There’s a lot to ‘sort out’ with local government at present, but Ian Fletcher takes his best shot – first diagnosing their ailment, before prescribing some paths to recovery.
By Ian Fletcher
The advice I would give an incoming government would cover a lot of the things I’ve written about over the past two years: fairer, higher taxes; a focus on higher productivity and better infrastructure; managing health (and education) as proper systems, not just as ‘simple’ businesses. And, I’m pleased to say that many of these issues have entered mainstream discourse as serious propositions. It might be going slightly too far to say the Advocate leads the way, but we’re certainly up there.
What’s missing from this reforming agenda? Sorting out local government. Any of us who pay rates will know that these are rising steeply. Rates plus insurance are rising even more steeply, as insurers start to price in the seismic and weather risks we face almost everywhere.
Steeply rising property taxes and insurance charges like this are pernicious. They are regressive (so they hit the poorest of us relatively harder). For renters, rates and rising insurance costs are passed on by landlords (of course). For homeowners, they are a big extra charge.
Councils are in a bind. They get their revenue from rates, or borrowing. As elected bodies, they flinch in the face of having to raise rates sharply, and so try to cut costs and maybe borrow more. The result is deferred maintenance and lack of investment in local systems and services. Wellington’s literally collapsing water system is an extreme example, but the problem is everywhere.
And it’s going to get worse. I wrote at the time that local authorities would quietly welcome Labour’s Three Waters plans, as it would get these horrific costs off council balance sheets and onto the Crown’s broad, borrowing shoulders. I think that was right; however, the proposals were derailed by the ugly politics around co-governance. But the huge future costs remain.
Sometime central government gets involved in local issues, often because the politics of launching a big new project look appealing, and sometimes because Councils just haven’t got the financial stamina.
But this process is also pernicious: it shows that Councils are dependent on Wellington for big decisions and big money, which means they don’t build the skills or the local mana to do better. These big project costs are made worse by the delayed ‘sticker-shock’ effect: projects are launched with optimistic budgets (maybe ‘delusional’ is a better word), which then inflate up to a realistic number, at which point central government itself tries to pull out or scale back, and a blame game ensues. Auckland light rail is the obvious example, but Dunedin Hospital and Cook Strait ferries are examples where central and local issues have become conflated, and local concerns have been sidelined.
What can be done? I think the first point is to recognise just how broken the current system is. We expect rate-funded Councils to meet a lot of costs – roads, water and sewerage, refuse collection and disposal, tourism, parks, libraries and recreation, civil defence, building and environmental standards, food standards. And that’s before we get to the impact of climate change on flood defences and land use. It’s a lot, and it matters.
Obviously too there are extra strains where new growth means lots of new housing, roads, water supply, and so on, as well as responding to demands from climate change and associated flood risks, updating infrastructure, and meeting community expectations around recreation, libraries and tourist facilities. Gulp. It’s a lot, and a lot of it is unpredictable or unavoidable expenditure. A growing, aging population is hard to please.
The system is broken, but not beyond repair. There are two obvious short-term steps that can be taken. The biggest would be to have the Crown pay rates on Crown land (or even on some Crown land). That would bring schools, hospitals, prisons, and other premises into the rating system. These institutions use the water, roading, refuse collection and other systems provided locally. At present, they don’t pay.
The second would be to remit the GST on rates back to Councils. At present Treasury keeps the GST, which amounts to one level of government taxing another (something that the Australian Federal Constitution explicitly prohibits, interestingly).
Of course, both steps are in some way tinkering, moving money from an under-funded centre to under-funded local government. They would make the system visibly fairer, but not better off. That can only be achieved by raising more tax revenue.
Rates are a property tax. There is a strong case for property taxes. But as currently constructed, rates hit the poorest hardest, and politically it’s very hard to raise them to the point needed to raise meaningful new money. A new settlement is needed.
What might that look like? Rates could be levied against property, but rebated for lower incomes (The UK has a rather crude system here, with rebated Council Tax for single-occupant households). That would still sting those just above the thresholds, and would be hard to justify. A proper capital gains tax (desirable in itself) could be shared with local government (as Australia does with GST and the States). Or we could have local income taxes (as many countries do). All unpalatable, but better than the slow decline in services and ratepayer impoverishment going on now.
All of this would be easier if local authorities were bigger, and more able to aggregate their financial resources against the uncertain times ahead. The Auckland ‘super-city’ idea was a good one; we need similar aggregation across the rest of the country. And we need to face up to finding the money to pay for the future local services and environment we all want. That would be real leadership. Who will step forward?
Ian Fletcher is a former head of New Zealand’s security agency, the GCSB, chief executive of the UK Patents Office, free trade negotiator with the European Commission and biosecurity expert for the Queensland government. These days he is a commercial flower grower in the Wairarapa and consultant to the apiculture industry with NZ Beekeeping Inc.
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