KEY POINTS:
How many inquiries have been made into local government finance? And how many have reached the same conclusions as that which reported this week? Rates, it concludes, should remain the major source of revenue but be supplemented from other sources.
The inquiry was launched a year ago to
take the heat off councils, particularly those in Auckland, that were exacting double-figure rate increases and projecting them annually for the next 10 years. A panel of three - chairman David Shand, a former World Bank public financial management specialist, property valuation expert Graeme Horsley and a senior Massey University lecturer, Christine Cheyne - was to cast a fresh eye over the pressures on local authority expenditure and the sustainability of rating.
They have decided rates will not be affordable for some sections of the community 10 years hence but they can suggest no better system of taxation. Local government needs to show more restraint in its expenditure, they say, and they believe rather hopefully that spending will stabilise in real terms over the next 10 years and decline as a percentage of GDP.
But that is unlikely to happen unless councils feel the heat from those who must pay their bills, and that is why the much-maligned rating system is better than any alternative form of finance.
The worst, by a long shot, is the revenue source most favoured by local bodies: a share of national taxation. Ratepayers, who are taxpayers too, should never support this self-serving suggestion always heard from councils when their rates are under attack. It is most important that those who spend public money should have to raise it. Every dollar councils receive from central Government coffers is a dollar they can spend with impunity; they do not have to justify the expense to those they ask to elect them.
Even with electoral accountability there is precious little check on local body spending. Contractors know they can charge a premium when they are being paid from the public purse. Costs of even modest council constructions can be eye-watering. If direct rating does not provide much discipline on costs, less direct sources of revenue would provide even less.
Rates now account for only 56 per cent of local body revenue, the rest coming from Government "revenue sharing", user charges, loans and dividends. The Shand panel suggests the rate portion be reduced to 50 per cent and proposes some better alternatives than revenue sharing. It believes councils could reduce depreciation funding from current revenue and use more debt finance for long-term assets, charge for water and wastewater by volume and be allowed to levy rates on Crown property and conservation estates.
These are useful proposals but the catch, as the panel notes, is that the revenue must be used to reduce rates rather than increase spending. If only.
Councils are fond of blaming their rising expenditure on new functions supposedly forced upon them by the Government. The panel has scotched this claim, pointing out that nearly all the extra tasks involve inspection and consent services for which costs can be, and are, largely recovered in user charges.
It finds that rates have increased by 38 per cent more than inflation over the past 12 years. This is a disgraceful performance even if, as the panel accepts, the prices of most local body inputs have risen faster than the CPI. Local government is one of the few sheltered sectors left in the economy and it imposes heavy costs on those exposed.
Let this be the last time ratepayer anger is dissipated by another inquiry. The rating system remains our only check on weak public managers. Elections are the only way to change them.