Economist Cameron Bagrie predicts councils will need to increase rates by at least 25 percent in next three years

A prominent economist believes hefty council rates increases are set to be the new normal as interest rates and expense costs continue to rise.  

Cameron Bagrie has also suggested any savings handed out by the central Government in the form of tax cuts will be soaked up by local increases.  

Current rate rises for this year were set at 7.7 percent in Auckland, 4.9 percent in Hamilton, 12.3 percent in Wellington, 6.4 percent in Christchurch and 6.5 percent in Dunedin. 

"They're running a deficit of about 8 percent of expenses," Bagrie said of local authorities. "So, they need 8 percent more money coming in the door." 

He told AM filling that hole would require rates increases of at least 15 percent. 

"That's pretty hard politically to push through but it's not just about the current mismatch between income and expenditure; interest rates are moving up, so if you look at council interest expense per quarter - it's gone from about $200 million to $400 million per quarter." 

With the likes of Auckland battling to cover its costs, Mayor Wayne Brown has already warned of rate rises of at least 13.75 percent next year.   

Bagrie said there was still about $4 billion of debt to be issued by councils in the next three years. 

"If you look at where I think rates are going to go in the next two to three years, you're probably talking a number closer to 25 to 30 percent... I take my hat off here to the Hamilton City Council - they've put a really big number on the table which scares the bejesus out of people, it's 25.5 [percent].  

"But what is it providing? It is a reality check - we cannot continue to kick the can down the road because that is the main money you need just to fund current issues, let alone all the problems [and] demands we need down the track." 

He suggested "big, bold decisions" would have to be made. 

Local Government New Zealand (LGNZ) was last week also asked about dramatic rates rises throughout the country. In addition to Hamilton's proposed rates rise for next year, a 16.5 percent hike was also being touted in Lower Hutt. 

"The fixed costs - the uncontrollable costs that many households and businesses are facing; insurance, interest rates and the likes - are the exact same type of costs councils are having to grapple with," LGNZ vice president and Lower Hutt Mayor Campbell Barry told AM.

"Alongside that, we also have the cost of infrastructure continuing to go up and the demand... There is just a whole heap of challenges councils are having to navigate. I've been involved in local government for 13 years and I haven't seen anything like this."