Brian Rudman: The trouble with asking Big Sister for money

It's that time of the year when local councillors have to take the pruning shears to their shopping lists and thoughts turn to new sources of revenue. Last week it was Alex Swney's brain wave that came and, almost as quickly, went. The chief executive of Auckland CBD lobby group, Heart of the City, suggested that central government should top up local government coffers by sharing out the small change from its annual $50 billion tax take.

Just 2 per cent would reap a $1 billion "refund" that, shared out on a per capita basis, would score the Auckland region between $300 million and $400 million, thus "providing a more socially equitable and robust revenue base for all councils in New Zealand".

Of course, the unpalatable consequence of such a handout is it would bring Big Sister rapidly snooping into the affairs of local government. As Local Government Minister Mark Burton was quick to point out, the quid pro quo would be central government demanding more say in how that money was spent.

Mr Swney argues that this was not necessarily so. That government could choose to act simply as a supplementary tax collector for local government. But somehow the idea of government just handing money over to lesser politicians to spend as they saw fit, is rather improbable. The old principle, that he who pays the piper picks the tune, dies hard.

You only have to look at demarcation squabbles between the Auckland Regional Council and the Minister of Finance over who is going to pay for what in the stalled Auckland passenger rail project to appreciate that. Take, for example, this sentence from a letter on May 26 from Finance Minister Michael Cullen and Transport Minister Annette King to ARC chairman Mike Lee. "In our view your proposal is too prescriptive to be workable. The level of control that you wish the Government to give to Auckland Regional Transport Authority is inappropriate in a situation where ARTA is not meeting any of the costs."

The search for new income streams for local government is a perennial exercise. Six years ago I wrote about an official review being under way and finally in July last year a report emerged. It ducked for cover, deciding that overall, the rates-based system did not place "an unsustainable burden on communities". However, it conceded there were a "small proportion of local authorities where increasing pressure will be difficult to accommodate using existing funding tools".

A second report was to be delivered by December 2005, outlining extra or alternative funding methods. The general election apparently put the kibosh on that, and the deadline was pushed back, first to March this year and now September. I'm not holding my breath.

The earlier report recommended local government make better use of existing power to introduce targeted rating and borrow. It also noted large areas of government-owned land and property - conservation land and schools, for example - that were exempt from rates and raised the proposal that some sort of contribution from government in lieu of rates on this property could be helpful. Another option is needs-based funding, which the government has already embraced for targeted projects. Rural communities, for example, have qualified for $150 million to upgrade wastewater systems.

A major complaint from councils is the added costs forced on them by new central government legislation - everything from dog-chipping to regulating brothels. Here it might be worth investigating a recently signed Australian inter-governmental agreement in which state and Commonwealth governments agree, when imposing legislative and regulatory controls on local government to administer, to first consult with local government "and ensure the financial implications and other impacts ... are taken into account".

Further to last week's piece on the rates postponement scheme, some callers were concerned that other ratepayers would end up subsidising postponement scheme entrants. Not true. The cash flow shortfall will be covered by borrowing, and the cost of that borrowing is built into the interest charge on the postponed rate.

I also suggested that children and other benefactors were invited to the compulsory "decision facilitation" meeting held to discuss the scheme before anyone signed up. This was wrong. It's over to the applicants whether they tell their kids before or after signing up. Which is only proper.