Prime Minister John Key says councils will have to apply a 'public good' test to their spending under proposed new changes, but concedes such a test could apply to a range of activities.
The Government is revamping local authorities, including requiring them to be more focused and transparent about their finances. The new legislation will be introduced in Parliament in May this year.
Mr Key says applying a public good test will help focus councils on core activities.
"Because there was always the risk that councils themselves feel under huge pressure from their ratepayers to explore other areas which are really the domain of central government.
"What we're saying is, here's the demarcation line - it's a little narrower than it was in the past, but there's still plenty of scope."
The Prime Minister says the public good test could apply to all sorts of things.
"Now there can easily be a public good in hosting an event like Volvo round-the-world yacht race. There's clearly a public good for Auckland - it'll bring tourist dollars in.
"If it tends to focus the mind of councils on core activities like the provision of infrastructure or very important services, I think that's a good thing."
Local Government Minister Nick Smith will begin meeting mayors and council chief executives on Tuesday to discuss the changes.
Labour faults 'ad hoc' definitions
Labour leader David Shearer says the Government needs to be clear about what council services will be affected under the proposed changes.
Mr Shearer says Dr Smith is confusing the picture by saying some activities are out under the narrower definition.
"He's saying social housing's fine, the Volvo round-the-world race is fine, fireworks displays are fine - he's in fact defining as he's going in an ad hoc way what's in and what's out."
United Future says the changes will give much greater direction to councils about spending ratepayers' funds.
But New Zealand First says some aspects of local government do need to be reined in, but warns if cutbacks are too severe, local communities will suffer.
MP Andrew Williams, a former mayor of North Shore City, says at present, local government provides services such as housing for the elderly and amenities for the disabled.
Mr Williams says he is not altogether confident that central government would step into the breach if local councils stopped providing those services.
The Green Party say local authorities have already received the Government's message about spending, and changes to their functions are unnecessary.
Spokesperson Eugenie Sage says councils have reduced their non-core service spending by $185 million in the past two years.
Ms Sage believes the radical changes will also put important local infrastructure projects on the backburner.
