NZCPR Weekly

Dr Muriel Newman

Contact Muriel:

Email: muriel@nzcpr.com

Phone 09 4343 836
or 021 800 111

PO Box 984, Whangarei

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2 September 2007
The Burdens of Local Government

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“Widow's fury at $111-a-week rate burden”, was the sort of headline that gave rise to the Local Government Rates Inquiry. That news story from July last year told how the rates demanded from Catherine Curlett, a 79-year-old widow who had lived in the same weatherboard bungalow for over 30 years, had risen by 56 per cent in a year from $2929.47 to $4567.44. (click to view news story >>>)

With rates escalating around the country and ratepayers becoming increasingly alarmed and angry, Labour stepped in to defuse the situation by announcing the Local Government Rates Review. At the time, it was largely regarded as a political manoeuvre - to take the heat out of the issue and head off a proposed Select Committee inquiry - since an examination of the new Local Government Act, that was giving rise to the rate escalations, was not included in the terms of reference.

The Inquiry reported back last week, confirming what everyone already knows: local government spending, like a runaway train, is out of control and unless something is done, within 10 years rates will no longer be affordable for some sections of the community. (To read the report, click here >>>)

However, what the report was unable to do, was burrow down into the driving force behind this escalation in spending - Labour’s Local Government Act 2002, which gave councils the power of general competence. This new power enabled them to widen their activities away from their traditional role of providing core services and carrying out regulatory activities, to undertake literally any activity they saw fit. The Act also required them to promote the social, cultural, environmental and economic well-being of their communities.

As a result of these changes, rates are rising faster than ever. In the three years between 1999 and 2002, rates increased 9.5 per cent from $2.1 billion to $2.3 billion. In the three years from 2003 to 2006, immediately after the Act was introduced, rates increased from $2.4 billion to $3.01 billion, a massive 25 per cent!

Author and financial advisor Frank Newman, this week’s NZCPR Guest Commentator, is in the unique position of having served as a local body councillor under the old legislation and then after a six year break, under the new legislation. With only a few more weeks to go before he retires from his role as a District Councillor, I asked Frank to share his experience of how the new Act has changed the way that Councils operate:

“The shift is seismic… Today Council is more like a social agency that thinks it has to deal with every social itch and scratch. Now virtually everything is considered “essential core business”, including stadium, swimming pools, athletic tracks, libraries, tree strategies, strategies for youth, positive aging strategies, walking strategies, cycling strategies, disability strategies, cultural strategies, heritage strategies, strategies for Maori participation in the decision making process, policies for immigrants, plans for civil defence, annual plans, ten year plans (which are reviewed every three years), master plans, structure plans, coastal management plans, district plans, regional plans, and on and on”.

He goes on to say:

“We also have more than our fair share of issues arising from the “politics of phobia”. Over the last three years we have had to discuss the apparently imminent threats of genetic engineering, global warming, bird flu, and tsunami. Remarkably our district has managed to survive all of these crises, but I am not sure our many hours of discussion on these issues can be credited for our lucky escape. It is more likely the phobia were never the threat some assumed them to be. Unfortunately, while we have been discussing such threats to mankind, sewerage has been regularly spilling into the Whangarei Harbour, the most recent resulting in a $10,000 fine from the Northland Regional Council” (to read Frank’s article click >>>).

It is clear that unless the Local Government Act is changed – and that certainly will not happen while Labour is in power - local government spending will continue to escalate. That is of course, unless voters take things into their own hands by ensuring that the candidates they elect onto their councils are committed to reining in council spending.

That is a big task, particularly as many candidates who are existing councillors will claim that rates increases have been “forced” on them by the new requirements of central government. The Rates Review Inquiry found that this argument had been overly “exaggerated”. Similarly they found “little evidence” to support claims again made by sitting councillors that their increased expenditure was needed to “catch-up past under-investment”.

If a majority of the candidates elected onto a council believe that the key role of local government is to develop and maintain core infrastructure - as well as ensuring that their regulatory functions are carried out in a cost-effective and timely fashion - then rates will be kept under control. That is especially the case if the new councillors agree to introduce a cap on rates to hold spending below the rate of inflation. Such a move would give ratepayers a concrete assurance that their council would live within its means.

Asking the public’s advice on spending decisions and controversial local issues through regular residents and ratepayers referenda is also an idea that is fast gaining traction. Used successfully in Wanganui, a number of other local authorities also support the concept. Holding an annual referendum is not only a great way of assessing the priorities of local residents, but it also prevents ratepayers from becoming disenfranchised, putting them firmly back in the driving seat of how the council spends their money.

With voting on local body elections only weeks away, I have set up an Election ’07 page on the NZCPR.com website. To find your own council with a full list of all of the candidates who are standing for the various offices and wards – click here >>>

The Rates Inquiry was asked to assess our rating system and come up with other local authority funding options. Their 96 recommendations cover a wide range of issues from condemning the long term planning process which has become an albatross around the neck of local government, to criticising the lack of adequate performance standards for councils, recommending that standardised reporting systems be introduced so that ratepayers can see how their councils compare against others.

While it is difficult to argue against any of those suggestions, when it comes to their proposals for alternative methods of funding local government, it is quite a different story. Not only have the Rates Review team recommended that councils boost their funding by increasing their debt levels, but they also suggest that councils should be permitted to borrow on foreign currency markets. For organisations that are susceptible to wasting money on bloated bureaucracies and mad schemes, these suggestions sound very dangerous.

On the other hand, their proposal to require central government to pay its fair share of rates for the significant pressure on infrastructure imposed by schools, hospitals, and government agencies is a good one, as is the suggestion that the Department of Conservation contribute for their tourist-related activities and pest control.

The review panel’s suggestion that the regional petrol tax be increased by 2 cents a litre to bring in more funding is now redundant: with the government recently announcing that all petrol tax would be used for roading (instead of half going into the consolidated fund), some of that extra funding should be re-directed to the regions.

The panel suggests that a greater use be made of user charges, but makes the point that “these additional funds be used to replace rates rather than to increase expenditure”. This is a very important point since, as Frank Newman notes in his article, the propensity is for councils to spend up additional funding rather than cut back: “as central government has increased infrastructure funding, councils have diverted general ratepayer funding into other projects”.

With local government playing such an important part in our lives - dictating whether or not we can afford to live in our own homes – it is vital that council spending is brought under control. Electing candidates who are committed to spending less not more, and who want to involve ratepayers in the decision making process, is a great way of helping to ensure that the run-away-train of local government expenditure is finally brought to a halt.

The poll this week asks: Are you are satisfied or dissatisfied with the way your local district or city council is being managed. Go to Poll >>>