Comment: The recommendations of an inquiry into the funding and finances of local government need acting on now, writes Federated Farmers Senior Policy Advisor Nigel Billings.

Local government is on struggle street financially. New Zealanders experience the impacts in various ways, whether through road congestion and lack of maintenance, slow and unpredictable environmental planning, challenged water supplies or high rates.

These problems are big enough to have instigated a lengthy Productivity Commission inquiry into the funding and finances of the local sector, with a bumper final report released in December.

Federated Farmers took a strong interest in this; the farming community has a long list of problems with their councils and our work on them is captured each year in the annual Federated Farmers Rates Report. There's sometimes good news in it, but not often. This year we found that since 2000 the growth of rates has outstripped alcohol and tobacco price rises, a huge red flag in anyone's estimation.


The cost of rates to farm businesses – often somewhere between $20,000 and $50,000 a year – motivated some hard work on the commission's inquiry with submissions aimed at getting reform of the property value rating system, on the grounds that it is very old hat and inequitable, and also with the cost of new regulation being thrown at local government to enforce.

In its final report the commission offered a central finding that local government's rates and finances are fundamentally in good shape. No need for a radical reform, but fixes required to deal with the aforementioned problems and some others besides.

Nigel Billings. Photo / Supplied
Nigel Billings. Photo / Supplied

This is a disappointment for the farming community. In truth the high rates on farms, derived from land or capital value rating systems, are concealing profound problems of rating base sustainability in provincial local government. It feels as if this is helping everyone else kick the can down the road, and it's a very big can.

Underneath that hard-to-swallow finding though are some valuable recommendations that now urgently require the attention of the Minister of Local Government. Among the major ones is a recommended protocol between central and local government to end the practice of transferring responsibilities from taxpayer to ratepayer.

The commission quoted some startling figures on this. The upfront costs of councils complying with the National Policy Statement for Freshwater, for example, were estimated to be between $1.4 billion and $2.1 billion, followed by ongoing costs of up to $59 million each year. Another was new drinking water standards, which could cost councils $384 million upfront.

Something badly needs to happen here, or many smaller rural and provincial councils will be brought to their financial knees by a smug government free to legislate in lofty ways. The present state of affairs - where the Government isn't bearing the cost or risk - is in fact a recipe for bad regulation. The Productivity Commission says the Crown should pay its way. Amen to that.

Of significance too is the commission's proposal that rates should be targeted according to the benefit principle – who benefits, pays. Short of giving property value rates the boot, this would be the holy grail for farmers with those massive rates bills mentioned earlier.

The commission settled on the notion that rates should be made up of targeted rates for specific services and, to help councils apply the benefit principle, a lifting of the present cap on uniform or flat per property charges.


If it could be achieved in practice this would do a great deal to improve accountability in the allocation of rates, but for it to happen it would need some serious legislation beyond the wishy-washy principles presently in the Local Government Act.

Other big-ticket items were the pressures of tourism and climate change. Not much on the tourism front, where small rural councils are often on the frontline of costs while government collects the GST and the International Visitor Levy. The commission made the case for a revamped system of central government support, which is presently patchwork at best.

On climate change, again co-funding is proposed for councils facing the challenges, particularly to regional infrastructure such as flood protection schemes – which already cost farmers an absolute bomb – and road networks.

On roads the commission felt that insufficient money was finding its way from road user charges to councils to assist with the impacts of logging trucks, a massive problem already in some districts that can only get worse if farm to forest advocates get their way.

Above all the Productivity Commission's work now needs some action. The last Labour government and the last National government both largely ignored the recommendations of the 2007 Shand inquiry into local government funding. That was over 10 years ago, but it could have made a real difference to the situation in which councils now find themselves.