National leader Judith Collins, who had part of the announcement leaked to her, described it at a "taxpayer bribe to save the flailing Three Waters reforms".
"The Government has now turned to old school bribery tactics," Collins said.
Mahuta used her speech at the conference to plead for all 67 councils who own water assets to sign up to the reforms, saying they will "have the best chance of success if all councils participate".
"The reforms are about acting for the greater good, with significant benefits to all communities," Mahuta said.
The Government's package would be split into two parts. The first would be to ensure councils were "no worse off" and the second would ensure councils are "better off".
The "no worse off" part of the package will comprise $500 million of investment to "provide certainty for local authorities that they will be supported through the transition process, and to ensure the financial impacts of reform will be managed."
Councils will use that money to address the costs that come with transitioning to a new system like transferring the assets, liabilities and revenue earned from water services, as well as the loss of staff to a new water entity.
There had been concerns from councils that losing water assets to the new water entities would leave councils with weaker balance sheets, meaning they would be less able to continue doing their non-water work.
The "better off" part of the package will comprise $1b from the Government and $1b raised from the new water entities.
This money can be used by councils to "support" the reforms, but the Government said councils also have the option of spending it on other non-water "wellbeing outcomes" like climate change, housing, urban design and planning.
The Government has been overseeing a reform of New Zealand's stormwater, wastewater and freshwater infrastructure since it took office. It responds to concerns that the councils that own water assets have not been spending enough to maintain them, leading to leaks and contamination.
Research commissioned by the Government has suggested between $125b and $185b will need to be invested in water assets over the next 30 years to maintain high-quality service, well short of what councils plan to invest in water over the same period, which is around $45b.
Merging water assets into four large entities will create massive economies of scale. Each entity will also be allowed to borrow money to invest in water infrastructure. The councils will jointly own the new water entities, although they will have far little control over them. The Government estimates that without reform the average household bill for water services could be as high as $1900 to $9000 by 2051.
However, with reform those bills could be trimmed to between $800 to $1640 a year.
