Government wants ‘line-by-line’ review of council spending and floats asset sales

Local Government Minister Simeon Brown wants councils to go "line by line" through their spending. Photo / Mark Mitchell

New Zealanders will notice slightly larger pay cheques from this week, thanks to the majority of the Government’s $14 billion tax package triggering today.

But many households will see their net financial position stay the same or even get worse, thanks to sky-high rates increases being imposed by councils. Local Government New Zealand calculated in March that the average rates increase was 15% across the country, and that off the back of 9.8% in 2023.

Prime Minister Christopher Luxon implored councils on Monday to “do exactly what we’re doing here in central government, which is to control their spending to deliver on the basics brilliantly to focus on the must-do, not the nice-to-do”.

Local Government Minister Simeon Brown said his message to councils was that they should be doing a “line by line look through their expenditure to keep costs under control”. He said ratepayers would be “concerned” at continued high rates increases.

The Government has promised to begin inking city and regional deals with councils later in the term.

Those “deals” would bring both central and local government to the table to discuss the long-term infrastructure needs of an area and who might pay for it.

Councils would like new funding tools and central government help to pay for their share. Meanwhile, the Government has been making approving noises about the efforts of councils like Auckland who have sold down stakes in assets in a bid to keep investment up at the same time as keeping rates increases and debt levels under control.

When asked whether other councils should look at asset sales and consider capital recycling before coming to the central government for help in a city deal, Brown said those decisions were ultimately for councils, although he made warm noises about Auckland and Wellington’s moves to sell assets.

“Ultimately those are all conversations for councils to be having with their local communities, but the reality is when they are putting significant rates increases onto their local ratepayers they should be considering a wider range of options.

“Auckland is selling down shares of Auckland Airport, that’s a decision they have made following consultation with their local community, Wellington is doing the same. Those are good decisions where that makes sense,” Brown said.

Act Party leader David Seymour shared Brown’s concerns and voiced some support for capital recycling from councils – in other words, selling some assets in order to fund infrastructure investment.

“When you’ve got leaky pipes, you, as a council, should be asking why you own an airport,” Seymour said.

“It’s also important that councils are a bit tougher on their spending,” he said.

Seymour said councils should get back to basics such as collecting rubbish and focusing on local infrastructure.

Even Labour leader Chris Hipkins was frustrated with the level of rates increases, but noted Labour had tried to reduce pressure on councils through its now-axed Three Waters reforms.

“We do need to have a conversation as a country about a better way of funding local government. We need to be looking at the ratings system itself, whether we use land value or improvement value, for example,” Hipkins said.

He argued that using improvement value instead of land value could drive some of the wrong behaviour and encourage land-banking.

“Councils need to have those conversations, but we also need to look at the most efficient way of delivering the infrastructure improvements that are required.

“The way we are doing water at the moment is one of the most inefficient ways of delivering water infrastructure and, as a result, ratepayers are going to end up paying more for that. The Government have washed their hands of that problem,” he said.

Green co-leader Chloe Swarbrick told the Herald some of the rates increases were a “logical consequence of systemic issues with the way central government has continued to heave infrastructure on to local government”.

Rates have indeed increased at pace.

Data collected by the New Zealand Taxpayers’ Union and the Auckland Ratepayers’ Alliance, who campaign for low rates, show that in 2010, the last time income tax thresholds were adjusted, councils collected $4.1b in rates income ($5.7b in 2023 prices).

That figure rose to $7.9b by 2023. That means the amount of rates total collected by councils is greater now than in 2010, even when adjusted for inflation. However, this figure ignores other factors such as population growth.

A way of looking at rates in a broader context is to measure them as a share of GDP. At 2% of GDP, rates as a share of the economy were ever so slightly lower in 2023 than they were in 2010, when they were 2.1% of GDP – much to the frustration of councils, who argue more revenue is needed to accommodate a growing population. Rates as a share of the economy have averaged 2% of GDP for about two decades.

The same cannot be said of central government, where core Crown expenses fell to 28.3% of GDP in 2020 before rising to 32% this year, meaning central government takes more money out of the economy now than it did after the Key-English Government’s round of tax cuts.

There is currently no forecast showing core Crown expenses getting anywhere close to 28.3% of GDP. Treasury’s Befu forecast is for expenses to fall to 31.1% of GDP in 2028.

Infometrics chief economist Brad Olsen, who had provided economic analysis for local government, told the Herald it was often not fair to measure councils’ rising costs against things like the Consumers Price Index (CPI), which measures changing costs across the economy.

“CPI is a great index for households. It is not so good for local government,” he said. While the CPI could tell you how much a grocery shop might increase by, it was less good at measuring the eyewatering increases in infrastructure costs faced by councils.

Olsen noted that the cost of building a bridge increased by 39% between the March 2020 and June 2023 quarters. There had also been a 30% increase in urban drainage and sewerage systems’ construction costs.

He said the focus was often unfairly pinned on local government.

“Local government gets around 10% of total government revenue. They have to service a quarter of the infrastructure,” he said.

Olsen said the biggest burden placed on households by government was the fault of central government, yet the focus was often on rates.

“An average two-person household would pay $2800 in rates, but would have contributed $37,000 to $39,000 to central government in taxes and GST,” he said.

Thomas Coughlan is Deputy Political Editor and covers politics from Parliament. He has worked for the Herald since 2021 and has worked in the press gallery since 2018.