Prime Minister John Key has outlined reforms to local government in a bid to reign in increasing rates and spiralling council debt.
The Better Local Government reforms, which is to come into effect later this year, aims to rebalance the changes made to the Local Government Act in 2002 that have seen land rates increase by an average of 7% every year and council debt quadruple from $2 billion to $8 billion over the past decade.
Key said home and business rates should rise in line with inflation and were not a means for New Zealand's 78 local council's to cover spiralling costs.
"Debt is a critical issue for councils. While households, businesses and farms have reigned in debt in response to the global financial crisis, local government has not," Key said.
"A significant factor in the rates rise many New Zealanders have faced have has been the escalating salary costs since the Local Government Act came into force in 2002".
Ratepayers recently took to the streets in Christchurch and Kapiti after it was revealed their chief executives were receiving substantial pay rises.
Key said council spending levels will become more transparent through set fiscal responsibility requirements that will require councils to disclose expenditure and debt levels.
However, Labour said the reforms will only add to the responsibilities local government are "foisted" with by central Government.
Local Government spokesperson Annette King said National are increasing their power and opening the doors to privatisation by narrowing the focus of local councils.
"This is Nanny state. It is central Government stepping very heavily on the toes of local communities," King said.
Local Government Minister Nick Smith pinpointed the Kaipara local council as a "worrying" example of a local council which was in debt.
Its current debt of $80.7 million equates to $4395 of debt for every person in the region.
He said it would ultimately fall to central government if any local council managed to find themselves in a dire financial situation.
The reforms will also use the Auckland "Supercity" Council as a
framework for councils to reorganise staffing structures and
"The new purpose takes a balance approach that focuses council on providing their core roles of providing local infrastructure, local public service and those local regulatory functions at a less cost to houses and businesses," said Smith.
Business New Zealand Chief Executive Phil O'Reilly, along with the Property Council New Zealand, have welcomed the new reforms.
"Some of the local government practices that impact negatively on business include unnecessarily high rates, disproportionate development contributions and the tendency for local government to displace or 'squeeze out' local businesses," said O'Reilly.
"These practices have the effect of choking small local businesses or reducing their profitability, and that means less prosperous communities."
Local government contributes 4% to New Zealand's GDP and is responsible with spending $7.5 billion of public money.
The Better Local Government reforms include eight specific initiatives - the first four will be introduced to Parliament in May and be passed in September.
The remaining four reforms will be included in a second reform bill proposed for 2013.