"We've caught things in time to turn the situation around and we're confident we can achieve this over a five-year period."
Mr Williams said the proposed new financial strategy emphasises robust forecasting and simplified reporting to ensure greater understanding by both councillors and the community of the financial impact of council decisions.
A previous lack of transparency and clarity due to complex reporting meant there was no clear view of the council's overall financial position.
He said the organisation had driven debt higher and quicker than it should have and costs had risen faster than revenue, creating an imbalance between income and spending.
"A more strategic approach to financial planning will ensure rates rises, debt levels and capital works will be at sustainable levels and in balance," Mr Williams said.
"We need to re-set spending, particularly on growth, and it means we will have to look at using rates increases over the next few years to start seriously addressing the level of debt.
"We think we'll be looking at increases of between 2.5 and 3 per cent a year for at least the next three years.
"However, this is still lower than what's signalled in the Long-term Plan which was finalised in 2012."
He said the council would also have to reduce capital expenditure, cutting this year's budget from $31 million to about $20 million.
"The Long-Term Plan sets capital spending at $51 million. This is not sustainable so we're already making moves to remedy this."
Mr Williams said budgets for this year had been over-optimistic by about $3 million, or approximately 3 per cent of total budget, so the council would be taking immediate action to live within its means.
This will affect overall spending and has already seen Council's in-house engineering design unit, Hydrus Engineering Consultants, restructured.
Rotorua Mayor Steve Chadwick said she was confident a new financial strategy would get the council on track and ready to deliver on its Rotorua 2030 vision.
"Our vision includes ensuring we have sustainable infrastructure and affordable, effective council services and these measures support those aims.
"The current financial situation has been identified and will be rectified. We now need to focus on getting things right for this district's future," Mrs Chadwick said.
"We've been encouraged by the positive feedback during consultation on our Rotorua 2030 vision and we look forward to the public's ongoing support so we can keep the momentum going and deliver on the direction set with our community."