Councils want to set their own fees and fines, as a new report shows governments underestimate the effects of their policies on rates.

The NZIER study found central government policy mandates are often not in the best interests of local councils and communities, and political uncertainty about those policies leads to high sunk costs that get hidden in councils' balance sheets.

Local Government New Zealand vice president Campbell Barry says examples include the national policy statement on urban development, which had a $750,000 impact on his Hutt City Council.

Another example is the speed restriction changes - first brought in under Labour, and now reversed under the coalition.

"We're expecting that cost to double to an additional $570,000 over three years to either reconfirm our previous positions or to roll back to what it used to be. That is an absolute waste of money," he says.

It's something the government should be taking on board, he says, "particularly when they keep on telling us that we need to be going line by line through our budgets to save money".

Local Government Minister Simeon Brown - asked about the cost of council rates - was true to form.

"Well, ultimately councils are responsible to their local communities, and our message to councils is they should be doing a line-by-line run through expenditure to keep costs under control. I think people opening up their rates will be very concerned and our expectation is that's what councils should be doing," he says.

Simeon Brown Photo: RNZ / Samuel Rillstone.

Brown says the government's plan to bring in city and regional deals will help with funding. No announcements about those deals have yet been made, however.

Barry says the government should be sitting down with councils to find a more sustainable solution instead of resorting to that kind of rhetoric.

"I think that line is really insulting and it shows a real lack of maturity of the challenge that councils are under," he says.

"I can tell you right now that mayors, chairs, councillors, staff have been going line by line through their budgets in developing their long term plans and it has no joy to bring much of our community the level of rate increase which we've put through.

"What government should be doing instead of engaging in that type of rhetoric is they should be sitting down at the table with us to find a more sustainable solution going forward, and a good start would be to stop with the unfunded mandates."

He says the Waste Minimisation Act - which introduced new responsibilities for councils but also brought in the waste levy to help them pay for it - is a good example of how it can be done.

Councils should be able to set their own targeted fees and rates, he says, for things like car parking management, or for alcohol licensing which had been designed to be user-pays but had not kept up with cost of living increases.

Labour leader Chris Hipkins says the government is "totally out of touch with the realities of local government".

"When you look at a council like say Gisborne, where they're dealing with the effects of the cyclone, there is no fat in that system. You know they have really cut back to just the basics, and they're still not going to be able to fully finance what needs to be done. Central government needs to be a partner in that process."

The party's Local Government spokesperson Kieran McAnulty says the government is not doing enough to support councils with their costs.

"No, they're not, they're making it worse," he says. "So by repealing water reform they put extra pressure on councils and they've had to raise rates as a result, they've said that themselves.

Kieran McAnulty Photo: RNZ / Reece Baker.

"The minister dismissed the recommendations from the review into the future of local government - that has put more pressure on councils because the only option they have is rates. I happen to think rates is the biggest issue facing households moving forward and the government is doing nothing about it."

Barry says that dismissal is the minister's prerogative, but "it all comes back to funding and financing, to growth, to a number of priorities which the government actually has signalled they want to make progress on.

"Rather than trying to reinvent the wheel, let's take the good things that we can agree on from that report and work towards them rather than asking another working group or another committee to come up with another report that sits on a shelf."

He says the sector has a good relationship with the minister, but "the one thing that is disappointing at the moment, is not feeling like we're actually making genuine traction on these sort of big issues that are impacting councils day to day".

"I think we need to be real that with the state of our infrastructure in particular, nothing's going to suddenly become cheaper. But we know that there are different ways you can fund and finance long term infrastructure if there is a willingness for all of us to come together, and work on that."

-RNZ.