"Investing" requires a return at some point. But David Chaston can't see how Auckland's massive public transport 'investment' can ever be anything but an increasing drain on ratepayers and taxpayers. Watch out, the rest of New Zealand

Auckland's public transport is an essential service to deal with heavy road use.

But to get riders out of their cars heavy subsidies need to be offered.

Auckland bus riders paid an average of $1.40 per trip, but the rate-payer and taxpayer subsidised this by another $2.57. Each ride they took actually cost $3.97 on average, meaning there was a 65% subsidy.

But that encouraged ridership. It grew on Auckland buses by +4.1% from the 2015/6 year to the 2016/7 year.

The situation is more dramatic for train ridership. That grew by almost +17% but the subsidies are huge to get that impact.

Each Auckland train rider paid an average fare of $2.58 per ride but "someone else" paid another $4.53 per ride. Each ride actually cost $7.11, a 64% subsidy.

For ferries, the subsidising is not as heavy. Rides cost user on average $1.36 to be zipped across the harbour. But those rides cost the system $3.07 meaning each one is subsidised $1.69.

These subsidies add up. In the year to June 2017 they cost ratepaers and taxpayers a staggering $260 mln.

Further, subsidies per ride are growing faster than ridership itself. AT has to toss in proportionately more money that the growth in ridership. It looks like we will only choose public transport if someone else pays and we 'demand' an increased subsidy each year. In the 2015/16 year taxpayers forked out $238 mln, but that had to rise by +10% to get a +6.7% rise in ridership.

It is easy to forecast that that in 2017/18 the operating subsidies will exceed the $300 mln level. And at this rate in less than five years they will breach $0.5 bln per year.

And the strategy seems to be even larger subsidies to extract small rises in public transport use. Bribing riders is now a core 'business strategy'.

Here are the sector details, as supplied by Auckland Transport to interest.co.nz

  Rider Operating   Rides Rates
year to Revenues Costs (Deficit) mln subsidy
June 2017 $ mln $ mln $ mln # per ride
           
Bus 88.0 249.2 ( 161.2 ) 62.7 $2.57
Train 50.6 139.4 (   88.8 ) 19.6 $4.53
Ferry   8.3   18.7 (   10.4 ) 6.1 $1.69
Totals .................. 146.9 407.3 ( 260.4 ) 88.4 $2.94

And this is same data from the previous year:

  Rider Operating   Rides Rates
year to Revenues Costs (Deficit) mln subsidy
June 2016 $ mln $ mln $ mln # per ride
           
Bus 21.6* 161.4* ( 139.8) 60.2 $2.32
Train 48.3 135.6 (   87.3 ) 16.8 $5.20
Ferry   6.6   17.1 (   10.5 ) 5.9 $1.78
Totals .................. 76.5 314.1 ( 237.6) 82.9 $2.87

In some respects, the bus details here (*) are not strictly comparable between 2016 and 2017. There was a change in who received the revenues. In 2016 much of it went to the bus operators in "net contracts", but in 2017 it mostly went to AT who then paid the operators for their services. The bus operators look like to have been the big winner. The consequences of sagging ridership growth has been avoided for the certainty of fixed profitable contracts from AT. These disadvantages have been 'socialised' to the taxpayer.

Meanwhile AT is incentivised "to get more people on public transport'. They are celebrating success, producing this chart ...

... although we have added the operating subsidy cost detail in the right-hand column.

Auckland's population has grown slower than these subsidies and far slower than ridership growth. Here are the Statistics NZ figures:

    % pa North West Central South
             
1995 1,005,000 +2.7% 202,000 163,900 347,000 299,000
2000 1,114,300 +1.4% 227,400 178,700 375,900 332,400
2005 1,251,000 +1.7% 256,000 198,200 414,500 382,400
2010 1,333,000 +1.2% 275,000 210,200 436,700 411,100
2011 1,351,200 +1.4% 279,500 212,800 442,300 416,700
2012 1,366,500 +1.1% 283,500 214,800 446,400 421,700
2013 1,381,800 +1.1% 288,000 217,100 450,900 425,800
2014 1,413,500 +2.3% 292,900 220,900 462,200 437,500
2015 1,453,800 +2.9% 300,000 225,700 480,100 448,100
2016 1,495,000 +2.8% 307,900 231,300 497,000 458,800

The core strategy of Auckland's public transport system - where the money is going - is to enable more people to get to Queen Street. It is not exactly clear why this funnel-strategy is in place, but it does compound the peak-hour traffic realities.

"Lower prices are just the beginning; that's our policy"

But this is just the start.

Operating subsidies only account for the day-to-day costs of operating the system. But these costs do not involve any cost of capital employed or the cost of any borrowed money.

Nor do they include the new Capital Expenditure1 being poured into this system:

year to June 2015/16 2016/17 % rise
  $ mln $ mln  
Bus 29.3 43.9 +49.8%
Train 131.0 165.0 +26.0%
Ferry 1.6 1.7 +6.3%
Totals .................. 161.9 210.6 +30.1%

The goal is obviously to increase ridership even further. But when operating costs are rising faster than fare or other related revenue sources, this is certainly going to increase the subsidly levels at an even faster rate.

And surely "capital investment" is usually made with the prospect of a future return? That seems absent here. Perhaps the 'future return' is expected to be less vehicles on the road? making it easier for those who want to drive.

A public drain

What is actually being built here is a public drain.

Ridership is growing modestly (+6.6% pa) while operating subsidies are expanding fast (+18% pa) and capital investment is exploding, up more than +30% in the past year. All up in the 2016/17 year, we spent $618 mln on public transport (operating costs plus new 'investment') and recovered just $147 mln at the farebox. 

There seems to be no plan to have this trajectory change. Money is being poured into an endless pit. It seems that you can never spend too much, and never stop spending increasing amounts.

The new Government in Wellington is in the thrall of public transport advocates. The track of spending and subsidising will only grow. The multi-billion dollar 'light-rail to the airport' is the next project to be added to the system. Riders will pay even less for this that the actual cost of the ride.

Everyone is far too scared to ask riders to pay a fairer share. The problem may be that riders don't really value the service to the degree that AT claims. Any fall-off in ridership is feared more than spending more money propping the system up, spending even more 'modernising' it. AT just won't test meaningful fare increases to stem the losses.

And signals from Wellington don't help. Politcians there play pork-barrel politics, pricing rides by seniors at $0, and now offering student riders a similar $0 deal. No wonder paying riders would feel offended by any fare rise. There are even lobby groups campaigning for cheaper fares. No-one is saying this emperor is partly disrobed even if it is plainly obvious. The game of subsidies is in full flight, without check.

There seems no way out of this endless subsidising. It will overwhelm Auckland who has borrowed to build a system that can never pay for itself. The ability to tax is the only thing that keeps Auckalnd Council with an investment grade credit rating. No private enterprise could ever get away with such a bankrupt commercial idea.

In the end, Auckland ratepayers will be trapped. Auckland Council is borrowing to pay operating expenses (even if it calls many public trasnport costs "capital infrastructure"). And that trap (a credit rating downgrade) will inevitably draw the national taxpayer into the extending the socialising of the ongoing cost liabilities. The rest of New Zealand needs to watch this growing risk.

TINA, Margaret Thatcher's alter ego, is alive and well in Auckland Council, even if it has switched sides.


Declaration: David Chaston lives in Auckland and either walks to work, or takes the bus. He does not drive. However, for seven years he did, with a daily driving commute from Ponsonby/Herne Bay to East Tamaki. It wasn't always easy, but it was far easier than commutes he has done in the five other cities he has lived in (two of which he regularly used public transport). Public transport options for such cross city commutes are completely unrealistic unless you have lots of time to waste.


1. It would be interesting to know the basis AT's auditor (Audit New Zealand) allows them to carry these "capital asset" investments at cost in their financial statements. Rail assets (rolling stock and train stations) are currently valued at over $1 bln in their accounts. Bus stations and shelters at $80 mln. Audit NZ says "The cost of an item of property, plant and equipment is recognised as an asset if, and only if, it is probable that future economic benefits or service potential associated with the item will flow to Auckland Transport and the cost of the item can be measured reliably." I only see an increasing drain. Perhaps the answer is AT is confident the ratepayer and taxpayer will keep fronting for these subsidies. In that case, the basis is tenuous and the audit signoff dubious. We will ask them. If normal accounting standards are ever applied to these assets, the writedown will be eyewatering.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

We welcome your comments below. If you are not already registered, please register to comment or click on the "Register" link below a comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current Comment policy is here.

129 Comments

up
14

But, David, don't you need to weigh up those subsidies against those provided with respect to the road transport network?

My thoughts exactly.
Especially when you throw lines like this around...
"Everyone is far too scared to ask riders to pay a fairer share."

The same can be said for every person who drives.
Let's look at their effective subsidies, also.

You have brought up an interesting article and figures which need more discussion in a number of areas. But you have only told half a story, i.e. costs given but not the benefits and alternatives; also you can't lump in OPEX with capex, capex is paid off over a long period. There may be a good case to increase fares but this must be balanced against congestion and effective subsidies to motorists and public good in having these services available. The city will only prosper with good public transport as roads are full now. I would invite AT to state their position on levels of subsidies and why/ how they are agreed.

Kate, he should have not only weighted them against other subsidies, he should have weighted them up against the benefits of having a functional public transport network like any other large first-world city. Perhaps an economist should be writing these opinion pieces? This is a second year micro/public econ. Another newsflash: public goods are called public goods because they cannot be sufficiently provided for by a market. Efficiency is always important but is not the only determining factor.

No, because Auckland has the same problems with respect to roads and public transport. They both cost too much, because our idiot council sprawls Auckland suburbs too far and wide.

Auckland, by moving its suburbs outwards, creates 1 million unnecessary km of commutes per day. Roads and public transport both costs too much.

Kate,
That's where it gets even worse, wheeled vehicles damage the road proportional to the 4th order of their axle weight, so unloaded buses re-positioning to cope with the rush are costly. That buses reduce traffic is also a myth, this only happens as the length of commute increases (hence flying to Sydney costs less per k than a ride into town) which is hardly an ideal target state.
Neven

Logic.

Delivering passengers to the CBD or any other business district only occurs for 2 reasons. 1: They are customers of the businesses there. 2: They are employees or operators of the businesses there.

Therefore the full benefit of the transport feeding the CBD is received by the businesses operating there. Why is the cost not wholly borne by those which receive all the benefit benefit?

I say make it free to passengers and load the entire cost of it onto the rates for those properties within the business zones. Granted the system and services would need to improve somewhat, but that is long overdue. It is not a new model, other places have free public transport. See what that does to the traffic woes.

love the article..your assuming the cost saving to passengers will flow to the business... well that requires another study.. The the incoming finance minister tells us roger - nomics went to far. I cant even remember that it really did not think it did enough improve the country becuase it did not go FAR enough!!! I do believe we need a human face to society. But i really think if new zealand is to grow we need to really radically restructure. How about reduce parliament by 40% and government by 60% and then we will have a market lead economy... I voted the banker in after the GFC to restructure the country.. what did i get.. a statesmen... ok so we have house bubble that is being deflated by the RBNZ...Now i have to listen to some young smiling prime minister say capitalism failed.. no someone in government forget to tell the minister that there is more to the puzzle and the ministers are not the best and brightest so it was a people failure..There is bound to be some studies out there on how a CBD was redeveloped by free transport.. I suspect a lot of business will simple move if you raise the rents and rates.. I think we are an under performing economy because we have to much government and not enough private business paying Tax!!!

@Accountingsoftw. Actually under do nothing National, we effectively had too little government excluding having to pay too much for it.

up
17

Rogernomics has been a disaster for NZ. The best example I can think of is how NZ had a Ministry of Works that built our motorways and our Hydroprojects to a world class standard and trained lots of young people. Under rogernomics the MOW was disbanded in favor of private enterprise. Our late National Govt was talking about building a new motorway from Auckland to Whangarei. They were talking about the Chinese doing it and importing the workforce.
The new bridge in Whangarei was built in China as the local heavy engineering firms couldn't compete with the Chinese price. The local firms were more than capable but just weren't competitive with all their OSH and environmental compliance costs. No thought to the big picture of the locals being the ones that pay rates and taxes and provide employment.
Under rogernomics NZ has gone from being a country that trained its young people to build hydro dams, motorways and bridges to being a country that can't even build a new road.

Northland Hippy,

Good points. I didn't live here when Rogernomics came along,but I did watch Thatchernomics in action-and it wasn't pretty.Are we really better off with(cheaper?) Chinese trains and the dispersal of a well trained workforce?
I am fine with David Chaston putting public transport under the microscope,but as others have pointed out,it is so one sided as to be useless as a meaningful contribution to the subject.

Yes linklater, I think rogernomics and Thatcherism very similar. In NZ we had lots of cumbersome inefficient government departments like MOW, railways and Telecom. The argument for private enterprise seemed very strong but in hindsight didn't work out as intended.
MOW for example employed a lot of otherwise unemployable people who due to handicaps weren't employable in the free market due to their challenges. With the closing of MOW these people went on the dust heap and were given benefits.
These Govt departments gave comprehensive training to a huge workforce of young people and although seemingly inefficient they got the job done. They employed with a social conscience and had a work force that represented society.
The workforce also included lots of very experienced older people that in todays free market also tend to be sidelined from the workforce due to the perception that they are not productive.
What we have replaced these govt departments with has turned out to be a sham.
We have our communications network maintained by foreign companies that rob the 3rd world of their technicians, pay them minimum wage and NZ taxpayer tops them up with WFF and rent subsidies etc, while the profits go off shore.
The railways got sold and then gutted of their land assets and then purchased back for twice the price, an inefficient skeleton of its former self.
And as previously stated the MOW built whatever was needed and now we can't even build a road from Auckland to Whangarei.
The worst part of the rogernomics fiasco is that we aren't training our young people any more. Its cheaper to hire immigrants who are already trained.

A good, comprehensive analysis

Excellent summary of the devaluation of NZ workers via Rogernomics etc.
Now we are losing even those in-house trained technicians & skilled people who survived through retirement.

"The new bridge in Whangarei was built in China as the local heavy engineering firms couldn't compete with the Chinese price. The local firms were more than capable but just weren't competitive with all their OSH and environmental compliance costs. No thought to the big picture of the locals being the ones that pay rates and taxes and provide employment."

Note also that the Chinese government both directly and indirectly subsidizes everything including overseas capital projects to drive out competitors and extend their soft power long game. You can't compete on price when your competition sees the project as a loss leader.

That's a really good way to kill off the CBD.

The argument of subsidy (and respective productivity) is a bit more complex than that, I'm sorry.

How much is a CBD really needed?

You are joking, right?

The reason we subsidise people getting into the city is because of the productive effect of agglomeration.

True. When you compare productivity per capita for a metropolitan city it is higher than the surrounding rural areas (for example easier to find staff, shorter drive to find something you need - eg a petrol station).
However Auckland is remarkable in having one of the lowest ratios of productivity compared to the rest of the country and this is despite having a younger, better educated (make that qualified to be accurate), more diverse workforce. Hard to explain why; certainly Auckland is like a big people magnet but not an effective money magnet.

Because it is very hard to produce something while working in an office. Even harder on public transrort.
verb: produce; 3rd person present: produces; past tense: produced; past participle: produced; gerund or present participle: producing
prəˈdjuːs/

1. make or manufacture from components or raw materials

Arguably you should be able to produce tech value in offices in the central city. It doesn't require manufacturing to produce.

What's equally interesting is that we've effectively subsidised the country up the wazoo by not freeing things up. I think Accountingsoftie and I are in agreement on this - instead of fixing things like zoning and regulation, and the balance between investment in property and business, we've seen the last government simply up the redistributive subsidies of Working for Families to supplement low wages, and the Accommodation Supplement to raise the return for property investors.

Makes no sense at all.

Free transport will really help my business of begging. Firstly it directly expands my profitibility by the bus fare each day. Secondly all the other passengers riding free will have a bit more spare change. Heck I could take on some more employees.

But I did give you a like simply because you are quite rightly questioning the cost benefit pathway.

Lots of people already travel by free on the train already. I believe that they are counted as fare paying passengers but they don't pay because there are no barriers at many stations.

No surprises Aucklanders vote themselves moar free stuff. It is a wealth siphon, sucking wealth from the regions, lets not forget that the country is paying for all the roads as well as public transrort.

up
18

When New Zealand built all its roads, its hydro works, its state housing it only had around 1.5 million people. Nobody asked or even considered what the return on the investment would be.. They were built for the future - the long term - and that is what should be done now.

Exactly Patricia. They actually built houses really well back then too. How hard is it to build a wooden house with an iron roof sitting on concrete piles?

up
16

"How hard is it to build a wooden house with an iron roof sitting on concrete piles?" Obviously too hard under a National government.

Well you can rule out concrete and iron for starters in a our new "zero emmission" utopian economy. Not to mention diesel trucks to get get labour and materials to the site.

It is called embodied energy Profile, and as an input it should be accounted for in the ultimate cost. If you don't account for it now, you are only deferring your "zero emission" economy. Exactly who is getting the utopia?

The embodied energy is accounted for in NZ as of last week - but from now on some embodied energy will be more equal than others. It's going to be a great ride.

...and New Zealand was lucky to escape bankruptcy?

In the shadow of Think Big....The problem was that the risk was written so the Government took all the downside and none of the upside....The 1980s would not have been as stressful had the projects not been built and in that sense they were a failure....The important thing, however, is the lessons we learnt...The Government has to be careful about taking the risk on a project

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=1070...

up
24

Aucklanders don't pay enough rates, if they paid up like the rest of NZ it would be a good start.

Got any facts and figures to back this up?

the facts have been posted on this site before.

up
11

Davo, here you go, rates comparisons for properties with CVs between $600 - 650,000 (Auckland one first up):

20 Charles Street, Papatoetoe = $2,428.07 (CV $640,000)
28 Manly Street, Paraparaumu = $5,033.00 (CV $630,000)
4 George Street, Napier = $3,214.48 (CV $615,000)
489 College Street, Palmerston North = $3,089.63 (CV $640,000)

An entirely meaningless comparison. Rates are ( allegedly ) collected to provide services ; the cost of providing those has no relation to CV's whatsoever.

up
15

obviously Auckland council doesn't collect enough to provide the services required of a modern city.

They collect plenty - and waste a large proportion of it on higher than market rate salaries and pet projects.

up
10

all councils do that.

Indeed - to different degrees . This is a very different statement from "they do not collect enough" though - they simply waste more than most.

you own your council, not the rest of us ;-)

All local authorities set their rates under the same legislative authority. You may not like the 'wealth tax' component of rates, but that is what the General Rate component of your rates bill is in effect. Some services are charged as a fixed cost based on direct provision of those goods/services on a per rating unit basis (i.e., those 'private' goods which are rival and excludable) - but a great deal of what LAs do doesn't fit into that rival and excludable category (e.g., libraries, democratic decision-making and elections, plan making, etc.) - hence the General Rate or 'wealth tax' element of the rating system.

The comparisons are wholly valid - given all LAs work under the same legislation (at present) - and given they provide much the same goods and services in accordance with that legislation.

I'm not really sure why Auckland has fallen behind much of the rest of the nation - it's not as if the city is adequately funded at present (if we are to believe the politicians).

In addition to the rates bill for properties, don't forget that the previous and Ak councils have over time taken many different components of what used to be bundled into rates and has made them "user pays". Such as water/wastewater fixed plus volumetric charges, water connections, rubbish collection bags and is now looking at creating more new ones like travel congestion charges...
It has also done away with the rates rebates for family members living in granny flats. The list will be very much larger than the above so a full comparison of Ak rates is a complex task with many assumptions required.

Same all over NZ - where direct charges (user pays) can be charged, they are. The Rates Rebate scheme is a central government subsidy - and hence the rules associated with rebates are set nationally by the Department of Internal Affairs;

https://www.dia.govt.nz/Services-Rates-Rebate-Scheme-Index

I think I used the wrong word. Rates remission maybe. ie the north shore city council levied only one uniform annual rate for properties with a granny flat on them where a statutory declaration was made stating that only family were in the granny flat. Family friendly. Ak council: no longer.
Also, I know for a fact that some councils do not charge a separate extra rate for water.

I do not question the legislative basis of rates collection that you refer to . What I find illogical is stating that somehow Auckland Coincil does not collect enough rates because Auckland rates are lower in relation to CVs compared to other places.
Auckland house prices have soared over the last 15 years or so ; this has not direct impact on the cost of providing services.
By your implied logic if house prices went up another 15% next year the overall rate take should follow that ; conversely if the prices crashed the rate take and the council budgets should be immediately slashed. Why ? They still need to provide the same services as before , not materially less or more.

you can vote them out and get a better council. The problem is the rest of NZ is going to find it like swallowing a dead rat, if they get to pay higher rates, and subsidise AKL infrastructure, with none of the benefits.

"you can vote them out and get a better council." - we should. As to your second statement - of course the rest of NZ should not be subsiding the Auckland infrastructure - as long as we can keep the income tax and GST collected here and not pass it on to central government getting much less in return ( obviously not going to happen ) . What could happen though is not building some of that pretty useless infrastructure (CRL ) in the first place.

By your implied logic if house prices went up another 15% next year the overall rate take should follow that

No. Local government have a balanced budget requirement. They add up the cost of everything they provide and then allocate that total cost across rating units. Rates are a combination of flat taxes (fixed charges and universal charges) and wealth taxes (charges based on CV).

Is your argument that the wealth tax component in Auckland is, or should be different than elsewhere in NZ? Wealth from income is taxed equally across NZ, so why should there be significant differences where wealth as capital is concerned?

Yet (it seems on first blush) that in Auckland, wealth (as capital) is taxed lower than elsewhere in NZ.

That's the point of the comparisons above.

General Rate is NOT a "wealth tax" and is not intended as such . It is not there to tax wealth but are just a mechanism to split the charges among ratepayers , to add up to the annual budget of the specific LA. There is absolutely no implication that General Rate level should somehow be the same across all LAs in NZ - it is just a mechanism to apportion the costs incurred locally.

Wealth tax is something the Left would dearly love to have - but it is not provided for by the current law. Your whole argument effectively relies on relabeling General Rate as "wealth tax" but that has no basis in law or logic.

General Rate is NOT a "wealth tax" and is not intended as such.

Here is the basis in law;

http://www.legislation.govt.nz/act/public/2002/0006/latest/DLM132218.html

The General rate is based on dollar value of property (i.e., a wealth/capital tax) - as opposed to a Targeted rate;

http://www.legislation.govt.nz/act/public/2002/0006/latest/DLM132224.html

which is based on a uniform rate per property or connection to a service (i.e., a flat tax based on various criteria).

Interested how you might interpret those instruments differently - one being a fixed/flat tax and the other being a value based/wealth tax.

There is however, nothing in law that requires certain activities or services provided by a LA must be charged under certain instruments, or at certain rates in the dollar. That is entirely up to each LA to decide (just as is the overall budget they set). On the face of it - ACC doesn't set it's overall budget high enough.

The main distinction between General Rate as provided for by the legislation you reference and a country-wide wealth tax that does not exist in law) is that
GR exists to cover LOCAL needs / budgets and is determined on that basis . There is nothing in the law that stipulates that it should be the same or even similar across various LAs ; in fact the law implies that it inevitably will differ from place to place as local budgets do.
You can argue that ACC GR is set too low or too high for Auckland needs - but comparing it with other places does not inform that discussion.

but comparing it with other places does not inform that discussion.

Agree, if you're arguing to keep rates low because Aucklanders cannot afford them at the same level as much of the rest of the nation.

And in many ways I can understand why they cannot, i.e., the cost of commuting is for many families quite a bit higher (given travel distances); the cost of housing for everyone is higher; the cost of parking is likely higher... and then I imagine, other service industries, such as the cost of child care, builders etc. is likely higher (as higher wages are needed with respect to that higher cost of housing).

So, it is perfectly understandable that Aucklanders' ability to pay rates is likely worse than those in other cities and in the provinces - and that could well be why ACC keeps rates low.

" .. ACC keeps rates low." - they are not low - unless you compare it with rates elsewhere , relative to CVs - which we established is meaningless.
ACC rates are high relative to level of services they provide to ratepayers ( which is the only meaningful measure ) .

But what benchmark do you use to claim that "ACC rates are high relative to level of services they provide" - given the reticulated services, stormwater, local roading, street lighting, planning, democratic decision-making, parks, etc. provided by all LAs are roughly the same - and where they do differ, I'd say Auckland has a greater/better level of amenities (i.e., larger sports stadiums/events centres/more festivals etc.) than those in provincial towns/cities.

So, if anything, I'd say Auckland has more/better/more diverse publicly provided/local government facilities.

Why do you not think that you are getting value for money given your rates are generally lower than elsewhere?

I think you have a point. I last lived in London, UK 25 years ago and I have a vague memory that rates were not that different to what I'm paying in Auckland now. The services provided are rather similar although London public transport in those days was pricey especially considering the very heavy usage. Are there any international comparisons?
Of course now I am retired I'm hoping out politicians don't notice Auckland rates being lower than regional NZ.

Difficult to provide a benchmark - I will give you that . The costs vary enormously in line depending on density , legacy infrastructure , climate etc.etc. .
What I am mostly basing my judgement on is mostly this :
- there has been and over 50% increase in my rates over the last 7 years ( for same property in Auckland Central ) but the services I receive have in fact been reduced.
- ACC have put on a number of expensive events no one really wanted or attended ( like having David Beckham come and play etc. etc. )
- they have already spent a bundle on the CRL for which there is no funding or project timeline ( in the meanwhile several central streets are already wrecked and even the buses take an extra 10 mins to get downtown .. )
- cushy salaries ACC people get on all levels ( why do council workers deserve a "living wage" more that anyone else ?)

Yes, so it's basically a perception thing - and yes, lots of LAs have put on poorly attended events and/or built OTT facilities everywhere. But on the final bullet re salaries - I suspect the LA salaries paid in AKL also reflect the need for these higher salaries due to the high house prices relative to other jurisdictions. These skills sets of the higher waged staff are transferable nationwide (just as they are for police, teachers etc).

And really everyone in NZ deserves a "living wage";

http://www.livingwage.org.nz/about

Over 50% increase in rates while services are cut is certainly not just a "perception thing".

As to the "living wage" it is a separate debate whether "everyone deserves it" ; my point ( which I think I spelt pretty clearly ) is that council workers do not deserve it any more than anyone else.

Agree, the CPI has increased 14% in the 8 years since I purchased my home, whereas the rates bill has increased 56% to $4,700 per annum. Increased services in those 8 years are SFA. At least I can't identify them and certainly don't use the festivals etc.

The increase in my rates bill over the same time is very similar to yours ; the services have not increased but in fact declined . The council no longer mow grass verges of provide inorganic collection in my area.

Are you comparing pre- and post- Super City?

The Super City charges you both local and regional rates as it is a unitary authority - so if your comparison is pre- and post- then you'd need to add the cost of your regional rates bill to the pre- Super City rates.

I would have to check my records at home, but am out of the Country. ACC doesn't have historic records, but I see I have my rates wrong, they're actually $4,950. Had fun with QV though as they have data I didn't know/remember. Since the house initial sale in the early 1980s, the CPI has increased 380%, Housing has increased 1,500% and the house value has increased 4,500%

Thing is, the 'basket' of goods/services that make up the CPI bear little to no resemblance to the purchases made/costs incurred by local government - see the CPI make up here;

http://www.stats.govt.nz/datavisualisation/cpi.html

So although I realise that many ratepayers argue that rates rises (as a percentage) should be no greater than the CPI - it (the CPI) isn't really a good benchmark with respect to LA expenditure/costs.

It matters when you are on a fixed income. My wife wants us to see out our days in our current home. Our remaining life expectancy is not dissimilar to the above example. If ACC keep on increasing rates at the same pace we'll be rated out of our home unless we can find alternative sources of income in our retirement.

Yes, that's a reality for everyone on a fixed income in their retirement. In the US, it's why so many retirees head south - to jurisdictions with lower state and local taxes and to retirement villages with much smaller residential units on shared lots/spaces.

There are many global cities I wouldn't necessarily expect to be able to afford to remain living in after I stopped working there. There's no reason Auckland will be any different in future. It is, after all, a global city.

Why has it fallen behind? Stab in the dark here - because council after council in Auckland ran on low-rates increase platforms?

Yes, as a means to get elected, I suspect.

Yes.
So we see similar crisises of under funding at local government level in Auckland as we see at the national level. And these multiple pathways of underfunding are exacerbated in Auckland as it is where population growth is most pressing.
Insane stuff!

up
21

The very notion that a service that huge numbers of people would benefit from is a "drain on tax payers" is oxymoronic.

This is EXACTLY what taxes are for. Society creates some society sized-problems, that can only be addressed by society-sized budgets. Taxes represent us all contributing a small amount of our collective resources, to spend on things that are of benefit to all or most of us, to the benefit of all. What on earth should taxes exist for or be spent on, if not these type of projects?

People spend way way too much time in cars in Auckland. That has a detrimental impact on every day life for many. One of the reasons I don't live in Auckland is because of the lack of public transport and the horribly congested roads. That would negatively impact on my quality of life, so I made another choice. Public transport isn't a "drain on tax payers" it is a good use of combined resources.

Similarly, society causes society-sized socio-economic problems, that eventually negatively impact on huge numbers of people. For instance, poverty. When poverty becomes widespread, huge social problems develop. It could be health crisis ( epidemics for instance), could be increase in crime and in extreme cases, mass fear and violent upheavals, etc etc.

I have a real problem with the narrative being perpetuated that taxes are something that are taken away from us. I agree that Tax spending can represent good and bad value at various times, and that is what we often vote on but beyond that, people have just lost grip on reality for the sake of political ideology and short sightedness.

Superbly put gingerninja.

The Wealth of Nations. an important work of economic and social theory by Adam Smith, published in 1776. Its full title was Inquiry into the Nature and Causes of the Wealth of Nations

Adam Smith developed the view a laissez faire market ecomony will meet all the requisites of society with the exception of Health, Education and Defence which society will not supply for itself so they must be provided by Government, for which Government will levy taxes

Modern Society does not automatically meet its needs for infrastructure in the form of Transport + Roads

Central and Local Government will need to do it unless you want private roads and private toll roads

Roads can fall under defense, Great South Road in Auckland falls into that category as it was built to facilitate the movement of troops to the Waikato (notwithstanding the false flag claim over the origin of the wars). The Romans built good roads for the ease of sending troops out, and for produce to feed the citizens coming in. Hassman redesigned the streets of Paris to facilitate freedom of movement for troops in the instance of civil unrest, and to assure volleys of musket fire could be effect. France knew about how these things can go wrong.

1st year Architecture training. Civilisation happens as a result of a surplus in the food supply. Doctors, teachers, and soldiers can be full time professionals. Artists also.

They say the roads between Glasgow tenements are exactly the width of a troop of mounted cavalry.

There is nothing small about NZ’s tax take. 33% for income, 15% for GST, 5 to 30% on import duties. 50 cents of anything you buy in NZ goes to the government.

What rubbish.
Your effective income tax rate is nowhere near 33%, Keywest.
Even if you are earning $150k your effective income tax rate is only like 25%.

Exactly

most of the stuff you now buy is duty free because it is from asia which are covered by many TFA,

Funny how you call his number rubbish - and in your response get it almost equally wrong. The effective income tax rate on $150K is 28.1% and that is before you pay 15% GST on anything you buy.

Which brings the total tax up to 38.88% (you only pay GST on after tax income). Then we have the less obvious taxes on tobacco, alcohol and petrol, the latter is close to 50% of the pump price.

and the local tax ( rates ) with GST on top of that .

Genius, Paasche.

Sorry, the 25% was off the top of my head using my effective PAYE rate as a bearing.

https://www.paye.net.nz/calculator.html

40/150 is 26.6% - sorry, I was 1.6% out.

It is 28.1 percent ( including ACC levy ) - why do you have to distort the facts to support your argument ?

My understanding from seeing something from the OECD is that NZ's tax is about average in the oecd, or even a bit lower than average?

To be fair to DC, I think the tone of his article is more about the trend in the size of the subsidy than the subsidy itself. But a good comment anyway.

"The very notion that a service that huge numbers of people would benefit from is a "drain on tax payers" is oxymoronic"
Spend the money on more roading then

Or let everyone keep their own money and have a bit more direct input into how they might benefit themselves.

Great points brought up .
However I don't understand why we can pay for this public good 'Auckland housing' but why not Irrigation schemes for the SI?
They both make more and save money in all sorts of different ways . Both these projects increase people property values and production , don't you think ?

Local roads are "subsidised" at a rate of 50% by ratepayers, and guess how much of the nearly 2 billion spent on the Waterview connection was paid for directly by its users?

The other thing missing from David's argument is the negative externalties (congestion and pollution) generated from using public transport versus driving a car. Once you adjust for these, the value proposition of public transport looks much more attractive. Or put it another way, cars aren't being properly taxed for clogging up the roads. If you want to give up paying subsidies for using public transport then you'd better be charging car users appropriately for congestion, otherwise we're getting gridlock.

ACB, you are right.
1) Car drivers don't pay an air pollution tax proportionate to the health effects of the local air pollution caused
2) Car drivers don't pay congestion tolls (especially Auckland) to mitigate the effects of the congestion they cause.
These would reduce the subsidy needed on PT as well as delaying over time the need for expensive roading infrastructure upgrades.

That said, there is no where in the world where PT makes a return on capital expenditure and only a few places in the world where they make a return/near return on opex expenditure and they are very dense cities.

It needs to also be remembered that transport is purely a derived demand of the spatial layout of land use. Public transport would also be much more efficient if there were no land zoning density controls as the land development market would better respond to transport needs. If you want someone else to blame for public transport subsidies its the urban planners and nimbys.

New Zealand has to be very careful about future public transport expenditure. We are going to see a paradigm shift in transport provision over time. Companies like Ford & Chariot subsidiary are in the long term proposing circa 12 seater autonomous vehicles that will dynamically route to pick up and drop of passengers door to door. This is likely to be commercially viable at a price cheaper than taxis (as multi rider) but probably slightly higher fare cost than current PT (better service level). If this comes to fruition then non core PT services will no longer be viable and possibly only the core PT system may remain??? & this is the multi million dollar question. Is there room still for a public transport system or will dynamic ridesharing be commercially viable or close enough to commercially viable that it would be cheaper to provide some public subsidy to them than operate a PT system as well. The other key question is that if dynamic routed autonomous ridesharing has near commercial/commercial viability how long will it take to arrive?

I'm still waiting for the disruptive app for private vehicles to ride-share on a commute. If I was feeling in the mood to share my vehicle on a particular morning commute, and gained a few dollars by picking up a passenger or two going to the CBD then I'd do it. It doesn't seem that hard with GPS. I tell the system where I'm going and it sends me bids I can accept. If someone else takes that ride first, then nothing is lost as I was commuting in any case.

Yeah I guess you have not heard of vehicle registration?

Public transport options for such cross city commutes are completely unrealistic unless you have lots of time to waste.

Doubt that in London when the tube is an option. I regularly caught the underground from the West End to visit my bank's City of London LIFFE market franchise. Catching a cab or bus meant interminable delays.

PT as currently configured is a vestige of the industrial model, greatly aided by the planning zoneration which separates uses (business, industrial, residential) and thereby causes commutes. It suited the mass industries of the past - freezing works, large manufacturies, centralised systems like NZR workshops, which needed mass transit to a comparatively few concentrated employment points. This configuration has been quietly falling apart for the last forty years, as employment decentralises, commutes increase, cross-PT-route journeys become the norm, and residential zoneration forces greater spreads and less density.

Hard to undo any one of these drivers, let alone all at once.

So DC is, perfectly reasonably, gently pointing out that the marginal subsidy per additional PT rider is going through the roof.

Which is not 'sustainable' long term however that is defined.

For all the people who think that what the council is doing is OK: At what cost would you agree that the train tunnel project should go ahead? 3.4 billion? 4.4 billion? 5.4 billion? We shall see what the tenders come in at. Its not going to be pretty.
Obviously there has to be a point where the council says: too much! Stop the project! But because Len decided to do some advance work off his (our) own bat, the council is already spending huge amounts on it already.
As mentioned in the article, the fare doesn't even currently pay cover the operating costs. So the debt associated with the electrification/ track doubling and the future tunnel project will essentially be a drain on the wealth of those who live in Ak (and to a certain extent in NZ due to the govt agreeing to pay half the tunnel cost).
I predict that Auckland will become a very run down city when interest rates go up. The council and anyone with a mortgage will cut right back on all but absolutely essential expenditure.

Tax Working Group favours land tax over capital gains tax (Update 5)
https://www.interest.co.nz/news/41324/tax-working-group-favours-land-tax...

David's article essentially states that Auckland Council /AT are wasting lots of money on public transport. Your response seems to be "got to collect more tax".

Or continue to put up with the road congestion.

Which is a valid option. I've lived in cities far worse for congestion than Auckland and life goes on.

Too right. Auckland is congestion for beginners.

Or introduce congestion charges . Or charge prices reflecting costs for PT trips .. the list goes on.
Building expensive , arbitrarily chosen "trophy" pieces of infrastructure and socializing the exuberant cost is not the only option.

Congestion charges are the solution. Software with the internet and automatic vehicle identification gives us the ability to tune a congestion charge - say an App that recommends you leave 10 minutes later if you want to avoid peak rate crossing the bridge. It could even give you a small refund if you travel at low usage times. A modern system should be cheap and very flexible and would nudge drivers into reducing congestion.

I agree completely ; the problem is of course that you would get the howls of "driving is only for the rich now" if you went that way.

Wonder what they're saying in London with the imminent extra tax on cars older than 2006 entering the congestion zone? I understand it brings the charges up to NZD 38.

Growth is ever going to be without cost.

The only gain I see in growth (and that is reluctantly) is growth. Having lived in extremely remote areas I know how much more sane people are when they have room to move.

thats relative I guess. I don't think anyone got to vote on immigration, it was just a decision made at an executive level by people who would never be effected by any negative outcomes.
So now you have expensive houses and lots of capital gain to show for the million plus people living in NZ, who were not born here.
Now we need new school, hospitals elder care facilities and roads, someone is going to have to pay, we all get to share the pain, but some more than others.

And by the old measure. Of the immigration, how many additional export receipts!.

". I don't think anyone got to vote on immigration" - not more or not less so than everyone gets to vote on anything else ( like tax rates ) - we live in a representative democracy.

Of course NZ could learn from other countries. PNG is not usually considered an exemplar but they charge employers of foreigners a substantial work permit charge. When I worked there I knew my visa fees could be used to pay for at least a couple of local teachers. Seems like common sense to me. Is NZ immigration still in the old colonial mindset where any POM could just arrive and start working?

I've paid plenty for work permit fees over the years. I highly doubt that they got distributed much further than the department that levied the fee ;)

Lot of land under carparks.

Great article David, spot on

A regional fuel tax would allow them to increase fares and stay competitive with taking the car.

Surprising article here David. I thought you were smarter than that. What about the cost of NOT having a PT system? What about the money saved in pollution, car crashes and other externalities that are never accounted for in road transport? Very poor.

thats my thought, what if we had no PT, what would the cost be in lost time to business with congestion everywhere

Interesting looking at that first table. The number of train rides rose by about 2.8 m and the subsidy fell by about 70 cents per ride. On a simple linear basis you would only have to add another 18 m rides to extinguish the subsidy.
This makes sense because the incremental cost of adding passengers to a train is very low, - you have paid for the train, rails, stations, etc. The extra capital cost and running cost of adding a few extra carriages is going to be comparatively very low. Similar pattern but to a lesser extent with the ferries, but this doesn't apply to the buses. 30 extra passengers on a bus and you need a whole new bus and bus driver.
So take heart, the train system may at some point in the future, pay it's way. A huge increase in rail patronage would enable fares to be dropped further, encourage more passengers and we could get into the snow ball effect of a virtuous cycle. Perhaps when we reach these sorts of levels we could use some rail surplus to cross subsidise the buses and view that as a cost of getting people to the trains. Compared with many overseas rail systems the Auckland prices seen very high.

This mind set is EXACTLY why Auckland doesn't have a decent public transport system.

People with a similar attitude pushed back on spending the money when the cost of doing so was a great deal less than it is today. The good thing is we now have a young PM that isn't from the same school of thoughts as the older generation that held all the purse strings in the past.

Same purse though, unless we've been unfairly chided for calling her Taxinda.

Its time to open the entire public transport market up to proper competition ................. that is medium sized 20 seater buses that are owner driven and unsubsidized , with low barriers to entry .

Right now the tail is wagging the dog , and the bus -owning cartel is in charge of routes and pricing

And dont tell me that medium sized 20 seater buses cannot make a living ................ two decades ago everyone predicted the end of the corner / suburban dairy due to the rapidly expanding number of supermarkets .

The reason was " they cannot make a profit "

They were wrong .

The same applies to public transport.

Mini buses work successfully in India in a free market with ZERO subsidy , stiff competition and provide an excellent, safe , reliable and cost -efficient service .

We just dont have politicians with balls big enough to challenge the status quo

Biggest problem for Auckland public transport is that it caters to get people into the downtown CBD. But many, many people don't work in the CBD hence public transport is of no use. Try getting a bus from Mangere Bridge to the employers factory in East Tamaki. Even if you do work in the CBD, try a bus from Howick, It drops you off at Panmure for a change to another bus (if you happen to work in Symonds Street say) or a train (if you happen to work downtown). But work at Auckland Hospital you need to take a bus to the local transport hub, take a train to Newmarket, take another bus to the workplace. Public transport in Auckland does not work as it does not efficiently cater for where people want to go. Bet the people on the Norht Shore have a few stories they could tell. Another issue is the lack of car parking at the transport hubs. Sydney build multistory car park building at railway stations, here a spare quarter acre is deemed sufficient to provide the car parking so that commuters can transport themselves to and from home over the last mile.

I had a little chat with the accountant (or one of the accountants) for AT. I was sitting on the bus complaining to him about the major changes in bus routes and AT's new hub system and how inefficient it had become (I didn't know who he was until he told me). He said that AT was unable to increase the amount of buses and improve efficiency precisely because of the subsidy and cost to ratepayers. This seems quite bizarre as surely if they improved efficiency and customer satisfaction more people would use PT then the amount of the subsidy could be reduced. So I suppose AT is in a catch 22 situation.

Great article David, and very good point raised ....
We have just been reminded by NZ rail, Kiwirail saga and the the $1bln forkout !
All transport businesses I can remember, in addition to the above, failed or vanished under state management including bus companies and Air NZ ... until they were sold or got run properly by efficient management. and the reasons are always the same: it is very easy to spend public money and have politicians' fingers in the pie.
One recent blunder was the Park'n Ride bus routes from North Shore to CBD, a project that was designed with full capacity from day one and now it is a choker !!

I did suggest that the Airport rail ( if built) should be entirely user paid as it is being mostly used by O/seas visitors and travelers ... and so should the rest of the PT with any subsidy passed to Auckland business rates.

Visitors to a city like Melbourne could only admire their PT system and complete network of Trains, Trams and buses with Free CBD / City Zone and transport to get you virtually anywhere ... I always admired the great service they provide to both visitors and public in the free Zone , a huge support to central businesses .... why cannot we learn from our cousins and others?? --- why do we keep following the same stupid models in almost everything we plan for and dig deeper holes ?? and.. Why we only take action when we reach the point of financial bankruptcy ??
Finally, Why do we insert political correctness, the environment, and socialism in every project when we are such an under-resourced poor country constantly running on empty tanks ??

your wrong about air new Zealand, it was a private company when it got into trouble and almost went bankrupt,
it was quite successful as a public company before the government sold it, and has been since they took control again once the stepped in.
also your point about rail to airport misses on the fact the government is spending 160 million trying to upgrade the roads and it is having very little effect on the traffic situation, so unless you can reduce the cars they will have to spend even more and how are you going to achieve that

http://www.nzta.govt.nz/projects/sh20a-to-airport

Yes very wrong.

Yes, it is a worry if public transport subsidies keep rising. But as other people have pointed out, it is half the story. A question is: Do these subsidies bring a benefit equal to the public transport benefits of decreased road congestion and pollution plus the delaying or reducing the need to build new roads or widen existing roads? Another question is: To what extent could the subsidies be reduced if road users had to pay the full costs of roads? Another question: Would the level of subsidies be reduced if bus services were owned and run by the council?

And about NZ Rail/Kiwirail - that was run into the ground by Toll and the Government has subsidised road user for decades but not applied the same approach to NZ rail. E.g. Govt wouldn't fund repair of Napier Gisborne rail link but paid more to upgrade the road to take heavy traffic. Plus tried to hide the net economic benefits of investment in rail in Auckland
https://thespinoff.co.nz/auckland/27-07-2017/finally-revealed-report-sho...
I'm not saying we should just accept increasing subsidy costs, but that we need an even-handed approach to transport in AKL that recognises that we have created a system whereby a subsidy for one mode - road - has created distortions that mean it is more difficult and expensive to address traffic congestion. because public transport pricing has to compete against the road subsidy.

Time to be radical...make public transpoort free ( a major cost is revenue collection) Watch traffic congestion drop, the need for more roads drop. Watch our climate targets start to be met. Watch the need for zillions or car imports a year tank, oil purchases drop. Watch inner city car parking freed up for apartments.... and on the benefits might flow. But too many vested interests at play for a hope in hell of this type of thinking..

https://www.citylab.com/life/2012/10/what-really-happens-when-city-makes...