Labour’s $1.2 billion Three Waters spend revealed

With the Government moving to make good on its campaign pledge to scrap Labour’s Three Waters reforms and move ahead with its own, attention is moving to how much money was spent, and possibly wasted, on Labour’s ill-fated project.

The Department of Internal Affairs (DIA), the ministry in charge of the reforms, said about $1.2 billion had been spent so far, with more than half going to councils to support both water investment and other spending. Whether this counts as “waste” depends on where councils decided to spend it. More than $500 million was tagged for investing in Three Waters.

The rest of the spending went to establishing the 10 entities that would deliver water services under Labour’s model.

As these entities will now be disestablished, there is a much clearer case for saying this spending has been wasted.

Labour had planned to force all councils to merge their freshwater, wastewater and stormwater assets into one of four mega-entities that would deliver water services on behalf of councils. After public outcry, the number of entities was increased from four to 10. Another controversial element, Māori co-governance, remained the same in both models.

National plans to scrap the 10 entities and force councils to find their own way to deliver quality water investment. Some will be able to survive on their own, others will have to merge into something similar to what Labour proposed.

Labour leader Chris Hipkins defended the former Government’s spending.

“The bulk of that money has gone to councils, which has been spent on local projects, including, in some cases, water infrastructure upgrades or other things that councils have decided to do with that money,” he said.

He attacked the repeal of Labour’s Three Waters model, warning it would likely mean higher rates as councils struggled with the cost of water reform.

By far the largest single funding allocation was $527m given to councils for investment in Three Waters infrastructure. Councils have taken this money and should have spent it on water investment.

About $200m of the $1.2 billion was spent as part of the last Government’s “better off” package. This $200m was a portion of what would eventually have amounted to $2b in funding designed to get councils to sign up to supporting the reforms.

The money was designed to reflect the fact the reforms would have reduced the value of assets held directly by councils because their water assets would move to one of the mega-entities. To reflect this, and ensure no council was materially worse off, the Government announced up to $2b for councils to sweeten the deal.

A DIA fact sheet suggests the funding could be spent on improving public transport, street lights, and digitising council workplaces. Unlike other funding rounds, this lot of money was not ringfenced for spending on Three Waters.

In order to receive the money, councils were required to sign an agreement promising to “work collaboratively with the... Government in connection with the Three Waters Reform Programme”. That aspect of the agreement saw the funding dubbed a “bribe” by the likes of the Act Party.

Most of the rest of the $1.2b was spent on setting up the water entities and probably fits the definition of “waste”, unless some of the work that was done by the previous Government can be used to help the new Government forge ahead with its own reforms.

The new Government is coming under pressure to explain how small councils will be able to afford the level of investment needed for high-quality water services, especially if they are unable to merge with other councils to achieve economies of scale.

Local Government Minister Simeon Brown said some councils would choose to merge their water services into regional council-controlled organisations to fund the cost of water service delivery.

Brown has been under pressure to answer what would happen if a larger council refused to merge with a smaller one to cross-subsidise water costs.

“There will be a regulatory backstop in place ... we’re working through what that will look like, but ultimately we want councils to be putting forward their financially sustainable plans and to work with other councils,” Brown said.

“That is the model they asked for, that is the model we’re delivering.”

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.