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December 11, 2025 11 mins

A leading economist says it's galling to see the government planning a rates cap for councils when it's, when it is imposing no restraints on its own taxes.

Infometrics Chief Economist Brad Olsen told Matt and Tyler that, "you're giving more money to the government and they're not capping taxes anytime soon."

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Speaker 1 (00:09):
You're listening to a podcast from Newstalks be follow this
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Speaker 2 (00:16):
So a leading economists sees it's galling to see the
government planning a rates cap for councils when it is
imposing no restraints on its own taxes. That man is
Brad Olson, Infometric CEO and chief economist, and he joins us. Now, Brad,
get a good afternoon book team.

Speaker 3 (00:32):
What core economic problem do you see in the universal
two to four per cent rates cap? And is it
hypocritical of central government to cap rates while not capping
tax rises?

Speaker 4 (00:42):
Well, I certainly think it's hypocritical. The worry is well,
in a sense is that And look, let's be very
clear at the outset. I think that the rates increases
you've seen in the last couple of years have been
incredibly hard for people to stomach, and we're desperately need
to get them under control. But I'm worried that if
you impose this very artificial cap that doesn't recognize it
as a whole lot of differences in what councils do

(01:03):
in the types of inflation that they suffer, You're going
to get back to where Wellington was a couple of
years ago, where we don't invest enough in the right stuff.
All of a sudden, you've either got pooh running down
the streets, you've got roads that are broken up, you've
got rubbish that doesn't get picked up. I mean, that's
sort of what some councils around the country are saying
if they aren't able to sort of recover those costs
which have been increasing faster than households than they are

(01:24):
in a compromised position. But the point around consistency, that's
the one that gets to me. Like, we spend a
lot of time talking about rates, and I get it
it's important, but you know, when you're spending about ten
times more on taxes a year and no one ever
sends you a bill for that. Most people couldn't name
their taxes. Yet when they've increased time and time again,
you're giving more money to the government and they're not taxing,

(01:44):
you know, capping taxes anytime soon. It seems to be
that we're spending a lot of time on ten percent
of the money and we're completely fine with the fairly
large increases in tax on the other ninety percent.

Speaker 3 (01:56):
So in for Metrix is calculated the average tax bill
of a household with two median income earners earning seventy
one thousand dollars a year seventy two thousand dollars basically
each before tax, so they would pay thirty nine thousand
dollars to the government around thirteen seven and fifteen income
tax per person plus eleven thousand, six hundred GST, whereas

(02:16):
about three thy eight hundred in rates. There's more tax
than that, though, isn't there There's more tax from the
government than just income tax and GST.

Speaker 4 (02:27):
Yes, I mean there's a whole lot of other things.
Is of course your your corporate tax, which is a
tax on profits that businesses are making. There's also a
lot of other let's call them government revenue. They might
not strictly be taxes, but they almost are. You know,
all of the money that's collected in terms of fuel
taxes or you know, fuel excise duty, all the other
sort of you know, various fees that you have to pay.

(02:48):
You've got a registration for your car, You've got a
whole lot of other service fees that you have to pay.
So the point there was less you know around the
fact that you know, rates aren't nothing. Rates are still important,
but by goodness, you know, at thirty nine K a
year in taxes that you're paying the amount of effort
and time that we spend on rates compared Texas, Like,

(03:09):
I mean, let's be real. You think about, you know,
an average council who every year has to spend probably
one hundred thousand dollars or so to go out to
the community consult on what the plan is for spending
that three thousand, eight hundred dollars per average household. They've
got to go through all the line items. They've got
to decide if you know, roade x y Z gets
some potholes filled or that. Whereas I don't know about

(03:29):
you guys, and the government doesn't normally ask me every
year if I'm happy to spend whatever they are doing
in the budget, like it just happens, It gets passed
in the House and I just sort of got to
take it, and that's fine. But I'm sort of like, look,
if it's good enough to try and cap what local
government's doing, surely if central government was worried about wasteful
spending and everything else like it says, it would equally
apply that lens to itself. What's good for local government

(03:52):
surely got to be good enough for government itself.

Speaker 3 (03:55):
But that three thy eight hundred to councils isn't the
end of it either, though, is it? Because you know,
I just had to register my dog again, I've got
a bunch of consents that I'm having to get sorted
out with the council for a renovation nor my house,
so that they're picking us outside of their rates as well,
aren't they, Brett?

Speaker 1 (04:13):
They are, But I.

Speaker 4 (04:14):
Can tell you right now having run those figures, that
they are not nearly as much as still that bigger
tax bill. But yes, you're right. The difficulty in the
challenge that we often find in the local government space,
and again having looked at this in detail, is that
a lot of those what we call user charges that
you have, you know, let's call it, you know, your rubbish,
your dog fee, your alcohol license if you're trying to
set up a bar or a pub or something, not

(04:36):
all of those are full cost recovery. So it might
well cost you know, a council, I don't know, let's
say one thousand dollars for you know, doing all of
the alcohol processing for a new bar. But the license
fee on that might only be say five six hundred dollars,
and that's because the rest of the money comes from
general rates. The idea there being that, hey, it's probably
good for the community to have these different amenities, to have,

(04:57):
you know, good order around dogs, to have a good
order around alcohol, and so there's a little bit of
sort of everyone has to pitch in, which is where
the rates money comes from. But again, I guess that
you've looked at you've probably and some of the stories
recently around the changes that are coming from rates capping
and what it might mean. There are genuinely some councils
now that are going, well, look, we'd have to close
the polls entirely, or we'd just not be able to

(05:19):
register dogs for an entire year, or we wouldn't be
able to do these building consents like the challenge I
see with the rates capping, and potentially, look, this might
be a silver lining. Communities are going to have to say, look, yes,
we're going to get lower rates increases, but we're also
not going to get nearly as much as what we
got before from our council. At some point something's got
to give, you know, Is it that your booms don't
get mode? Is that your dog doesn't get registered. What

(05:41):
might have people willing to give.

Speaker 3 (05:42):
Up our booms don't get mode?

Speaker 2 (05:43):
Yeah, burn pride. People should do that themselves. But it's
a fair point, Brad, And you mentioned here that and
you're quite right that central government over time has continued
to push more and more on to local government to
make them responsible for those things. I mean, is that
a cheeky way of government making counsels the villain here
that they say, right now, you're responsibility to do that.
We don't know how you're going to pay for it,
probably through rates, and your residents will hate you for that,

(06:05):
but it's your problem now. So it's kind of a
bit of a of an underhanded way for the central
government to escape that fury from texpayers.

Speaker 4 (06:14):
It does seem to be a little bit of a
you know, good good luck, off you go sort of
message again. I mean, you look at where the where
do you go when there are challenges in the local community.
It's pretty easy to go and you know, talk to
your mayor or complain to your mayor or counselor not
often do you go, you know what, I've got real
issues with my consent, I'm going to go to my
MP to start with. So look, it is I think
a bit more of a focus on councils. But here's

(06:37):
the real kicker for me is that for all the
talk of the rates capping and some of it's come through,
of course that doesn't affect central government at all because
it doesn't pay rates on most of the land that
it has. So it's sort of saying, well, look off
you go, you go, and you know, have to have
this rates capping discussion with your community and you're not
going to have nearly as much. You're going to have
no additional money from central government for all of these

(06:57):
RMA changes and similar that are coming through, all of
the reorganization plans that have got to be established. Someone's
got to pay for that time. But also we're going
to limit how much you can earn from your community,
which again I underst and the cost living pressures. But
also we're not going to pay rates to central government.
I mean very much does seem to be will you
do more with less? And also we're not willing to
pitch anything ourselves. There's no money that comes from central

(07:19):
government to pay for a lot of this stuff, which
all I'm saying is that, look, this might be an
important change that comes through with rates camping, but by goodness,
the overseas evidence really does suggest it. In time, you
start to see some pretty wicked challenges where counselors are saying, look,
I don't have enough money for that bridge, I don't
have enough money for this project. Now what are we
giving up because some stuff is going to start to crumble.

Speaker 3 (07:40):
Well, they can give up their alcohol licensing work if
you ask me. We're talking to informentric's chief economist Brad Olsen.
But surely we should be asking all forms of governments
to live within government, to live within their means like
we have to do as citizens exactly.

Speaker 4 (07:55):
And this is why next week the Finance Minister will
provide an update alongside the Treasury with the half yearly
Economic and Fiscal Update, telling us sort of how the
government finances are at a central level. Of course, the
challenge there is that when you look at spending activity
by central government compared to how much that earning, we're
still going to be in deficit. We're still going to
as a government be spending more money than we're earning

(08:16):
out until about twenty thirty or so. So put it
this way, if you've got concerns about things at the moment,
you've got a few options. Either you raise taxes or rates,
depending on if you're a council or a government, you
stop spending quite as much, or you load that up
on debt. At the moment, central government is loading up
on debts relative to the other two. Yes, there's been
spending cutbacks and similar there haven't been changes in taxes effectively,

(08:41):
though again there's a real challenge here over how you
pay for this stuff. Here's one step that always blows
my mind on just how challenging it is for some
of the pressures that are in the infrastructure space. We
know that household inflation has gone up a lot over time.
We talk about Mins and butter quite a bit, sort
of cumulative household inflations up around thirty percent or so

(09:01):
over the last five years. You look at, though, some
of the stuff that councils spend on. If you want
to build a bridge today, it's cost you've forty percent
more than what it was back in twenty nineteen. Same bridge,
same concrete, same steel, and everything else, but now costing
forty percent more. It's those sort of bigger gains over
time that do start to hit just how much money
central government local government rather is having to spend. They're

(09:23):
having to put a lot of money into big infrastructure projects,
and either that has to be paid for from rates
or from debt, and what do you use how do
you repay the debt? Of course that comes from rates
money eventually, So it is an awful cycle, but it
is a real challenge around that infrastructure investment over time.

Speaker 3 (09:39):
So what alternative funding model would actually work? Because we
can't have councils just up in rates fifteen percent a
year so they can do all their vanity projects or
ideologically driven projects that annoy all of us. There has
to be some limit to what they're putting up and
some efficiency needs to come in right.

Speaker 4 (09:58):
Certainly, And I think on the efficiency point, I mean
the two biggest areas where I think you're going to
see some gains over time are around the likes of
transport and water infrastructure. The councils combine about sixty percent
of the total increase in spending over the last three
to four years has been in those two categories alone.
So if you do something on that, if you stop
having these massive cost blowouts on projects. If you can

(10:20):
get some of the consenting delays moved along, maybe if
you don't have to put out so many road cones,
if a bit more of this work is streamlined. So
instead of every council saying, you know what, I'm going
to go and try and upgrade my wastewater treatment plant
when all the other sixty councils around the country are
doing so, what does that generally do to the cost
of things? Will that pushes them up? So a lot
of that streamlining, a lot of that sort of planning

(10:42):
could be done better, I think though as well. There
are things that more practically could support councils. Either local
government sorry, central government could pay local government for the
land that it owns, pay rates on the stuff like
everyone else does. Or you could see the likes of
GST on rates or GST on building consents for example,
that go back to local government at the moment. Again,

(11:04):
you pay your local council for a building consent, and
fifteen percent on top of that then goes to central
government just into the general slush fund that gets spent
on whatever. If you instead put that back to local councils,
that would start to make a bit of a difference
in terms of how much money that have. I think
we calculated at one point there'd be something like a
billion dollars, so that would require central government to give
up something. But again, if we're talking about waste and

(11:26):
pressures in government in general, I think there's still efficiencies
to be made across the board. Brad.

Speaker 2 (11:32):
It's a compelling argument and the text machine is absolutely
blowing up. So we're looking forward to what our listeners
have to say. But really appreciate you coming on mate, hey,
and if we don't catch up before the end of
the year, very Merry Christmas to you, mate. Appreciate you
coming on various times this year.

Speaker 4 (11:46):
Same to you and looking forward to catching up in
twenty twenty six.

Speaker 2 (11:49):
Go well, that is Brad Olsen, chief economist and CEO
of Infometrics.

Speaker 1 (11:53):
For more from News talks'd be listen live on air
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