Government wants detailed review of council spending and plans to sell assets

The government has promised to start signing agreements with city and regional councils later in its term.

Such “deals” would enable central and local government representatives to discuss the long-term infrastructure needs of an area and who might pay for them.

Councils would like new funding tools and central government help to meet their share. Meanwhile, the government has welcomed efforts by councils like Auckland to sell stakes in assets to keep investment high while keeping interest rates and debt levels in check.

Asked whether other councils should consider selling assets and recycling capital before turning to central government for assistance with a city deal, Brown said those decisions were ultimately up to councils, although he welcomed moves by Auckland and Wellington to sell assets.

“Ultimately, these are conversations that councils should be having with their local communities, but the reality is that when they are introducing significant rate increases for local ratepayers, they should be considering a wider range of options.

“Auckland is selling Auckland Airport shares, that’s a decision they made after consulting with the local community, Wellington is doing the same. Those are good decisions, if that makes sense,” Brown said.

Social Action Party leader David Seymour shared Brown’s concerns and expressed support for capital recycling by councils looking to sell assets to raise money for infrastructure investment.

“If you have leaking pipes, then as a council you should ask yourself why you own the airport in the first place,” Seymour said.

“It is also important for councils to be more rigorous about their spending,” he said.

Seymour said councils should return to essential tasks such as waste collection and focusing on local infrastructure.

Even Labor leader Chris Hipkins was disappointed with the level of the rate increases, but noted that Labor had tried to ease pressure on councils through the rejected Three Waters reforms.

“We need to talk as a country about a better way to fund local government. We need to look at the assessment system itself, whether we use land values ​​or improvement values,” Hipkins said.

He argued that using improvement values ​​instead of land values ​​could lead to certain inappropriate behaviors and encourage land hoarding.

“Councils need to have these conversations, but we also need to look at the most effective way to deliver the infrastructure improvements needed.

“The way we currently look after water is one of the most inefficient ways of delivering water infrastructure and as a result taxpayers will have to pay more for it. The government has washed its hands of this problem,” he said.

Greens co-leader Chloe Swarbrick said: Herald some rate increases were “the logical consequence of systemic problems with the way in which central government continued to transfer infrastructure to local authorities”.

Rates have indeed risen rapidly.

Figures collected by the New Zealand Taxpayers’ Union and Auckland Ratepayers’ Alliance, which campaign for low tax rates, show that in 2010, when income tax bands were last changed, councils collected $4.1 billion in taxes ($5.7 billion in 2023 prices).

That figure has risen to $7.9 billion by 2023. That means the total amount collected by councils is now higher than it was in 2010, even after taking inflation into account. However, that figure ignores other factors, such as population growth.

One way to look at rates in a broader context is to measure them as a share of GDP. At 2% of GDP, rates as a share of the economy were slightly lower in 2023 than in 2010, when they were 2.1% of GDP.

Much to the chagrin of councils who argue that more revenue is needed to meet the needs of a growing population, tax rates relative to the economy have averaged 2% of GDP for around two decades.

The same cannot be said for central government, where core spending fell to 28.3% of GDP in 2020 before rising to 32% this year. This means the central government is now taking more money out of the economy than it did after the Key-English government’s round of tax cuts.

There is currently no forecast showing that the Crown’s core expenditure will approach 28.3% of GDP. The BEFU forecast from the State Treasury predicts that expenditure will fall to 31.1% of GDP in 2028.

Infometrics Chief Economist Brad Olsen, who provides economic analysis for local governments, said: Herald it has often been unfair to compare rising costs for councils with indicators such as the Consumer Price Index, which measures the variability of costs across the economy.

“CPI is a great indicator for households, but it’s not so good for local government,” he said. While CPI can tell you how much your grocery store might grow by, it’s not so good at measuring the staggering increases in infrastructure costs that councils are facing.

Olsen noted that the cost of building the bridge increased by 39% between the March 2020 quarter and June 2023. The cost of building the city’s drainage and sewer systems also increased by 30%.

He said that attention was often unfairly focused on local government.

“Local government receives about 10% of total government revenue. They have to operate a quarter of the infrastructure,” he said.

Olsen said the biggest burden the government has placed on households is the fault of central government, although the focus has often been on rates.

“The average two-person household would pay $2,800 in taxes but would have to pay between $37,000 and $39,000 to the central government in taxes and GST,” he said.

Thomas Coughlan is deputy political editor covering politics in Parliament. He has worked for the Herald since 2021 and in the press gallery since 2018.