Local Govt NZ releases funding review report proposing 'special economic zones' where Councils share in fruits of growth; road user charges, visitor levies and fuel taxes also proposed

Local Govt NZ releases funding review report proposing 'special economic zones' where Councils share in fruits of growth; road user charges, visitor levies and fuel taxes also proposed

By Bernard Hickey

Local Government New Zealand (LGNZ) has released its final report from a one year review of funding options and has recommended creating 'special economic zones' to test growth ideas that allow Councils to share in the tax revenues from any economic growth they generate.

Arguing that property taxes don't provide the incentives to generate economic growth, it has also proposed allowing councils to impose road user charges, fuel taxes, visitor levies and to share in minerals levies.

LGNZ also proposed current exemptions for paying rates for the Crown, churches and iwi should be removed and the Government should reconsider its recent limitations on development contributions, which stop them being used to pay for community amenities such as playing fields and libraries.

LGNZ President Lawrence Yule released the 83 page report at LGNZ's annual conference in Rotorua, saying councils faced unprecedented demographic and economic change that made their current reliance on property rates outdated.

“We need to put ourselves and our communities in the best possible position to manage significant issues such as regional economic development, demographic shifts, climate change and rapid technological advancement," Yule said in a speech to the conference.

He said the review was not about increasing the tax burden or about increasing the size of any funding increases.

“This is about leading a principled discussion with our key partners around more fit-for-purpose funding options,” Yule said.

He said property rates should remain the cornerstone of Council funding, "but local government needs a wider set of funding sources at its disposal."

"This includes a strong incentives-based regime, to lead to better performance of both arms of government to meet the needs of communities," he said.

“Incentives such as a share in value uplift arising from additional economic activity can improve outcomes for local communities.  We see a strong opportunity to test these ideas through Special Economic Zones.”

Yule did not spell out what these zones could do, but others have suggested that foreign direct investment or RMA rules could be suspended for these regions to encourage investment and economic growth. Councils could then benefit from any growth by being granted a share of any income or sales taxes generated by that growth.

LGNZ released a 10 point plan for funding reform along with the review.

Brown wants reform too

Auckland Mayor Len Brown said the current funding system for Councils was unfair and needed to be addressed urgently.

Brown says a government review panel in 2007 (the Shand Review) also stated that new sources of funding would be needed by 2017, but nothing happened.

“We’re almost at 2017 and so we’ve done enough talking, it’s time for action.”

English open to zones idea

Finance Minister Bill English said the idea for 'special economic zones' was "interesting."

"Increasingly, local governments can see that cutting through some red tape can help, and quite a bit of that red tape's local government red tape as well as central government's," English told reporters in Parliament.

"And we have seen that in housing where they've been lining up to get special housing areas designated as a way of getting around the red tape of their own planning process," he said.

"So we are interested in hearing what they mean by that."

English said Economic Development Minister Steven Joyce would handle discussions with Councils over such zones, "but I expect there would be more positive discussion about it."

'Sort out your spending first'

Local Government Minister Paula Bennett told the conference the Government would look at the proposals closely, but she also commented that Councils needed to look at their own spending before considering new revenue options.

"This is a conversation worth having, but first and foremost local government needs to demonstrate that it can live within its means. Ratepayers are not willing to pay more for services while they see waste," she said, pointing to Local Government wages and salaries rising 2.3% in the year to March 2015, which was above consumer price inflation and wage inflation in the central Government and private sectors.

"And the recently released LGNZ Survey identified that local government was rated poorly on trust to make good spending decisions, value for rate dollars spent, and managing finances," she said.

"I expect you to look closely at your costs and have free and frank conversations about what is driving your expenditure and whether that discretionary spend is assisting your council to achieve its strategic goals."

(Updated with reaction from Bill English and Paula Bennett)

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The best way to promote economic growth is to tie council workers salaries to performance. Council will quickly become efficient.

The sooner we get rid of Len Brown and elect a council capable of living within our means ..........the better

they need to be spending their own capital.

Councils have powerful monopoly.

Give them the power to gouge and it will never be removed. Remember how much council employers are savvy to other peoples' finances and troubles? Remember how they dither about when emergency hits ... or how they wrote themselves a "we're not liable" clause into the LAW with regards to lbuilding code and inspection failures!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

I'm all for local suppled buildings - but it must be from council + council staff debt (like normal company employees have a stake in their employers business risk), and must be _totally_ separate from any ratepayer funding and ratepayer guaranteed risk

And they have to be careful that councils do not end up giving themselves an advantage over private and other government clients in their operation. Even things like having the inside information on what future long term plans and policy are risky advantages. Clearly decision makers need to be personal liable to make sure they do take advantage/risk at everyone elses expense.

As for English saying it's a possibility.... that one of the worst condemnations I've heard for the idea - on par with a video of a fat guy pawing at a white cat, and chortling..

- also BIG risk of council declaring their "spavings" as income/benefits and wanting cash payments for what they've "saved"

I think that the rest of NZ would be very happy if Auckland paid for all the infrastructure required for it's growth.

Are we confusing economic growth with temporary supply shortages due to high immigration?

If local government could achieve the same level of growth as they have had with rates then great idea, the problem is that the increase in rates seems to work inversely to productivity and growth gains.

Can you see private entities wanting to have councils as partners, might work for airports and ports but can you imagine have Len Brown advising you.

I think the last twenty years will show that local government is not the wisest spender of the public purse. When will we learn to live within our means?

LGNZ: "Do you trust us, New Zealand?"

NZ Public : "Not one tiny bit!"

LGNZ: "Great! Give us more money".

It's only one year since Lawrence Yule shamefacedly revealed that the sector's public reputation is awful. How have they spent the last year, then? Not actually repairing that awful reputation, no. Dreaming up new ways to get more funding with less accountability.

Having splurged over social and cultural wellbeing-oriented activities over the past decade-and-a-half, (thanks to the 2002 LG Act which put these bottomless budget pits front and centre until repealed in the 2012 amendments), Councils are just now waking up to the awful implications.

They have locked in substantial soft spend which can be unwound only painfully, politically riskily, and to minor overall degrees.

Their solution?

Reach deeper into their locality's pockets.

It would be more to the point for the current purpose of LG (to wit: (a) to enable democratic local decision-making and action by, and on behalf of, communities; and
(b) to meet the current and future needs of communities for good-quality local infrastructure, local public services, and performance of regulatory functions in a way that is most cost-effective for households and businesses.) if there were to be Cost Effectiveness Commissioners appointed in lieu of 50% of current elected Councillors, and if said Commish were tasked to report quarterly to Parliament.

It does seem initially reasonable, but what it will lead to is local council activities being subordinated to commercial imperatives. "Policy experts" like Oliver Hartwich are selling such governance reforms on the basis it will provoke interjurisdictional competition between region, which would provide local governments with incentives to compete with one another to deliver improved conditions for economic activity. What they don't admit is the actual outcome of their policies, which is a commercial regime, which I call "subsidy farming" where instead of competing with one another based on producing products and services on a basis of superior quality and/or price, the firms enhance profitability by seeking to attract subsidies and other inducements which States are desperate to offer to attract investment and jobs in their jurisdictions.

"On the other hand, in the United States, states are generally free to directly subsidize in-state activities under the “market-participant” exception. “The ‘market-participant’ exception permits states acting as ‘market participants’ as opposed to ‘regulators’—essentially when the state is engaged in ordinary buying or selling with taxpayer money—to make geographic distinctions the [dormant Commerce Clause Doctrine] would otherwise prohibit.” The Supreme Court has indicated that even direct monetary subsidies to in-state companies usually do not violate the Commerce Clause."

On the matter of Local Government finance, I've found that the draft of the legislation which enacted the Local Government Funding Agency was poorly written, and may have rather worrying implications if it wasn't amended.

"The Bill sets the high level design for the LGFA only, leaving the ownership structure and governance arrangements to be developed by the sector. This decision creates some curious drafting issues regarding whether the LGFA will be constituted as a council controlled organisation (CCO) as CCO status cannot be legislated for since it depends on a factual assessment of control over the entity.

This conundrum is (rather awkwardly) resolved through clause five in the Bill, which essentially provides that the Bill will lapse if the LGFA does not become a CCO or at any time in the future ceases to be a CCO – as would happen, for example, if a more than 50% share was privatised."


Crikey, let's not follow the US model, any US model, please. I hear the Swiss are best in class at local government.


Indeed, LOL last thing we need is the broken US model. Now cherry picking any good bits, maybe.

Indeed, I agree, though not so much on the compete with services as that is almost a licence to spend rates willy nilly.

Len Brown needs to stop all wasteful and unnecessary expenditure

1) Why has Auckland Transport ( who does not carry a single passenger ) need 400 staff . What do they all do all day ?

2) Why are we financing Diwali and Pasifika festivals ?

3) Where is the value in ATEED for the hapless ratepayer , the hotel chains should pay for their own marketing ........ not families on the minimum wage ?

4) Why does the city have a team of economists each earning astronomical salaries . There is not another city on earth with a tiny population having this luxury This function should be outsourced.

5) Why is it the city cannot budget to live within its means ?

We need a ruthless mayor as change agent to get this mess sorted

1) Agree, lets disband auckland transport. Let the contracting road building and bus carrying companies run the transport system as a private business, that will have much better cost control.

I for one don't mind stopping at a toll both each time i cross the boundary of one privately maintained road to the next. Who needs planning for buslanes, the harbour bridge will be a much more pleasant place once all the vehicles are stationary as the half of bridge passengers on buses revert to driving, doubling the number of vehicles across the bridge. You'll have time to get out of your car and enjoy the view, no need for sky bridge! win-win.

They talk of new revenue. Their speech tries to depersonalise it. What they mean is taking more money from the community via taxes, charges and levies. It is highly personal.
Council needs to focus on core business, chch city council gives 9 percent of the rates take to charities / individuals such as owners of historic houses. They pay for flower shows, parties at the A&P show for councillors and friends, summer times music events, and social housing to the tune of 600K per month and tie up hundreds of millions in social housing that returned nothing to ratepayers.
They waste our money, and demand more when they cannot afford core services. No more taxes!

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