Central government should hand more spending powers to local authorities such as Rotorua Lakes Council in an effort to fuel growth, a leading economist has said.

In a conference room packed for the second day of Local Government New Zealand's 2015 conference at Rotorua's Energy Events Centre, delegates also heard recommendations for councils to move away from a ratings system based solely on property valuations.

As part of a series of talks on the issue of sustainable funding, Oliver Hartwich, the executive director of the business-led public policy think tank The New Zealand Initiative, laid out his organisation's vision for improving local government finances.

Mr Hartwich claimed that government spending in New Zealand was far too centralised, with not enough resources available for local government to use independently.


He said that in the current setup, economic growth for local authorities could even have an overall negative outcome, as it required greater expenditure on infrastructure that was not accompanied by significant revenue increases.

Echoing the previous speaker, Auckland city councillor Penny Webster, Mr Hartwich also advocated a move away from capital valuations on property to set annual rates.

"This country really needs a radical discussion about a radical reform of local government finance," said Mr Hartwich.

It was a point taken up after the speeches by Rotorua's deputy mayor, Dave Donaldson.

He said that setting rates primarily on fluctuating property valuations was ineffective at best, and at worst, unfair.

Recent debates over the council's new Long-term Plan, during which farmers protested against high rates increases based on their property's increased capital values, had highlighted the "blunt" and imperfect nature of such a ratings system, Mr Donaldson said.

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The deputy mayor also expressed sympathy for some older residents on fixed incomes such as pensions, whose increased property valuations could result in rates increases that were hard to manage.

"A tax on property is not fair," said Mr Donaldson.

"[Just] because the suburb they live in has become attractive, their rates go up."

Mr Donaldson welcomed the publication of a new local government funding review, scheduled to be revealed today, the last day of the conference.