A decade after the Shand Inquiry, the Finance Minister has asked the Productivity Commission to take another look at local government spending

A decade after the Shand Inquiry, the Finance Minister has asked the Productivity Commission to take another look at local government spending

Finance Minister Grant Robertson has instructed the Productivity Commission to figure out why New Zealand councils' costs are so high and what can be done to raise revenue.

But he has already ruled out one of the more significant recommendations a similar inquiry suggested 10 years ago.

On Tuesday, the Commission released the terms of reference for an inquiry into local government funding and financing arrangements.

The inquiry was part of the New Zealand First/Labour Coalition agreement which committed to holding an Inquiry “A decade after Shand” to investigate the drivers of local government costs and its revenue base.

The Shand Inquiry of 2007 – led by former Wellington Councillor David Shand – recommended a share of local GST be channelled into a contestable infrastructure fund.

But Robertson is not keen on that idea.

“I have said I’m not keen on GST to do that because once you start to do that, it undermines the tax base,” he told media on Tuesday.

He did, however, leave the door open for further regional taxes.

“In Auckland, we have seen a fuel tax; there is a proposal in Queenstown around a bed tax. What we have to look at is what are the best vehicles that we can provide people.”

He also used a Special Purpose Vehicle – an off-Government balance sheet entity created for a specific purpose – as an example of another way councils could raise money.

In the terms of reference for the inquiry, Robertson says the cost pressures for councils have “grown significantly” since the Shand Inquiry.  

In June 2016, councils owned $112 billion worth of fixed assets, employed more than 25,000 full-time equivalent staff and had annual operating expenditure of $9.3 billion.

Operating income was $8.9 billion.

Meanwhile, council debt has continued to expand with many of New Zealand’s larger councils up against their debt limits.

“Rate increases, limits on borrowing and increased expenditure demands, particularly for infrastructure – creates the need for an independent inquiry into cost pressures, decision making and affordability,” Robertson says in the document.

Speaking to media, the Finance Minister says now is an “opportune time to say ‘what are the drivers of those costs and how do we make sure that we give local Government the tools it needs to be able to finance what it needs to do.’”

What is the scope?

Robertson has asked the Productivity Commission to look at how much impact population growth is having on certain areas, as well as the costs of climate change on local authorities.

It will also look at rates affordability now and into the future and options for funding and financing tools to serve demand for investments.

Whether changes are needed to the regulatory arrangements overseeing local authority funding and financing will also be looked at as part of the inquiry.

But Robertson says mechanisms for rating of Maori freehold and Crown land are out of the inquiry’s scope.

As is a valuation system and practices and any “substantial privatisations.”  

The Commission is scheduled to present the final report to the Government by November 30 next year.

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?

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10
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Very valid question, but he also needs to ask if councils are even competent to determine spending of ratepayer funds. Whanganui for example - the council utterly screwed up the sewage system first time around based on their engineers recommendations, as well as consultants. If the employed engineers cannot see through the BS delivered by consultants what is the point? There were many retired or otherwise employed ones who wrote to the local rag questioning the original decision even during the consultation process. But the bureaucrats just ignored this and went ahead with their won preferred option. Council competency has to be looked at as a part of this.

“Council competency has to be looked at a part of this.” Certainly, and the major part I would think. Too many bureaucrats have become habitual wasters of other people’s money. All those people want is good efficient basics of life first and foremost. Not grandiose schemes that achieve little more than a blown budget. Fix that culture and overindulgence, and I would wager the rest of the problems would hardly be noticeable.

Yes when you have PC policies like getting ride of old white dudes or not employing them where possible, then engineering and institutional knowledge is almost completely lost.

Old white dudes are the bastion of engineering and institutional knowledge? The latter I understand because old white dudes shape institutions, but engineering?

"councils ... had annual operating expenditure of $9.3 billion. Operating income was $8.9 billion."
Crude maths indicates that since the Shand Report 10 years ago Councils have spent $4 billion more than they've raised. How has this been done? "Meanwhile, council debt has continued to expand "
Magic isn't it! And just like in The Prestige, the trick kills the bird.....

@bw .......... LOL , even Dynamo the magician would not be able to unravel that one .......

Robertson is correct to address population. Given that the true wealth is access to resources and the energy required to deliver them, a doubling of population is equivalent to a halving of per-capita wealth.

Unfortunately, the standard conversation - with economist as the high priests - is about the amassing of digital tokens, which only represents hoped-for purchasing of resources and energy in the future. Guaranteed dissapointment there. So he's progressing the debate.

Climate Change is a bit more akin to Boolean algebra - in that it a result of us burning fossilised sunlight for the energy without which our current digital expectations of the future would never be realised. Yes we need to discuss it, but we need to be very broad in the scoping.

But we also need to look at the paranoia of house-owners following the leaky-homes debacle - and how much more expensive the subsequent legislation has made housing.

And we also need to ask about future generations - the rights thereof. Because if we costed our current draw-down correctly vis-a-vis their rights to the same resource chances we have, none of us could 'afford' anywhere near what we moan about as being 'too expensive' now....

And an afterthought - this is the same govt which has promised nearly a million to the DCC for a feasibility stude into doing up it's harbour basin. While Clare Curran's electorate is one metre above sea-level and one sand-dune from a very rideable right-hand break.......

And an afterthought - this is the same govt which has promised nearly a million to the DCC for a feasibility stude into doing up it's harbour basin. While Clare Curran's electorate is one metre above sea-level and one sand-dune from a very rideable right-hand break.......

I thought exactly the same thing - and they still have not resolved the wastewater/stormwater flooding problems of South Dunedin;

https://www.odt.co.nz/news/dunedin/dcc/south-dunedin-flood-solution-will...

Robinson wants to know why council costs are so high? Simple answer: Because they are monopolies with no real motivation for efficiency, there's little interest from voters, their political focus is entirely upon the fun and visible stuff rather than delivering essential services efficiently and staff are (by and large) not answerable to councillors - who are no longer even allowed to talk to them directly (must go through managers).

Add to that they vast expansion of time wasting/costly non-productive activities - eg 250? comms staff at Auckland council, armies of cultural appeasement clerks, hoards of safety elves, battalions of consenting apparatchiks.

I vote Foyle for inquiry chairman.

Me too. He or she has gifted delivery.

I'm unqualified: insufficiently masochistic.

Foyle’s war?

I disagree that there is little interest from voters. they just think that essentially they are powerless. Council elections do not address the immovable monolith behind the elected council. The employed council members have all the power and members of the public, regardless of their knowledge, qualifications or experience just get ignored. Councils have the attitude that rate payers are a bottomless font of money to be tapped as required. The only constraint they face is the elected councillors who hope to be re-elected. If it doesn't appear before elected councillors then there is essentially no constraints. They are, for all intents and purposes dictatorships within a democracy!

And councillor's, like all politicians, are frequently captured by the interests of the people they work alongside all day every day, (echos of Yes Minister) ending up as advocates for council-workers rather than rate-payers. Need to be a real hard bastard, most likely from a commercial management background, if you are to resist that tendency, because it's psychologically hard to work in a place where people hate you.

One of the biggest reasons for increases is Central Govn has dumped more responsibilities on local govn but not funded it. So while Joe public spits the dummy at the threat of a PAYE tax change they take a rates change up the **** without much of a whimper.

So its a bit ironic that Robinson is asking such a Q.

I agree you comments have hit the nail right on the head. In MHO that was when the problem started and Central Govt has continued to delegate its obligations to Councils without funding or competence support,

Most accurate comment of the year. Well said Foyle.

10
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Well, the endless rise is no coincidence: ever since the disastrous Sandra Lee introduced the 'four well-beings' into the Purpose of LG, the brown cardies went hog-wild in Social and Cultural spend: V8 racing in Hamilton, Stadia everywhere, MudTopia in Rotters, Ellerslie Flower show in Christchurch - it's a long, expensive and sorry list.

Social and Cultural spend can be defined succinctly as 'any and every human activity', so the sky's the limit. And ratepayers, in the eyes of the BC's, have endlessly deep Pockets from which to extract the Munny to pour down these sink-holes. Councillors, in staff eyes, are a set of interchangeable amateurs around a very distant table, mainly there to rubber-stamp whatever the latest fad is, take the heat for the inevitable cock-ups, and cheer-lead for the latest Rates Rise - or to cover for the latest Modest Fees increment on the grounds that - user-pays, don'cha know?

The madness was stopped in 2012 with a re-definition of LG purpose, to focus on service delivery and those Cruel Words - efficient and effective. LG is neither, having grown accustomed to getting staff-initiated fads accepted then delivered.

Now, to go back to them Good Old Days, there's Bill 48-1, which will, when enacted reinstate the Four Well-beings in all their economically clueless Glory.

Game on, yet again, for LG expense rises. Good luck with reining in the spenders. It will take more than the Productivity Commish and stern looks from the Hon FM, to stop This gravy train...once that Bill gets back into Law.

Still, it surely proves that leopards (and BC's) don't change their spots. Rates, fees, debt, it's all Munny, and the list of Social and Cultural spend is extensive, expensive, and why, we need a few mo' BC's to Get through It!

Wheeeee!

Yep. My view is they spend lots of money trying to attract NZ people to come over to their patch for a long weekend, get some economic impact report written up, hey look people came and spent some money here. But it's a closed system within NZ. It's a bit like bidding for and shock horror being given hosting of the Olympics. But on a more drawn out and insidious scale.

The madness was stopped in 2012. No it did not. The Nats sold us a pup on that Act amendment - efficiency and effectiveness mean nothing when you define the core services of local government as;

http://www.legislation.govt.nz/act/public/2002/0084/167.0/DLM3412613.html

There has been no re-focus whatsoever. Those legislative changes were a "ruse" - a cruel joke to make you think the Nats actually wanted spending to be more focused on things that are necessities.

Why would the Nats pull such wool over our eyes? Well, council's threatened to withdraw the subsidising and funding of all those things under 11A (e). And the Nats didn't want to pick up the tab (or be blamed for the closures) to keep local libraries, stadiums and museums open.

For a bit of a laugh - here's Nick Smith's press release on what the Nats changes to the LGA would deliver us;

“The reforms will help keep rates affordable and debt at prudent levels by focusing councils on their core roles, setting clear fiscal responsibility requirements and giving councils more tools to better manage costs. The package rebalances the changes made in 2002 that have seen average rates increase by 7 percent per annum and council debt quadruple from $2 billion to $8 billion.”

Anyone know what that council debt has gone to now?

the gross debt for local authorities was $9.8 billion in 2011/12 and is expected to rise to $18.7 billion in 2021/22

http://www.lgnz.co.nz/nzs-local-government/new-section-page/why-do-counc...

Here is the answer to councils overspending and rates hikes. Too many overpaid people in top positions cruising along, and a lot of underpaid people doing the real work.

Good point - the Dunedin City effort re Ed Sheeran is a classic.

Raves about millions being 'injected' into the local economy'.

Well, if someone is small-minded enough to crow about soaking money from other NZ provinces, I feel sorry for them. If we look at if from an NZ POV, it was churn minus what the Sheeran entourage took away, minus the fossil-fuels the country paid for, for everyone to get there. In real terms, it was a negative; resources used, capital migrated. Sure, a social good time was had by those who attended, and that is a valid goal and a valid thing for LG to facilitate.. But just because a few hospitality folk were rushed off their feet, doesn't mean we're any better off collectively. . .

absolutely agree with this.
Of all the things councils could be trying to invest in locally for some resilience ... and the marker is whether the hot chips stand was frantic for a weekend

Huh ?

So Robertson does not know why the costs are so high ............ another way of saying he does not understand where the money is going ?

Lets start.............

VEHICLE FLEET

Auckland Council has a fleet of 800 vehicles ( It does not own a single bus , or refuse removal truck they are just tagged with the AT LOGO )
Nor does it own the parks and recreational vehicles they are all owned by Ventia

What on earth does a small city like Auckland need 800 vehicles for ?

STAFF HEADCOUNT

Then when we agreed to become a Unicity , we were told hand on heart that the 6000 staff in the old structure would reduce

We now have around 10,000 staff ................... what on earth do these people do all day ?

FRUITLESS AND WASTEFUL EXPENDITURE

The sheer wasteful expenditure is astonishing , almost everything they do is extravagant and lest we forget they are using money taken in rates from many families who are struggling .

Why do we have huge handouts for cultural days for minority interest groups , when if they simply let those groups do their own thing , they would do so , and just as well .

INCOMPETENCE

The Council bought a leaky building in the CBD ................ WTF ?

Surely they would have obtained a building inspection report , just like the rest of us do before committing to massive debt ............... its a classic example of wasting other peoples money money and getting into a huge hole

STUPID TRAIN LINES

That are likely to either never be completed , run into a massive cost blowout , or never see a single % return on investment , and be under-used .

ALL SORTS OF HARE-BRAINED SCHEMES

The list is endless
If the Iwi wants a bloody statue at Bastion Point , maybe they should do some fundraising and not look to the hapless council to provide it .

Selling parks and public open spaces to private developers .............. the people running PANUKU should all be fired .

Yes another John key legacy... Awklands super efficient new shiny council. Complete with congestion, overcrowding and overburdened infrastructure. Man deserves a knighthood.

Wasn't the royal commission on Auckland governance, and it's terms of reference defined, initiated by the gov before Key?

I'd argue that it was a bipartisan error instead of reflexively slining mud at the side you dislike. In regards to the Auckland council, nobody, and no party, come away clean.

Hold on...

Inflated budgets, caused by inflated egos...trying to Inflammation the system. ...in their favour.

Any Public Service spends unwisely, because if they lived within our, yes...our... 'means' it would mean a lesser budget next year.

(Which is totally ludicrous, but true).

Like all Bureaucrats who never had to do a true days work in their lives, it is the "Rate-Payer" they depend on for their Largess..

Like a Government Minister, Heath Robinson, Sorry Grant you Robertson...should already know this as he has been dependant on Taxpayers for his Largess...for years.....a factor that should be taken into account, when blowing budgets...hot and cold..

(Pot calling kettle black...methinks)...

It may be cheaper to borrow at the moment, but as usual, us people with Altered Egos, do not work our budgets on "Debt"....just because we 'can"....unwisely.

The Drips....

(Those who can do, those who cannot, waste it and become true believers in soaking debt upwards.forever)...

Personally I would "Can" all debt inspired workers, in favour of realistic workers, who do not live beyond the means of us tightwads. ....

(When will they realise ya cannot get blood out of a drunken... Ego...patently diluted).

Whilst stupidity comes in big packages, with so many Govt and Council Workers per Capita,of legitimate "Workers".. it is no surprise, we cannot live within our means. Council wise, Govt wise and yes...even House wise.
(Biggest crap housing system...world wide).....Yay.

Plus have you seen the wages of sin, these people espouse, compared to a Nurse or Carer....

We need the right people, to run our Country, not debt inspired layabouts....But then...we always did.

And please do not fly anymore Robinsons....the rotor has to spin....to keep up the momentum....before the next crash landing......hurts us all.....and not just in the "pocket".

If Robinsons worked, they might actually be in favour......not Labouring under and over us....poor yokels.

Likewise...Robertsons.

But then National never worked a day in their lives Either...just put it all on the House....and leveraged some poor suckers to 'death'.......in the process....playing follow...my Dear Leader.

You cannot spend your way to success, using Tesla as an example...Billions owed, battery and sales ...flat....but unsold cars stored in fields to rust. ...as not "Practical"...and maybe never will.

Warehouse likewise...poor workers...taxed on every dollar....but still laid orf...whatever next....

I agree with Foyle for "Inquiry Chairman"....as long as he works for free....we do not need another bunch of money grabbers to see the obvious....it has been patently obvious for ..."Bleedin Years".

I second "Boatman"....at least he has a clue...too.

Nuff said...rant over.

PS...could explain further....but it is beer oclock...(No small wonder I drink)...

I nominate Waymad too! Seriously though all of us here, who often differ in opinion, are all united in condemnation of the penny dreadful, spendthrift, unaccountable attitude and performance of our respective councils up and down the whole damn nation.

Its a pity a City cannot go bust , like us ordinary mortals who when we live beyond our means, or buy things we cannot afford , have to deal with the consequences of our folly

Just increase rates! Yay!

But only by 2.5%! After that it's called levies, fees, duty, excise...

Around here we have regional councils doing the same work as local councils. In the Havelock water fiasco, Hastings council checked the water, then the regional council and then the DHB, all failed. when it went tits up the regional council tried to take the Hastings council to court. Its a shambles and it's a deeply imbedded failure it's a culture of failure. If they stopped staff traveling with air NZ, i'd advise one to sell ANZ shares fast.

Around here we have merged the regional and local councils. As a result, our council now sues itself.

We were supplying some gear for a project being installed by a local government business unit. There were some problems with installation (operator error) which put the project back a couple of weeks. The guys were jumping up and down because they would be subject to liquidated damages.

So basically the council are going to charge liquidated damages to one of their own business units....

Andrewj,
How are the new HB regional council rate increases affecting you? Ours are going up about 50% this year. I also saw that the HBRC is planning on significantly increasing borrowing in addition to the substantial rates increase. I am surprised that there isn't an uproar in HB about these changes....

Leave local government alone. If people where concerned about their spending they would elect alternative councillors. National government should keep it's nose out of local government.

Legally, LG is there at the total behest of Central Govt. That's sort of the way it has to be.

As you might have noticed, when the Cant'y dairy herd - the human ones - were pushing up beyond sustainable limits, it was central govt which removed the democratically-elected CRC so the rape could take place.

Yes. Exactly. It comes back to the legislation - here is its definition of core LG services:

11A Core services to be considered in performing role
In performing its role, a local authority must have particular regard to the contribution that the following core services make to its communities:
(a) network infrastructure:
(b) public transport services:
(c) solid waste collection and disposal:
(d) the avoidance or mitigation of natural hazards:
(e) libraries, museums, reserves, and other recreational facilities and community amenities.

Want to reduce the spending - remove (e) and reword the beginning of the clause to read:

In performing its role, a local authority must have particular may only have regard to the contribution that the following core services make to its communities:

No. That is how Greece, and Venezuela and Argentina all wound up broke, by electing politicians who borrowed them into penury by indulging in unsustainable spending. Local government electoral processes have failed to deliver fiscally responsible local government. The system is broken and needs some major fixes. Like an act of parliament that limits borrowing and perhaps complete rejigging of regulatory and infrastructure management functions.

There is not enough pressure on local government spending. It should all go through business case assessment.

Local government should then be forced to fund the "needs" first (water, waste, roading etc) & the "wants" get put item by item to the ratepayers for feedback & approval at annual plan time.

I remembered when Len elected for Auckland Super City, he was looking at a Lexus LS600 as mayor official car, a cool 200K+ car to compete with the series 7 BMWs they have in Wellington. That is the sort mentality we have at the council

Mr Grant Robertson has already decided the causes are population growth and climate change. He is now putting together a $10million+ inquiry to find these causes "independently".

Reducing costs is simple, privatisation and competition.

Usually ends up privatised and monopoly and thats the worst of all worlds.

actually it's privatised and profit, which makes it more expensive. We're not still back there are we?

Wait, what? We’re all complaining about council wastage and you saying privatisation would make it more expensive again? At least with privatisation you can have competition which would go a long way to bringing costs down.

Competition? Maybe they taught that in Econ101, but in NZ, there usually isn't room for competition. Kiwiair, Virgin, Ansett, the fast ferries, fortex - no, there are limited opportunities. As there are even in the bigger world - hence anti-monopoly legislation.

But all things being equal - and it's entirely reasonable to expect equal work per person in either form - profit is the extra that 'private' has to charge. In actual fact, 'public' would be cheaper too, if 'public' wasn't forced to on-charge interest charged by private, for the privilege of creating ' money' by keystroke.

I can't understand how the council cannot provide competitive rubbish collection, how it is more efficient to have 3 or 4 different private companies driving their trucks around rather then one truck picking up all the bins??

Exactly. And moreover, the private company in Kapiti who was the lone provider of rubbish bags has now decided not to sell/collect rubbish bags - hence householders have to take out a contract for bin service.

https://www.kapiticoast.govt.nz/services/A---Z-Council-Services-and-Faci...

So no more collection for casual users of the service (i.e., those who generate the least waste) - all at a time when we have a solid waste crisis on our hands.

I often think about that where the electricity sector is concerned - where we are now subsidising winter energy payments and insulation packages. These cold homes are the same houses folks grew up in during the 1960s - and did we have the same kind of cold related problems/diseases? If not, obviously folks were able to afford plenty of electric heating.

Another National party debacle where they promised cheaper power prices when they privatised the electricity system, but instead we got some of the most expensive. In part at least driven by Government demands for dividends.

Although I am a shareholder of one of the companies i feel that the only real solution is to nationalise the whole system again into public ownership and remove the demand for profit.

Yes, int'l price comparisons based on PPP can be found here;

http://www.mbie.govt.nz/info-services/sectors-industries/energy/energy-d...

Very interesting to look at the NZ prices rises since 2000 when the series begins. - 115% rise in price for residential electricity between 2000 and 2016. On a PPP basis, the OECD average rise was only 70% for that same time period.

I guess that proves the market reforms failed miserably.

This sounds all focused on revenue.

We need a damn hard look at council discretionary spending. In Wellington we have PJ’s museum, a runway extension, and umpteen number of other discretionary projects that should be cut. I’d hope the focus is on council productivity. There is no accountability with councils. With government you can vote the bums out, with council nobody knows who the bums are becuase they aren’t in a party that owns particular policies. They are all individual special interests voting for pet projects.

And, ya may have noticed, it's not possible to Unelect Staff. And its from these pampered cloisters that most of the spending pressure emerges.....

How is old Tim doing in the deep South? Remember his promise to tow his concrete mixer behind the mayor Daimler? He mayoral car after that was disposed of was a modest Holden Commodore.

Councils like Nelson and Wellington are simply out of control, run by incompetent people who finance everything on a cost/plus basis--with no real idea whatsoever of how to manage finance propertly.

What is it with Labour delay-bouring about with their reports and working groups. The problems are obvious. Too many stadiums, granite pavers and cultural events. Too many mates getting contracts. Too little accountability. The pricks at my local council are charging me nearly $8k for a building consent - bog standard single story house.

When these monopoly councils are a sink hole for money the worst thing to do is give them more by adding fuel taxes!

Break a few eggs Grant and make the damn omelet.

the look on a Hamilton city councilors face recently at a social function said it all. The wannabe high flying individual was clearly embarrassed that those present might realised that they had no idea about the financial position of Hamilton after being on the council for at least the last 7 years. The CEO only now after have had 20 ? accountants look at the books said he thought the figures on the balance sheet and off balance might not tell the full story. He was on a salary of over 400 thousand a year...…….

One of the problems I see is that LA CEOs are a bit of a closed 'club'. They all seem to come up from within the ranks of local government via SOLGM;

https://www.solgm.org.nz/

And they transfer around from council to council.

The only one I became aware of that was hired from a non-local government sector, was Adam Feeley (ex-central government SFO boss);

https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=115...

Surely at the salary rates they could attract some good management from the private sector?

Actually they've done that, Kate, and it hasn't worked. Isn't working for DoC, either.

The reason is obvious.

Obvious how?

More evidence for Grant and the PC;

https://www.stuff.co.nz/business/105539721/rotorua-councillors-call-for-...

Brown said 14,000 people attended the festival and that from a 'festival experience view point', "the event could be considered a success".

But the festival only sold 1500 tickets, 12,000 tickets were given away to residents and 3000 to sponsors and suppliers.

How any bureaucrat could use the word "success" in relation to this event is beyond me.