve maintenance less often.

The report said where similar rates caps were applied in Australia, they had helped encourage fiscal discipline, but infrastructure plans had become backlogged.

It noted New Zealand councils were mandated to offer more than councils across the ditch, including water services and public transport.

Local Government Minister Simon Watts defended the rates cap and said councils needed keep rates increases under control and reduce pressure on household budgets.

“Everyone is having to prioritise due to the tough economic times. Prioritisation is a good thing,” he said.

Lydia Gliddon - the mayor of the country’s fastest-growing local government area, Canterbury’s Selwyn District - said her council would lose about $100 million from its long-term plan when the rates cap is applied.

The mayors of Auckland, Christchurch, Wellington, Dunedin and Tauranga have also warned the rates cap may lead to higher fees, reduced services and less spending on infrastructure.

Troy Matich is a political reporter with Newstalk ZB, working from Parliament’s press gallery. She joined NZME in 2025, previously working for RNZ as a producer for Morning Report.