Where does all the money go? Photo / Mark Mitchell
OPINION:
Hot on the heels of the Government's big spend and hope Budget last week, local councils are getting into the act with some big spending plans of their own, and some eye-watering rates increases to go with them.
Unlike central government Budgets, where a Finance Minister can choose to spend like crazy, increase debt and deal with the painful side of how to increase taxes later, council borrowing restrictions mean that ratepayers get presented with the bill at roughly the same time as the spending is done.
And the bills this year are right out there. Hamilton rates are going up 9 per cent, Dunedin is staring at 10 per cent, Tauranga's will likely be well into double figures courtesy of government commissioners, and Wellington City has just voted for 13.5 per cent. All this with a current inflation rate of less than 2 per cent.
With these sorts of increases, Auckland Mayor Phil Goff will be relieved that his Council has settled on "only" 5 per cent. But not so fast. Auckland's plan for the next 10 years has rates increasing by 46 per cent and water rates increasing by 111 per cent, so consider this year's increase a small down payment.
And some rural property owners are experiencing a rude shock as their rates "catch up" to their urban counterparts.
Despite all these big rates increases, councils are still crying poor. Hardly a fortnight goes past without another new story planted in the media lamenting how the rates model is "broken" and how councils need other revenue sources to supplement their rates.
"Other revenue sources" is generally code for siphoning off money from central government. And those revenue sources are mostly sought by councillors who have made big promises to build more stuff to get elected, while at the same time promising not to put up rates. Once in their jobs, they quickly find the circle doesn't square. Rather than fess up to their electioneering, they get out the begging bowl and ask government for more money, preferably with no strings attached.
There is no doubt that the bind many councils find themselves in currently is bigger than normal. That is due to the state of each council's horizontal infrastructure, particularly the three waters: freshwater, stormwater, and wastewater. These are deeply unsexy parts of council expenditure but vital for the smooth and safe operation of modern cities and towns.
Unfortunately, many councils have ignored increasingly pressing needs to modernise that infrastructure. We all know Auckland's wastewater and stormwater issues, but at least the council-owned WaterCare has a plan to solve them and is making some big catch-up investments. The lack of additional freshwater storage in Auckland is more due to NIMBY Auckland politicians avoiding building storage lakes than the much-maligned WaterCare.
In some other parts of the country, notably Wellington, the need for investment in water infrastructure has been ignored for decades. I've personally seen papers going back 10 years about the list of projects required in Wellington, as successive councils used any excuse to try and get central government to subsidise their negligence, rather than rein in their spending in other areas.
Over that time Wellington has spent hundreds and hundreds of millions of dollars on nice-to-have above-ground projects in preference to tackling this crucial issue.
It has taken burst water pipes and sewage flowing in the streets for the council to finally get off its collective rear end and face the need for investment. But even now, councillors won't face up to their responsibilities and declare projects like $226m worth of cycleways will be delayed while they deal with this urgent issue. Hence the huge rates rise.
It's not hard to see how all this happens. New (or rebuilt) libraries and cycleways are much more popular with many people than water networks. Nobody cuts a ribbon and gets a news story for the opening of a new pipe, at least until now. Yet they are vital services, and responsible councillors should have been beating the drum about what was needed much more loudly and much earlier.
Some councils are struggling with what they call the burden of growth. They point out that opening up new subdivisions costs money for pipes and roads and things. And they are right. They are less forthcoming about the financial benefit they receive from having more ratepayers.
Even allowing for last year's small Covid-related dip in revenue, the council in our fastest growing city, Auckland, has seen its annual revenue increase by a billion dollars in the nine years it's been in operation. Given that it has the ability to borrow for infrastructure for new subdivisions and spread those repayments out over 20 years while its income continues to grow, it's hard to see the problem.
Those councils not struggling with this "burden" look on enviously at those that do.
Many councils are suffering from poor expenditure control and bureaucracies that grow faster than their cities. The standout here is Auckland. When the legacy councils were merged into the Super City, the staff count was around 8200.
By June last year it had reached 12,734 — more than 50 per cent higher. The number has grown by more than 1000 since then-candidate for Mayor Phil Goff said it was too high and the city needed an "efficiency drive".
I suspect that the council funding model is not broken so much as working as intended by, at least belatedly, making councillors face the consequences of their actions. The principle of councillors being accountable for clearly defined sources of taxation (property rates) is a good one.
It is hard to see some councils surviving at the next election, given the pain they are inflicting on their citizens. And that's as it should be. Being in government involves making some difficult but responsible trade-offs with scare resources. With some honourable exceptions, the current crop of councillors around the country are failing to do that.
They may be in tune with the zeitgeist as exemplified by the current Government, but they are unlikely to be in tune with most ratepayers.
- Steven Joyce is a former National MP and Minister of Finance.
Economists expect the recovery continued during the first quarter of the year.