The government plans to splash $2.5 billion on ensuring the Three Waters reform programme leaves no council worse off.
Local Government Minister Nanaia Mahuta and Prime Minister Jacinda Ardern announced the funding along with a joint statement with Local Government New Zealand at the organisation's conference in Blenheim this afternoon.
Opposition leader Judith Collins says the funding amounts to a bribe, and while National is in support of funding it would tie the funding for councils to housing provision.
The government's proposed reforms would see management for the country's 67 councils' storm, drinking and waste water - the "three waters" - moved into the hands of four regional entities which would begin operations from 1 July 2024. Ownership would remain in councils' hands.
Councils themselves have mixed views on the idea, with Auckland in particular saying it had already invested into its water systems and amalgamating its assets with other councils in Northland would not benefit Aucklanders.
Whangārei District Council voted to opt out even before the reforms had been officially announced, and National and the Greens have warned that if enough councils pull out the government may need to force them into it.
Hapū and iwi have also expressed concerns the centralisation of water services would not have Māori representation.
Reports have warned that water infrastructure across New Zealand is sorely in need of a revamp with up to $185 billion required to be spent on water systems by 2051, raising the spectre of hugely increased water rates bills from councils.
The joint statement from LGNZ and the government said they had agreed to a set of shared objectives, including equitable and fairly priced access to water services for New Zealanders and protections against privatisation.
It said the proposed government package would support local government to invest in their communities' wellbeing, ensuring no council would be financially worse off after the reforms and making clear that central government would "cover reasonable transition costs".
Some $2bn would go to help councils, with $1bn each from Crown funding and the new water service entities, and would be apportioned based on relative need, the unique challenges facing local authorities in meeting those needs, and the ability for councils to pay for it.
Auckland would see the most benefit, with more than $508m heading its way.
The remaining $500m from today's announcement was to be set aside to provide certainty for local authorities that they would be supported through the transition process.
Mahuta said councils were facing significant pressure, but central and local government had very similar goals and it was important they work together.
"The reforms are about acting for the greater good, with significant benefits to all communities, but they will have the best chance of success if all councils participate. We are working with the sector to ensure everyone understands the reform-related information, and to explain the policy proposals, the benefits of reform, and the details of the support package," she said.
She said councils would be able to use the funding - which was in addition to $761m committed to the reform programme in 2020 and $296m in Budget 2021 - to support the Three Waters service reform and focus on other local wellbeing outcomes associated with climate change and resilience, housing and urban design and planning, and community wellbeing.
Ardern said the package would also stimulate local economies while creating jobs and unlocking infrastructure for housing.
"Overhauling our drinking, waste and stormwater services will benefit all New Zealand communities, no matter where they are in the country," she said.
The government estimated the reforms would grow GDP by up to $23bn and create up to 9000 jobs.
Collins however said the new funding was a taxpayer bribe, and an attempt to save reforms that were flailing.
"First the government tried to scare ratepayers by going behind councils' backs with a taxpayer-funded propaganda ad campaign. As that didn't work, the government has now turned to old school bribery tactics," she said.
"Our approach would be to tie this to requirements for councils to build housing."
She said the government had created a slush fund to buy councils' compliance.
"These reforms are poorly conceived and will result in low accountability, bloated service entities, more bureaucracy, and messy cross-subsidising between neighbouring regions. The claimed scale benefits and cost savings remain unconvincing."