Local govt review has $129b baby

There are several good reasons to pay close attention to the independent review of local government announced last week by Local Government Minister Nanaia Mahuta — most of them flying like winged dollar bills from our back pockets.

The big picture in the review, it is claimed, will explore how councils can maintain and improve the wellbeing of New Zealanders in the communities they serve, long into the future.

Announcing the review this time last week, Minister of Local Government Nanaia Mahuta said it will focus on how our system of local democracy needs to evolve over the next 30 years.

The review panel will consider what local government does, how it does it, how it pays for it, and explore local government’s future, including: roles, functions and partnerships; representation and governance; funding and financing.

The “how it pays for it” is an area that should stir some interest.

The current model is largely based on taking rates — a form of property tax — from property owners.

Our system is based on a form of land tax devised upwards of 950 years ago to raise monies for William the Conqueror.

The rub being, we have been saddled with this system while other tax regimes have been layered on top such as PAYE and taxes on goods and services — most notable recently a regional fuel tax and a tax on the profits from houses sold within 10 years of purchase.

To handle the rates raised, we run a triennial popularity contest in which the winners pledge to raise the least amount of rates and are elected on to local territorial authorities where they attempt — for better or worse — to make good on that promise.

A 2018 review of local government funding, undertaken for the Department of Internal Affairs, found New Zealand councils typically collect around 60 per cent of their revenue from rates, with an additional 15-30 per cent coming from “other income” such as user-pays fees for amenities.

However, there is a large range, with some councils receiving as little as 49 per cent of their revenue from rates through to as much as 74 per cent.

The Morrison Low report in July 2018 found that rates are becoming less affordable for all groups of ratepayers over time, with rates increasing faster than average household incomes, Consumer Price Index (COPI), average household living costs or the Local Government Cost Index (LGCI).

Both historical and forecast rates increases exceed wage growth, CPI growth and LGCI growth. Rate rises at that level are not sustainable.

The tithing of households and businesses has, however, failed to even maintain operating budgets for these local authorities.

In September last year, an Infometrics report found debt

"The tithing of households and businesses has failed to even maintain operating budgets for these local authorities.

levels in councils “continues to increase as population pressures, tourism growth [since affected by the Covid pandemic], and ageing infrastructure come together to form a perfect storm”.

The hand-to-mouth existence for local territorial authorities leaves us needing an estimated $129b investment in infrastructure funding over the next decade just to keep basic amenities running.

So, given this parlous and worsening situation, how can councils maintain and improve the wellbeing of New Zealanders in the communities they serve, long into the future, as Mahuta’s review would have it?

That will be the job of a panel led by Jim Palmer, a recently retired chief executive of the Waimakariri District Council.

The timeline is ambitious for a problem 950 years in the making. The review will issue an interim report on the probable direction in September this year.

This will be followed by a draft report for public consultation in September next year, and a final report in April 2023.

Keep an eye on the review, and a hand on your back pocket.