A draft report on local government funding and financing by the Productivity Commission has put the spotlight on a number of issues that LGNZ have been calling for central government action on.
The report, commissioned by the Government, looks at whether existing funding and financing arrangements are suitable for enabling local authorities to meet current and future cost pressures. It finds that a high-performing local government is vital for community wellbeing, but that councils are struggling to deal with rising costs, and that incentives are misaligned.
“It’s pleasing to see the productivity commission’s report calling out issues that LGNZ has been raising for some time,” says LGNZ President Dave Cull.
“They have identified four key areas where the existing funding model for councils is insufficient to address cost pressures, including the demand for infrastructure in high-growth areas, tourism hotspots, unfunded mandates and climate change adaptation.”
The local government sector agrees with the commission’s focus on the “benefit principle” – that those who benefit from (or cause the need for) additional services or infrastructure should pay for it.
“Unfunded mandates, where central government invisibly shifts costs onto ratepayers, are a huge burden and make it impossible for taxpayers and ratepayers to hold both tiers of government to account. Full disclosure of the costs that central government impose on councils is needed to improve the quality of the decision-making at both levels.”
“We welcome the Commission’s tourism levy recommendation. The tourism boom has put huge pressure on ratepayers, who pay for the infrastructure that visitors use, while receiving little direct financial benefit, which instead largely goes to central government in the form of GST, profit taxes and salary taxes. This is unsustainable, and practically speaking either central government provides a form of funding or it pulls the handbrake on our tourism sector.”
The draft report also finds that local government spending has remained constant as a share of GDP over the long-term, and that spending has been focused on essential infrastructure, with roading and 3 waters accounting for 56% of capital expenditure over the last decade.
“Hopefully this report will quell long-standing but incorrect perceptions of the local government sector. This report underscores our track record as prudent public stewards whose investments and activities are focused on enabling communities to grow their well-being.”
LGNZ said the challenge is now on central government and Finance Minister Grant Robertson in particular to meaningfully address the issues raised by Commission’s draft report.
“The Productivity Commission has a track record of providing practical and well-reasoned advice based on strong evidence,” continued Mr Cull. “Our recommendation is that the Government take this advice.”
“These findings will greatly add to discussion at the 2019 LGNZ Conference and the launch of our Localism Discussion Paper, which is focused on restoring the balance between local and central government through greater localism, decision-making and resourcing for our communities.”