A recent Cabinet decision reveals plans to explore an Australian idea to restrict councils’ ability to hike rates to pay for non-core spending, such as building new convention centres.
Neil Holdom is the New Plymouth District Mayor.
OPINION
Kicking the crap out of councils is a game the whole country can play – and all we ask is that those looking to follow the fashion use accurate information.
In response to Bruce Cotterill’s NZHerald article on local government (Weekend Herald, Aug 31), I thought I would share a few facts that the professional director missed or got wrong in passing judgment on the sector.
Councils’ core activities revolve around building and maintaining roads, footpaths, parks, water and sewerage pipes as well as stormwater, libraries and swimming pools along with collecting rubbish and recycling.
Councils buy a lot of land on which to build new roads, footpaths, parks and playgrounds to accommodate new housing and commercial developments which provide a steady and significant stream of income to central government. It’s a stream we in local government know as central government’s magic money tree and the reason they are gagging for new housing.
If the average new home on a new urban section costs around $1 million, the local council will likely borrow and invest around $80,000 in public infrastructure to service that property. The council “may” receive some contribution from the developer to cover some of its costs at some point in the future, depending on its development contributions policy.
The Beehive, which invests nothing in the project, immediately receives $130,000 in GST from the sale of that house and section and then approximately $160,000 in related PAYE and income tax from the various companies involved from the developers, earth movers, concrete company, building product companies, builders, plumbers, electricians, painters, landscape gardeners etc.
So an average of about $300,000 per new home in taxes in return for no money down. A magic money tree indeed.
For a new $1m home, central government pockets an average of about $300,000 in taxes.
Cotterill lambasts local government for significant rate increases but doesn’t provide any real analysis of the key drivers of those increases over the past few years because it wouldn’t support his narrative.
He omits the pertinent fact that central government scoops nine times more tax than councils from the average Kiwi household and government income as a percentage of GDP has increased significantly over the past 30 years, whereas council rates as a percentage of GPD have remained flat.
There are other relevant factors to consider.
Councils carry a lot of debt. In 2021 most councils’ average cost of borrowing was around 3%. In 2024/25 average borrowing costs are around 5%. That’s a 66% increase in interest costs which are passed on in rates.
Likewise most councils have seen insurance premiums increase by 70% in the past three years.
Land costs have increased 30% in the past five years. Councils have no choice but to buy land at market value on which to build new roads and public spaces in new subdivisions.
Neil Holdom is the New Plymouth District Mayor.
Commercial construction costs have also increased by more than 30% and roading construction costs have increased around 40% over the past four years. Councils building and replacing pipes and roads simply have to pass on these costs.
Cotterill’s opinion piece talks about Auckland City quitting Local Government NZ and refers to annual fees of $640,000. The actual fees paid by Auckland in its last year of LGNZ membership was $350,000.
Likewise, Cotterill talks about a cost of $15,000 for a water meter and uses this figure to lambast councils. The reality is the cost to install an average new residential water meter is around $2000.
Perhaps he is referring to a large industrial water meter but in terms of context the vast majority of water meters are residential and it would appear he has selectively chosen an extreme example to support his once-over-lightly populist conclusion that councils are expensive and inefficient.
In referencing extreme or inaccurate examples or repeating incorrect numbers, Cotterill undermines his own credibility in a clumsily attempted hit job on local government, so I will leave him and others with a parting thought.
People like myself and Mayor Wayne Brown, with private sector backgrounds and commercial skills, decided that we were better to get inside local government to make changes and address historic failings in infrastructure governance, as opposed to sitting outside shouting and throwing stones.
New Plymouth District Council recently completed an organisational restructure which reduced staffing by around 10% and operating expenses by around 6%. We have focused on core infrastructure and services and many of our peers around the country are working on similar projects aimed at controlling cost increases.
The reality is unless people with the right skills put their hands up to lead in local government, as opposed to throwing abuse to express their fandom of the government of the day, local councils will lack those skills around the table and very little will change.
