There is no missing Nifo Tauiliili’s place on Featherston’s main drag. Tucked behind a white picket fence on State Highway 2, her 19th-century cottage is as green as a $20 bill.
There’s no missing the irony that it’s the colour of money, either. Her Wairarapa home of over 30 years is now costing her and her family more than ever before. In late July, she and her partner, Marc Van de Loo, learnt the combined district and regional rates on their cottage, already $3700 a year, were set to soar by another $1100. It heaped insult upon injury. The family’s rates had risen by about 16% last year pushing their bill up a whopping 49% in two years.
“It’s not just rates. All our expenses are going up,” Tauiliili tells the Listener, her voice rising in anger. “Are these people on the council not awake or something? Don’t they know there’s a recession? Why would you do this to people?”
Tauiliili and her family are not alone. Across South Wairarapa, a handsome rural district of four small communities – Featherston, Lake Ferry and the tourist towns of Martinborough and Greytown – rates have risen nearly 20% this year.
And South Wairarapa is not alone. Although it has seen this year’s highest rates rise, other local authorities have inflicted double-digit hikes on ratepayers too. In New Plymouth, for example, the council voted for a 12.4% increase; in Tararua district it was 13.17%.
It hasn’t just been city and district councils sticking it to ratepayers. Some regional authorities have too, like Otago (18.8%) and the West Coast (16.42%).
These are the extremes. But even if the majority of local authorities kept this year’s increases under 10%, many, not least those in the six major centres, failed to keep rises under inflation, still running hot at 6% in the year to June.
Rates jumped 12.3% in Wellington city, 9.4% in Tauranga and 6.6% and 6.4% in Dunedin and Christchurch respectively. Only ratepayers of Hamilton might feel they haven’t been treated like inexhaustible cash machines, at least by comparison. Their rates rose a mere 4.9%.
City of Wails
And then there is Auckland. While tribulations over rate rises in any given part of New Zealand will be an unknown to those who don’t live there, the debate over Auckland’s was big news nationally – whether the rest of us cared or not – thanks to wild threats from Wayne Brown, its divisive, bloody-minded mayor. Without selling off the council’s stake in Auckland Airport and slashing council services, rates would surge 22%, Brown claimed. His browbeating worked, at least partly. Auckland Council, the most indebted in the country, settled on cutting some services and selling part of its airport stake to achieve a 7.7% rise on average.
And “average” is the crucial word. The rises above are all averages, and most combine residential and business increases, which means, at best, they’re indicative. As Tauiliili discovered, your actual hike could be a lot more: this year South Wairarapa District Council rates went up an average 19.8% and the Greater Wellington Regional Council an average 16.94%; her rates rocketed by 30%.
In some cases, those who can least afford it have been hit hardest. In Whanganui, rates rose an average 7.9%, but recent property revaluations meant some of the district’s poorest areas saw rating surges of nearly 20%, while one affluent suburb had just a 0.5% rise.
And let us not forgot that local body and regional rates are only the start. Many people face separate water and wastewater charges increasing too.
If it all feels too much, it is too much. New Zealand has reached “near peak rates”, says Jim Palmer, the chair of the recent Review into the Future for Local Government. “We think cumulative rate increases are unsustainable,” he says.
Few would disagree. But here’s the really scary thing: if nothing is done to fix local government funding, we may be nowhere near peak rates. “Unless there are some changes,” says Stuart Crosby, immediate past president of Local Government New Zealand (LGNZ), the body that represents most local authorities, “the trajectory is only upwards from this point, no maybes about it.”
Perfect storm
So how did we get here? Why are so many ratepayers being squeezed until their pips squeak?
While it depends where you are – every council faces individual financial pressures – the broadest answer is that local authorities have seen their costs and responsibilities grow dramatically while their revenues have not.
“Fundamentally, we have been asked to do a lot more, to a higher level of service, with little or no financial help from the government, and it has come to a crunch, a big one,” says Crosby, previously mayor of Tauranga for 12 years and currently a Bay of Plenty regional councillor. “And this year you can add to that significant inflation, the cost of finance going up, interest on debt and so on. It’s a perfect storm.”
But it hasn’t blown in overnight. It is decades in the making and has three main drivers. The first and most obvious is the cost of infrastructure, including roading and the hugely expensive “three waters” (freshwater, stormwater and wastewater).
Whatever kind of place you live in – a city with a growing population, a rural council with a small ratepayer base – the cost of building and maintaining infrastructure has been rising much faster than inflation and is crippling council budgets.
“In Tauranga, we are struggling now with massive rate increases to fund future growth,” says Crosby. “The council will get a benefit of a larger rating base, but the investment to get that rating basis is significant – and up front.”
As well, extreme weather events such as Cyclone Gabrielle have caused often drastic infrastructure damage leading to budgetary chaos. In Hastings, one of the areas most affected by Gabrielle, ratepayers face a $200 million cost over the next five to seven years just to repair roads. Such parlous situations will only rise in number with climate change.
And then there are councils like South Wairarapa, with too few ratepayers to share the growing financial load. The district of 11,500 people has four spread-out communities, which means four separate wastewater systems – the same as Wellington, the Hutt Valley and Porirua combined. Yet South Wairarapa has only 7400 ratepayers. And it’s this that drove this year’s big rates increase.
District mayor Martin Connelly says Martinborough’s wastewater plant, which had already been issued with an abatement notice by the Greater Wellington Regional Council, was also found to be operating at its limit. The council was left with a stark choice: burden the next generation, or fix it now at a cost of $1.5 million. After consulting ratepayers, a majority of councillors voted to do the work now. “The motivating factor,” Connelly tells the Listener, “was knowing Martinborough would be stunted if we didn’t do it now, that there’d be no new homes.”
Wellington rules
For the rest of the peak rates mess, blame Wellington. For at least two decades governments of both stripes have shoved more responsibility and greater costs on to local government either through legislation or inaction.
The latter, the second major driver, has seen local government required, in the absence of a central government response, to deal with significant local-level problems needing some kind of government intervention. Palmer says more councils have found themselves obliged to deal with challenging issues typically the business of central government, such as community safety, housing and even biodiversity.
However, this is nothing compared with the greatest single problem created by central government: unfunded mandates. In short, these come about through policy, legislation or regulation which direct local government to do significant and costly new things – often with a national benefit – but central government doesn’t provide councils with the money to do it.
A good example, Palmer says, is “national policy statements”, a Resource Management Act planning instrument used by central government to manage decisions about nationally significant issues. All councils must “give effect” to these through their own policies and plans – and doing so can be expensive. For example, it is possible the national policy statement on freshwater management, issued in 2020, will eventually cost tens of billions to implement, Palmer says. However, it won’t be central government paying to make that happen, but councils.
“The national policy statement on freshwater includes many laudable objectives, but it is imposing significant additional cost on local government already – and all of those costs haven’t yet come to bear.”
Palmer adds successive governments seem to have taken the view that if greater regulation leads to greater cost through unfunded mandates, “it doesn’t matter because councils have the power to rate for that, so what’s the problem?”
The problem turns out to be that as the unfunded mandates have piled up, many local authorities have found themselves under serious financial pressure. So they’ve done exactly what central government expected: kept lifting their rates.
As well, no allowance is made for the size of a council’s rating base. Stuart Broughton, the mayor of the Selwyn district, and LGNZ’s new president, says a council with 5000 people is expected to do all the things a council with 500,000 people does, whether it’s meeting the same legislative requirements, time frames, and commitments to the community. “To me there’s a real imbalance around expectations,” he says. “For smaller councils, capacity can become an issue. And if you’re a large council, the connection to the local community can become an issue. So alongside the funding conversation, we need to think about the future shape of local government.”
Future imperfect
Fortunately, the thinking has been done. Two years ago, then-minister for local government Nanaia Mahuta, at the request of the sector, ordered an independent, root-and-branch examination of local government. The Review into the Future for Local Government reported back in late June in a 135-page document calling for radical change (see side bar, page 20). It concluded local government’s funding was unsustainable and that its tax take was hugely out of whack with central government and had been for decades.
In the 120 years from 1895 to 2015, total central government tax as a percentage of GDP went from under 10% to over 35%. Over the same period local government’s share stayed at about 2%.
For much of that time it didn’t matter too much because local government received much greater central government support for a range of local-body activities.
“Local government got financial assistance for what we now call three waters,” says Crosby. “It got assistance for catchment schemes and building stock banks. It got low-cost finance for social housing and work schemes.”
Most central government support went after the sweeping 1989 local government reforms, he says. “And over the 30-odd years since, local government’s been asked to do more and more, but the funding tools haven’t shifted since 1895.”
For a long time many local authorities coped with rising costs, unfunded mandates and little central government support by borrowing to keep – for political reasons – rate rises reasonably low. But this saw some council debt-to-rates ratios blow out. At Auckland Council net debt as a percentage of rates income is now at 525% – amounting to $17,451 per ratepayer.
By contrast, Wairarapa’s Carterton district has net debt of just 14% of rates income (or $2972 per ratepayer), but it also has the country’s highest average residential rates at $3938. The country’s lowest average rates – $2155 – are in Buller district, but its net debt is 91.49% of rates income.
Of course, avoiding debt isn’t necessarily good. “Some councils claim they have very little debt on the books in regard to infrastructure,” Palmer says. “My response is they do have a liability – it’s either sitting in the ground and hasn’t been addressed yet, or it’s been addressed and is sitting on the books as debt. The liability exists in one form or another.”
Local authorities do have other secondary revenue streams, including the likes of charges, fines, fees and, in some cases, profits from council-owned or part-owned trading businesses.
However, the pandemic highlighted how brittle that revenue can be, says Crosby. “Councils lost significant revenue because they couldn’t open facilities, or they lost their income from various companies – Auckland would be the most obvious and glaring one. That showed just how fragile our whole funding and financing of councils is.”
Can we fix it?
So how do we fix this growing mountain of local body and ratepayer misery? Well, just as the causes of peak rates have been obvious for years, so has the main solution: more money from central government. It, after all, is ultimately responsible for much of the pain.
“With many of the unfunded mandate issues,” Palmer says, “it seems appropriate that there is a national contribution to that.”
The Review into the Future for Local Government suggests two ways central government can do this: paying rates on more crown property, and an annual transfer to local authorities of roughly $1 billion, the equivalent of GST paid on rates.
Would it make a difference to ratepayers? Palmer says it would certainly take the edge off. “That funding removes the immediate constant pressure that local government faces, deals with long-standing equity issues and probably becomes a vote of confidence from central government in local government.”
Of course taxpayers and ratepayers are the same people. But the essential point is central government has most of the money, so it should be funding central government mandates.
As logical as those recommendations sound, the infuriating thing is there’s nothing new in them. Over the past few decades numerous reports into local government – the sector must be the most studied in the country, including the massive Shand Report in 2007 and a 2019 review by the Productivity Commission – have concluded the same thing: central government needs to pay.
Rates straitjacket
Yet no government has acted, nothing has changed. Crosby has a theory about why: rarely do those in central government get how local government works. “My feeling is central government politicians struggle to understand local government unless they’ve been in local government.”
It’s a bit of luck, then, that Local Government Minister Kieran McAnulty worked in the sector before entering Parliament. It’s handy too he’s the member for Wairarapa. He’s certainly heard from residents in all five districts in his electorate about their rates hikes. “I do my best as local MP to make sure I’m hearing what they’re saying. But as Local Government Minister I’m prevented by the Local Government Act to act on decisions on rates.”
What he can act on is the Review into the Future for Local Government’s recommendations – and he is not ruling any of them in or out. However, he’s learned the government needs to listen to what the sector wants after the fiasco with “Affordable Water” reform (the new name for the three waters reforms). To that end, he’s instructed LGNZ to talk to its members – which don’t include Auckland – and arrive at a consensus view by October.
“I’m not taking a paper to Cabinet if I can’t say the sector is behind it. So this is on them, and I hope they take the opportunity.”
Broughton, who is leading the LGNZ advisory group on the future review report, says the sector is taking the opportunity seriously. Of course how LGNZ’s views are received may depend on who wins in October.
If it’s a National-led government, LGNZ may be faced with a different conversation. National is planning to develop “city and regional deals” involving long-term partnerships between central and local governments, a model used overseas that embraces private-sector investment and devolving decisions away from central government.
Announcing the policy in June, National leader Christopher Luxon said each deal would be bespoke and would “involve long-term funding commitments” by both central and local government to enable certainty of planning of roads, rail, public transport, housing (including public housing) and environmental resilience. Negotiations on the deals would begin shortly after the election if National wins.
As to the matter of whether we’re at peak rates, National local government spokesman Simon Watts isn’t convinced.
“I think the concept of peak rates is making an assumption that all the spending within local government is appropriate and is creating value,” he says. National’s view is councils should be focused on core business such as rubbish collection and building consents, Watts says.
It’s a view wholly at odds with the findings of the Review into the Future for Local Government, but it will certainly please Featherston’s Nifo Tauiliili. “Council should stick to the basics until things start to get better. They’re spending money on silly stuff. They should be spending on the basic stuff like water, sewerage, the services that we need.”
Future view: It’s radical
If you had a dollar for every review of local government that’s been done in the past 30 years, you would probably have enough to pay your rates. Well, possibly not.
But it’s true to say there have been a fair few, though few have recommended such radical change as the two-year Review into the Future for Local Government, which reported back to the Beehive in June.
Among its suggestions is central government putting big money into local government by paying rates on crown land and making an annual transfer of $1 billion. These might be the review’s least controversial suggestions.
Its 17 recommendations amount to a complete local-government remake, among them a “reorganisation” of councils, embedding “intergenerational well-being” as a purpose of local government, moving to four-year terms and enabling Treaty of Waitangi-based appointments to councils.
It also recommends a new crown department to facilitate a more effective working relationship between local and central governments; a “low-trust” relationship exists at present, the review found.
“We think if the issues we have raised aren’t addressed,” says review chair Jim Palmer, “we will be back here in five or 10 years’ time, just that much closer to the cliff and still facing those same issues.
“So we’re certainly imploring local government to lead the charge – and for central government to lean in.”
Councils and ratepayers will have to wait until after October’s general election to see whether this will happen – or whether, like so many reports into local government before it, its fate is to gather dust on a Beehive shelf.