Where rates go that isn't infrastructure — and why that matters

If you've been watching rates rise and wondering where the money goes beyond pipes and roads, the answer involves a concept called the "four well-beings." The Local Government Act requires councils to promote the social, economic, environmental, and cultural well-being of their communities. In practice, that mandate underpins spending on economic development arms, community grants, event sponsorships, arts facilities, and climate adaptation programmes — work that goes well beyond filling potholes.

The current government is removing that requirement. In its December 2024 "back to basics" announcement, it cited evidence that including the four well-beings in the Act "led to about two per cent higher rates growth each year." Two per cent compounding, year after year, adds up. The change itself is being made through the Local Government (System Improvements) Amendment Bill, introduced in August 2025 and still progressing through Parliament — so as of mid-2026 the clause is, technically, still law.

That's the political framing. The reality is more textured.

The scale of discretionary spending

S&P Global Ratings' 2026 analysis of New Zealand council finances estimated that aggregate spending on what the Crown defines as "nice-to-haves" — non-essential services — could be as low as 10% of total council spending.

Ten per cent sounds modest. But across a sector that collectively spends around $16 billion a year in operating expenditure, 10% is roughly $1.6 billion. That's a meaningful number — and it's the number the rate cap policy is implicitly betting councils can trim without cutting core services.

S&P also noted, however, that finding those savings is harder than it sounds. "Finding operational efficiencies can be difficult without affecting the level of service that councils provide to ratepayers. Examples could include reducing library and pool hours and the frequency of reserve maintenance like mowing grass or cutting staff numbers." In other words: the "non-essential" label is doing a lot of work.

The four well-beings and what they paid for

The well-being mandate wasn't invented by councils. It was put in the Local Government Act by the Labour government in 2002, removed by the National government in 2012, and restored by Labour in 2019. The current government is now moving to remove it for a second time.

During the periods it was in force, the mandate supported spending in several categories that now sit in contested territory:

Economic development

Most district and city councils fund economic development agencies — arms-length organisations tasked with attracting investment, supporting business, and promoting tourism. These can run into the tens of millions annually for larger councils. The counterargument — that a healthy local economy reduces council costs long-term — is real. So is the argument that councils are duplicating work central government agencies already do.

Events and festivals

Event sponsorship is a recurring flashpoint. Councils fund concerts, festivals, sporting events, and conference bids, typically justified as economic development or place promotion. Some of these investments have measurable returns. Others are harder to account for.

Community grants

Grants to community organisations — sports clubs, arts groups, social services, iwi organisations — have expanded significantly under the well-being mandate. These are often genuinely valued by communities and politically difficult to cut. They're also funded from rates rather than targeted taxes, meaning all ratepayers subsidise activities many of them don't use.

Climate adaptation

Climate-related spending sits in an unusual position. The costs of not adapting — flooding, coastal erosion, infrastructure failure — will eventually fall on ratepayers anyway. But councils have been making significant investments in adaptation strategies, coastal setback policies, and resilience plans that go beyond what any individual ratepayer asked for. Whether these constitute "nice-to-haves" is genuinely debatable.

Why removing the mandate doesn't remove the cost

Here's where "back to basics" meets structural reality. Even once the four well-beings are gone from the Act, a council can't simply switch off non-infrastructure spending — for three reasons that have little to do with political will.

The Local Government Act isn't the only rulebook

Councils are bound by dozens of other statutes that require "non-core" activity no matter what the well-beings clause says. The Reserves Act 1977 charges councils, as administering bodies, with managing, maintaining, and protecting public reserves and parks. The Building Act 2004 makes them building consent authorities, responsible for consents, post-disaster safety checks, and earthquake-prone-building compliance. Dog registration runs under the Dog Control Act 1996, alcohol licensing under the Sale and Supply of Alcohol Act 2012, food-safety verification under the Food Act 2014, and recordkeeping under the Public Records Act 2005. When a card shows "regulatory services" or "parks and reserves," much of it isn't discretionary — it's a duty Parliament handed councils through a different law, and repealing the well-beings doesn't touch any of it.

The sunk-cost mortgage

Even genuinely discretionary facilities stop being discretionary the moment they open. A library, gallery, or aquatic centre built five years ago was funded with long-term debt. The interest on that debt and the asset's annual depreciation are operating costs (opex) that must come out of rates every year — the same opex “debt tail” that pushes up rates generally. A council can trim opening hours or the book budget, but it can't delete the debt-servicing and depreciation lines without leaving a stranded asset it's still paying off. On a card, those fixed costs are locked in for decades — long after the priorities that built them have shifted.

Gross cost isn't net cost

When a card shows millions allocated to "leisure and culture," that's the gross cost of running the service — not what ratepayers ultimately carry. Many non-infrastructure services recover part of their cost through user charges: pool entry, venue hire, consent fees, transfer-station charges. The number that matters is the net cost after that revenue. And cutting a facility that recovers most of its costs can save surprisingly little, because the council's fixed overheads — IT, payroll, finance, premises — don't disappear. They're simply spread across the services that remain, nudging up the cost of everything else.

The honest complexity

The "back to basics" argument has intuitive appeal, especially when rates are rising at 12% a year and pipes are still failing. But the arithmetic is less clean than it sounds.

The bulk of rates increases in recent years — around 80–90% by most analyses — is driven by infrastructure, debt servicing, and inflation on labour and materials. These costs exist regardless of how many festivals a council sponsors. Removing the four well-beings and capping discretionary spending addresses the margins, not the engine.

There are also second-order effects. When a council cuts its economic development agency, it typically sheds the staff who were managing relationships with investors and businesses. When it cuts community grants, organisations that depend on that funding reduce services or close. These aren't neutral outcomes — they're just costs that show up somewhere other than the rates notice.

The well-being mandate didn't cause the infrastructure deficit. But it did expand the scope of what councils felt licensed to fund — and at a time when core infrastructure was already underfunded, that expansion of scope had a cost.

The question worth asking on your own rates bill

If you want to interrogate your own council's spending, the annual plan is the place to start. Most councils publish a breakdown of operating expenditure by activity, and the variation between councils is significant.

Some councils spend heavily on economic development and events. Others have kept a tighter focus on roads and three waters. The Department of Internal Affairs published its first council performance profiles in August 2025, covering demographics, rates revenue, debt, and capital expenditure across all 78 councils — the first time this data has been presented in a single, comparable format.

The report is useful for broad comparisons but fell short of what the minister had promised. Key metrics the government said would be included — rates levied per rating unit, forecast changes over 10 years, and road condition comparisons — were missing from the first release. Local Government New Zealand responded publicly that "the metrics only provide part of the story" and that local context — whether a council is high-growth, or has been hit by weather events — was absent. Future releases are expected to cover asset management and service delivery alongside the financial data.