Funding options for local government

July 22nd, 2015 at 7:00 am by David Farrar

Local Government NZ has released a 10 point plan on how to fund local government and incentivise economic growth.

I’m against an increase in the overall funding for local government, but do think the current rates based system is inadequate, and we should look at other complementary methods.

One problem with having local government funded by rates, is that local councils do not benefit from local economic growth, and hence are often not incentivised to support economic growth. Central Government does benefit from economic growth – an increase in the economy leads to more income tax and GST revenue.

Their 10 points are:

  1. An agreed priority and action plan to advance “special zones” for growth to test new ideas and drive economic prosperity
  2. When new centrally imposed costs are considered (and particularly where national benefit applies) a cost benefit analysis and agreed cost sharing with central government should be mandatory
  3. Mandatory rating exemptions should be removed
  4. The application and administration process of the rates rebate scheme should be simplified to increase uptake
  5. Better guidance is needed to assist councils make decisions on trade-offs about whether to fund services from prices (user charges) or taxes
  6. Road user charges, targeted levies and fuel taxes should be allowed where it is economically efficient
  7. Councils should be able to retain a share of any value uplift arising from additional economic activity related to local intervention and investment
  8. Local authorities should receive a proportion of any mineral royalties attributed to local activities
  9. Allow councils to levy specific charges and taxes on visitors where economically efficient
  10. Reconsider the decision to limit the range of community amenities funded through development contributions

I especially like the first proposal – the ability to trial new ideas in special zones. We should have the flexibility to trial out different ways of funding new areas. To some degree, a lot of the economic growth in China has come from areas with special zones.

I also support the ending of most mandatory exemptions from rates. Everyone should pay their fair share whether they be the Government or churches.

Also been a long term advocate of road user charges and congestion charging so that transport is funded on a user pays basis, not on the basis of the value of your house.

And there is much merit in allowing local authorities to get a proportion of mineral royalties from their regions, as that would incentivise them to support economic activity in these areas.

Well done to LGNZ and their review group for a useful document. However again I would caution that these should be seen as alternate way to fund activities, not additional ways on top of rates – ie any new income sources should be compensated for by reductions in rates.

NZers views on local government

May 25th, 2015 at 4:45 pm by David Farrar

LGNZ have had Colmar Brunton do a large survey of NZ residents and businesses on local government. The initial results aren’t complimentary but it is a smart move by LGNZ to do such research, because it provides a benchmark to try and improve against for their member governments.

The survey is here. Some extracts:

  • Performance rated 28/100
  • Local leadership rated 26/100
  • Communication and interaction rated 32/100

The bottom three areas for the public are:

  • Trust to make good spending decisions
  • Value for rate dollars spent
  • Managing finances

Councils need to learn to live within their means. Rates should stay constant, except for inflation and population. Annual increase of 3% to 10% are antagonizing the public.

The five most important services for the public are:

  1. Roads 45%
  2. Town facilities and amenities 42%
  3. Water supply 30%
  4. Rubbish/recycling 26%
  5. Sewerage/wastewater 18%

So Councils should focus on the basics above, and do them well.

Again a very good initiative by LGNZ doing this research, Hopefully Councils will take it into account.


October 3rd, 2013 at 3:00 pm by David Farrar

Brian Fallow writes in NZ Herald:

Local Government New Zealand and the New Zealand Initiative are calling for more public services to be provided by local government and funded by local taxes.

At least they would like to see a debate about whether the split between the responsibilities of central and local government is optimal.

NZ Initiative executive director Oliver Hartwich said New Zealand was an outlier among developed countries in having so small a share – 11 per cent – of total government spending undertaken at the local level.

The OECD average for spending by levels of government below central government was 30 per cent, he said, and only Greece and Ireland were more centralised.

We are unusual in having only two tiers of Government – central and local – no provinces or states. Now that I advocate that.

Local Government NZ chief executive Malcolm Alexander said a greater devolution of real authority to local government might encourage greater participation by the public, pointing to reports that in the local body elections now under way only 10 per cent of eligible voters in Auckland have voted so far.

The Swiss Ambassador spoke at an event last night on this topic. She mentioned that in Switzerland all powers started with the cantons etc and over time they decided what to hand upwards to the Federal Government, such as currency and military. In NZ all power rests with central Govt and local government is a creation of central government.

While attracted to the idea of local income taxes, Hartwich stressed that he was talking about re-allocating tax between central and local government, not an overall increase.

Absolutely. I have some attraction to the idea of taxes rather than rates to fund local government. Rates increases are only paid by home owners and businesses (directly) and any increases are often hidden by the fact your house’s value may have changed. I suspect it would be harder for a local Council to increase a local tax rate than it is to increase rates.

Hartwich has a paper on localism here.

Bill English also spoke last night and made some great points on the resilience of local communities and how locals care far more about local outcomes than officials in Wellington, and spoke about some of the pilots around the Waikato where some local initiatives are achieving great things.

All aboard to Queenstown

July 14th, 2012 at 9:52 am by David Farrar

The Herald reports:

One mayor, one city – but 36 delegates from the Auckland Council will be at the Local Government NZ conference in Queenstown, costing ratepayers more than $93,000.

Six councillors, 22 local board members, three Maori Statutory Board members and five council staff fly to Queenstown tomorrow for the two-day conference.

They will stay in the “spellbinding luxury” of the Millennium and Copthorne Resort Lakefront hotels.

36 delegates? Really.

The cost per delegate is $2600, including registration, flights and accommodation. Taxis, meals and other expenses are to be added.

That’s a fair bit for a two day conference. I’m sure it would have been cheaper in Palmerston North.

Local Govt reform

March 12th, 2012 at 11:00 am by David Farrar

Andrea Vance at Stuff reports:

The Government is set to introduce sweeping reforms to curb local council powers and get soaring debt levels down.

Troubled by escalating rates and in line with National’s public sector reforms, Local Government Minister Nick Smith wants to make elected representatives take more responsibility for wage bills and the generous packages offered to chief executives.

And he will pare back the scope of local government functions so they will only have control of essential local services such as waste, water, roads, libraries and consents.

The reforms will also require authorities to be more “prudent” in event management. It follows David Beckham’s 2009 football game which lost Auckland Regional Council $1.79 million and the saga of the V8 Supercar races which cost Hamilton ratepayers more than $40m.

Dr Smith is concerned that local government debt has burgeoned from $1.5 billion to well over $8b in the past decade. At the same time, rates have climbed 6.85 per cent.

That’s 6.85% a year, which is not only higher than inflation, but higher than both economic and wage growth. Quite simply it is unsustainable.

He believes the blowout stems from 2002 legislation which introduced the “power of general competence”, widening the scope of council responsibilities. Dr Smith said he was “fundamentally re-evaluating that structure”.

“[Councils] can do anything they like. In the Auckland plan, they have set targets for NCEA pass rates by 2020 … nothing to do with the council.

The power of general competence was an expensive mistake. However once granted, it can be very difficult to undo.

Local Government New Zealand president Lawrence Yule said his organisation would work constructively with the minister but councils were “uncomfortable” with some of the proposals.

The sector did not believe debt was a problem, he said.

“The debt servicing costs sits at about 5.8 per cent of the income level of councils. The world best-practice model says it should be under 10 per cent. Most of that debt is in infrastructure. It’s not frilly things, it’s in water systems, wastewater systems and some big roading projects that are going to last 50 years.”

Debt is the appropriate method to fund capital works. But not all of the $8b debt is infrastructure.

I’m also unsure about that 5.8% of income figure. If debt is $8b, then the servicing cost is say 6% so $480m a year. If $480m is 5.8% of revenue, that suggests revenue of $8.3b for local government.  As the Auckland Council has revenues of $1.9b, I doubt total local govt revenue is that high.

Incidentally the Auckland Council has finance costs of $221m on income of $1.87b, which is well over the 10% best-practice figure quoted.

UPDATE: Good to see Hamilton Mayor Julie Hardaker supporting the need for reform, saying:

The Government must give more clarity about what local government should do and, more importantly, should not do. Councils need to be able to explain their decisions for focusing more on the delivery of traditional services and push back on the numerous requests for funding marginal activities.

Hardaker is a first term Mayor whose Council is struggling with the legacy of some white elephant projects approved by previous Councils.

November 2nd, 2011 at 7:00 am by David Farrar

Local Government Online had a nifty portal last year for the local body elections. Well they have used that template to do the same for the general election – at

They list the candidates for every electorate, plus all the parties and their lists. Parties and candidates can upload material to it, and you can ask questions to the candidates.

I found their sister site for local body elections really useful, and this one should be a great resource also.

Local Body Elections

August 2nd, 2010 at 10:00 am by David Farrar

The Dom Post reports:

A website designed to help boost the country’s low voter turnout figures for local body elections has gone live.

The website,, is a one-stop shop that aims to equip voters with all the information they need to vote in October’s local body elections.

Just 44 per cent of eligible local body election voters cast ballots in 2007.

By keying their residential address into the website, voters are instantly told which council and ward they are eligible to vote in and which candidates are standing for council and mayor.

The site contains detailed profiles on each candidate, including information on their political leanings, conflicts of interest and five main issues.

There are also links to candidates’ Facebook and Twitter pages and pre-recorded video addresses, and voters can post questions to candidates online.

The site, developed by Local Government Online with backing from Local Government New Zealand, also details which other entities voters are eligible to vote for, including district health boards and various local trusts. It will contain information on thousands of candidates, trusts, councils and boards.

What a good initiative.

I stuck in the street I live on, and it listed the four elections I can vote in, and where they have been supplied, a link to a candidate’s page.

What would be good is to take this further, and actually allow people to cast their votes via the Internet. One could have a ballot paper with hyperlinks to candidate’s pages. That way people would gain far more info than the usual 200 word biography you get in the post.

Well done to LGNZ and LGO for creating this.

Rodney on right track for local government

June 10th, 2009 at 9:44 am by David Farrar

A very good NZ Herald article:

Local Government Minister Rodney Hide is looking into law changes that could divide council spending between core services, which councils could automatically spend money on, and “extras” – cultural, environmental and social spending and business investments that could require approval from ratepayers.

I like the concept. It empowers ratepayers, while allowing Councils to perform core services without the possibility of inadequate funding.

Mr Hide has not listed all the services he considers core council responsibilities. But he said it would be a wide definition encompassing running libraries, transport and water services and rubbish collection.

Yesterday he listed Hamilton City Council’s investment in the Novotel hotel, Invercargill City Council’s investment in a Lotto franchise and South Taranaki District Council buying the Hawera movie theatre as examples of councils going beyond core functions.

Absolutely. And what Rodney is saying is not that Councils would be banned from doing this, but they have to get ratepayer approval.

Mr Hide said he would like voters to be able to indicate at local body elections how much they would be willing to pay in rate increases over the next three years.

Also a good idea.

Local Government New Zealand governance manager Mike Reid said many councils would not bother with innovative projects if they had to hold a referendum first.

“Invercargill could have held a referendum [on the Lotto shop] but the people on the local community board probably felt they knew what people wanted because they saw them every day in the supermarket,” he said.

If the community board members thinks it is an innovative project based on their supermarket conversations, then they can invest their own money into it – but their role is not to forcibly take money from ratepayers to spend on commercial competitive businesses.

“Any council that exposes itself to too much [financial] risk can be expected to be removed at the next election.”

Mr Reid cited Auckland City as an example of a council that had been changed several times because ratepayers were not happy with spending.

Yes, but by then the spending has occured and is generally not reversible.

Taking decision-making powers away from councillors would stop energetic and entrepreneurial people standing for local bodies, he said.

Councils are not meant to be entreprenuers. You want entrepreneurs when it is their own money they are risking – not everyone else’s. If Council has commercial subsidiaries then entrepreneurs can be appointed to those, but it is ridicolous to think that people get elected to territorial local authorities on the basis of their entrepreneurial activities.

“If it was such a great idea [requiring ratepayer approval] central government might like to apply it to itself, because we’re talking about quite small amounts of money.”

Also not a bad idea. Central Government should not be buying or establishing businesses in competitive sectors.

Gerard Langford, of South Taranaki District Council, said his council bought the Hawera cinema building for $1 million two years ago because the private owners were about to close it.

The community supported keeping the movie theatre, which was run by a trust using money from ticket sales and advertising, he said.

And if the ratepayers gave their approval, they still could.

Kids Voting 2008

November 27th, 2008 at 9:29 am by David Farrar

Local Government NZ, along with NZ Post, ran a simulated election amongst secondary school students alongside the general election. This is a great civics initiative and 13,000 voted.

And those who want a smaller Parliament will be delighted with the results – a Parliament of only 107 MPs!

How is this possible? It is an obscure feature called underhang – the opposite of overhang. Let us look at the results:

  1. National 28.4%, 36 seats, 29 elects, 7 list
  2. Labour 25.0%, 32 seats, 16 elects, 16 list
  3. Bill and Ben Party 11.7%, 15 seats, 0 elects, 15 list
  4. Greens 11.2%, 14 seats, 0 elects, 14 list
  5. Legalise Cannabis 10.5%, 13 seats, 0 elects, 13 list
  6. Maori Party 4.9%, 6 seats, 6 elects, 0 list
  7. ACT 1.9%, 2 seats, 1 elect, 1 list
  8. NZF 1.0%, 1 seat, 1 elect, 0 list
  9. United Future 0.7%, 1 seat, 1 elect, 0 list

Now the Bill and Ben Party only had two candidates (Bill and Ben!) on their party list, so there would be an underhang of 13 MPs for a Parliament of 107. This means to form a Government you need 54 votes. So what would the Government be?

You could do National 36 + ALCP 13 + Maori 6 = 55

More likely is Labour 32 + Greens 14 + ALCP 13 = 59

The electorate seat won by NZ First was actually in Tamaki, so their sole MP would be a Doug Nabbs.

They have given results for each electorate also. Below are the seats where a different party would have won the electorate vote if the kids were the real electors:

  1. Auckland Central – Labour
  2. Bay of Plenty – Labour
  3. Dunedin North – National
  4. Invercargill – Labour
  5. New Lynn – National
  6. Rimutaka – National
  7. Tamaki – NZ First
  8. West Coast-Tasman – Labour
  9. Whanganui – Labour
  10. Wigram – National
  11. Ikaroa-Rawhiti – Maori

It is great to see the kids encouraged to take part in mock elections and vote. The results do show though why the Greens are bonkers with their campaign to lower the voting age to include 16 and 17 year old schoold students.

Congratulations Lawrence and Kerry

August 1st, 2008 at 8:36 am by David Farrar

Aaron Bhatnagar blogs on the results of the Local Government NZ elections which saw Hastings District Mayor Lawrence Yule elected President and Wellington Mayor Kerry Prendergast Vice-President. I expected Lawrence to win the top job as the smaller councils do tend to be a bit wary of the larger Councils dominating.

One can understand they are so wary, when you see what Waitakere Mayor Bob Harvey said:

Yesterday, Mr Harvey wished Mr Yule well – but then launched a fresh attack, saying urban centres were the powerhouse of the economy but would continue to be denied a voice in local government.

“The country survives on the strength of the cities and what we bring to the economy. Local government believes it is based around a bunch of cow cockies,” he said.

“I’d rather have cities than cows. It’s always anti-Auckland, it pulls down the competitiveness of New Zealand. It holds New Zealand back. It’s a bizarre sort of thinking that the cities need to be punished. “The rural sector has always dominated local government. This is the sector with their roads that no one drives on, and places no one goes to.

“They think a farmer from Hawke’s Bay can spend that amount of time profiling local government. That’s what they voted for.”

And people wonder why the term JAFA is so popular. Harvey is arrogant and ungracious.

The battle for the Local Govt NZ Presidency

May 16th, 2008 at 12:28 pm by David Farrar

Two Mayors are standing for the presidency of Local Government NZ. Lawrence Yule from Hastings and Wellington’s Kerry Prendergast.

I have the privilege of knowing both contenders, so can say I think it is excellent they whatever the decision, Local Government NZ will be well served.

I’ve known Kerry (and Rex) for a long time, as you would expect in the small city that is Wellington. Lawrence I have got to know through a mutual friend and he is a very nice guy.

Nominations are open until 31 May, so there may be other contenders. It’s a pretty high profile and influential position so will be interesting to see how it goes.

Councils reject Government housing affordability bill

March 24th, 2008 at 8:33 am by David Farrar

Every Council that has submitted on the Government’s Affordable Housing bill is against it, and Local Government NZ has said it does not know of a single Council who would use it, if passed.

Here are some quotes:

Auckland said the bill would require it to analyse who qualified as needing an affordable home.

“This bill requires [councils] to take an interventionist role in social policy and the domestic arrangements of residents that Auckland City Council does not consider appropriate for local government.”

Indeed.  It means big rates rises for everyone, including oh yeah home owners.

Manukau City’s submission called for the bill to be withdrawn, saying it left councils and ratepayers effectively subsidising cheaper houses.

This is all the Government seems to know sometimes. Instead of focusing on fundamentals such as how to improve the overall wealth of NZ, their instinctive response to every issue is merely for rich pricks to subsidise everyone else.

We’ll see this later this year when all taxpayers will be asked to have more of their tax dollars go towards extending paid parental leave.  That won’t stop people fleeing to Australia.

The North Shore City Council said it would need two years and up to $250,000 to establish a policy on implementing the changes.

The bill’s provisions would push up the overall cost of housing, leaving “middle-income New Zealanders” paying more for their homes.

Yep affordable housing for Labour means having “rich pricks” or as NSCC calls them “middle-income NZers” paying more for their housing.