We need to talk about council funding

LOCAL government does not get the best rap in this country. Voting rates are low, elected members display alarmingly variable abilities, and an impression exists that councils handle only the most boring matters.

Local Government New Zealand, the umbrella body for the sector, therefore won’t make too many new friends by suggesting councils need whole new ways of collecting money.

Yet it makes the case reasonably, and should be heard out. Rates, it suggests, will prove increasingly inadequate and unfair to collect in coming years. Demographic trends are leaving more people asset-rich but cash-poor – elderly people in homes that have jumped in value around them, for instance. Their rates are highest when they’re least able to pay them.

LGNZ president Lawrence Yule says many regions have increasingly smaller and poorer populations over which to spread infrastructure costs.

Meanwhile, those costs are growing – notably with earthquake-strengthening, possible new water standards, and ageing roads and drains to replace.

Instead of levying only property taxes (rates), he has floated all sorts of new possibilities: local income taxes, a local form of GST, road congestion charges, visitor charges or payroll taxes.

Let’s say it now: all of these sound unpalatable. Income taxes have long been the preserve of central government, GST burdens the poor disproportionately, road congestion charges enrage motorists and visitor charges discourage tourism.

Which isn’t to say any of them should be ruled out. It just means there is a high burden on councils to show they need new ways of raising cash.

The Shand report of 2007, called after an outcry over rates hikes, recommended councils take on more long-term debt to fund infrastructure projects.

Compared with central government, local bodies have little debt – a superficially pleasing fact, but one that means infrastructure projects set to last for decades get paid for up front with high rates.

The report also suggested central government could start a large fund to help councils manage water. With the amount of current uncertainty around water quality and policy, that still sounds like a good idea.

Saliently, it pointed out that rates are the only form of property taxes in New Zealand – a country where, generally, ‘‘property is lightly taxed’’.

So perhaps there are other ways to take the heat off local bodies. Then again, the Shand report has been roundly ignored for the past seven years. Reviving it might be too much to hope for.

Meanwhile, if nothing at all changes, the consequences are potentially ugly. While they may not get much praise, we have high expectations of local bodies – to provide quality services, to regulate fairly and to keep cities running. If they can’t do it, we’re in trouble.

The local bodies have started a good debate. They will keep it going with a coming review. They need to spell out how bad the problem is – and why rates and prudent borrowing can’t fix it.