Local authorities risk becoming unsustainable in coming years unless smarter solutions are developed to help them meet the massive infrastructure and climate change (panoni āhuarangi) costs they face.
So says an independent review report on New Zealand local government (pūtahi matakōkiri), which highlights the problems and presents some solutions for restructuring funding. The report is open to submissions until late February.
Associate Minister for Local Government Kieran McAnulty welcomed the report. The last major review and shake up of local government occurred in the late 1980s, with multiple amalgamations and the formation of some unitary authorities.
But McAnulty said amalgamation was not a given from this report – though it could become one if no changes are made and some councils continue to “limp along” until amalgamation becomes inevitable.
“This is an effort to be front-footing that future. Finding out what their issues are,” he said.
NZ has 78 council bodies including 61 district councils, 11 regional councils and six unitary authorities.
The report pulls no punches, citing issues with local government often sheeted back to central government decrees on policy direction.
It calls for more genuine local-central government partnerships, demanding a “fundamental reset” of trust between the two.
“What I heard from my tour around councils is they welcome the opportunity to have as much of a local focus as possible. But there is a balance to strike, you need to ensure the council’s funding structure is adequate to do that,” the minister said.
The report’s authors say that over the years councils have faced increased “unfunded mandates” from central government policy, with councils bearing the cost of enforcing the policies.
The expectations are accompanied by high-cost demands on councils, with capital costs to improve infrastructure expected to exceed $50 billion over multiple generations in coming years.
Over the past 70 years local government’s share of tax revenue has remained at about 2% of GDP, while central government’s share has almost doubled to 40% in 40 years.
There is a distinct disconnect between central government’s view on what is “good for NZ”, versus councils’ view on what is “good for the community”.
The resulting relationships have been described as “ad hoc, misaligned and low trust”.
Compounding problems for many councils are static or declining rating bases, putting the traditional rating revenue model in peril.
The report says simplification is necessary, alongside the development of other funding sources. Models could include road congestion charges, bed taxes, more targeted rates, volumetric charging for water and the raising of bonds to fund specific infrastructure projects.
The Provincial Growth Fund created by former minister Shane Jones was cited as an example of a successful funding model that has even greater potential.
The fund injected $1b a year over three years into provincial projects identified by local councils. The report’s authors suggest it could also be applied for larger population centres.
McAnulty acknowledged the funding challenges, saying alternatives are essential to avoid another wave of amalgamation.
The charging of GST on rates, described as a “tax on a tax” that generates about $1b a year in income, could also provide a funding source for helping councils deal with climate change responses.
The report says insurance companies are already starting to challenge the insurability of some regions’ properties, noting that funding tends to move from crisis to crisis. There is a need for a large fund to enable proactive changes, it says, and it must have ongoing and enduring political support through election cycles.
Meantime, getting the central government to pay rates on property it owns could also provide more local council income.
McAnulty said the government is open to any ideas on funding, including the option of channelling rating GST income to a response fund.
“The changes that come from the review will need to be led by the local sector. We will not be recommending amalgamation. It is up to districts, whereas in 1989 it was forced, and it has taken many 30 years to adjust to that,” said McAnulty.
