Setting a limit on the level of rates would lead to services becoming run-down, Local Government New Zealand says.
The organisation commissioned research in response to the Local Government Minister Rodney Hide's proposal to cap rates.
Local Government New Zealand president Lawrence Yule says the research showed rates capping in the Australian state of New South Wales has resulted in an infrastructure backlog and ratepayers' expectations exceeding what councils can afford.
Mr Yule says New Zealand households pay on average $1,500 to $18,000 a year in rates which he describes as good value for money.
He says councils would breach the Local Government Act (2002) if they failed to raise sufficient rates to maintain assets for future generations.
However, Wanganui Mayor Michael Laws says the main reason for skyrocketing rates is local government extravagance, not run-down infrastructure, and restrictions on rates increases are long overdue.