The Local Government Funding Challenge

Transcription

1 Presentation to WasteMINZ Conference The Local Government Funding Challenge Malcolm Alexander Chief Executive 22 October 2015

2 Today s agenda > The context > The Issues Paper > The 10 Point Plan

3 The Context VISION THE WHY Local Democracy Powering Community and National Success

4 Business Plan 7 key priorities > Governance and performance excellence > A shared national approach to addressing regional development and growth across all of New Zealand > Developing a sustainable funding model for local government > Leading effective infrastructure development and funding policies > Setting an agenda of regulatory reform and development of more effective policy-setting in areas impacting local government > Sector-led policy on important environmental issues for effective management of natural capital > Strengthen local democracy and the value of local government

5 What s the problem? > Several trends are converging that increase cost and accentuate affordability concerns > Fundamental demographic change: Retirement + reliance on state pension for boomer generation = affordability concerns > Growth areas need more infrastructure > All areas face a large renewals requirement > Base standards are increasing: Environmental Health Resilience Per cent of the population over 65: 1996, 2013, 2031

6 Rates as a percentage of income

7 Local government funding sources

8 Local government expenditure by activity

9 Local government expenditure % of total public expenditure & revenue

10 % of local government tax raised by tax type, international comparison, 2010

11 The Issues Paper

12 Working Group membership > Cllr Penny Webster, Auckland Council > Cllr Raf Manji, Christchurch City Council > Peter Bodeker, Otago Regional Council > Adam Feeley, Queenstown-Lakes District Council > Chris Ryan, Waitomo District Council > Phil Wilson, Auckland Council > Mark Butcher, LGFA > Michael Barnett, Auckland Chamber of Commerce > Rob Cameron, Cameron Partners, > Stephen Selwood, NZCID > Nick Clark, Federated Farmers > Dr Oliver Hartwich, NZ Initiative > Professor Claudia Scott, Victoria University Chair Councillor Penny Webster

13 Theme 1. Council decision-making > Perceived or actual problems with some council decisions result in greater funding stress than necessary Financing decisions for long lived assets Limited innovation in procurement practices Underutilised assets providing little return on community investment > The solution to these problems perhaps lies in better decision-making processes LG will need to demonstrate effective governance if it seeks new or expanded funding

14 Theme 2. Imposed costs > Councils tasked with raising rates for costs imposed on them: Unfunded central government mandates (enforcing specific Acts, meeting defined standards, process requirements, etc) Non-rateable land: a tax expenditure imposed on Councils Activities with disproportionate effects on local areas forestry harvesting on local roads, tourism on infrastructure, extractive industries, etc) Climate change: flood control, storm damage, etc > Raises questions as to whether: Imposed costs impact on some councils disproportionately Some imposed costs are better met by means other than rates

15 Theme 3. Adequacy of rating base > For some communities the rating base may not be adequate for current needs: Smaller less economically vibrant areas may not have the property wealth to fund services to expected standards (which may be imposed) Rapidly growing areas may face very large, lumpy, infrastructure investments > We need to build a picture of these pressures and the potential options for addressing community needs

16 Theme 4. Affordability > Individual ratepayers within a district may struggle to afford rates > Affordability might arise where people: Are poor (might bear the incidence even if not property owner) Are asset rich but with low cash incomes (retired people, those with large landholdings, etc) > There are questions to consider as to: Whether LG should alter its funding policies to mitigate affordability for individuals or specific groups If funding policies are to be altered for affordability how should this be done?

17 Funding as a system > Prices vs taxes Allows consumers choice Allocates resources efficiently (what is wanted and what is not) Wide variation in use of user charges (prices) > Funding vs financing Funding = sources of money available to pay for a project or service Financing = arrangements put in place to ensure money is available for a project or service at the time it is needed Funding sources must be present to support financing arrangements > Willingness of communities to commit funds determines the level of services and investment that is possible If funding sources do not alter then the looming debate is one about level of service, not funding

18 Options for change > Tax design (economic efficiency, fairness, simplicity) > Available tax bases (income, expenditure, land, poll, transactions) > Local income (sharing revenue to align incentives) > Local expenditure tax > Selective taxes (road and fuel taxes, environmental taxes, transaction taxes, tourist taxes) > Addressing the needs of vulnerable communities Methods of available for distributing funding from central to local government e.g. equalization payments

19 The Manifesto

20 The 10 point plan > Deliberately written in a short pithy manner > We wanted this to be accessible to the wider public and to business > Essentially it s a manifesto for measured change > We are using it in our interaction with political parties and stakeholders as a plan for change

21 What it is and what it is not > It is not - a plan to increase the country s tax burden > It is not a desire to avoid prudent fiscal management > It is not - wishful thinking (these ideas are not novel) > It is - a plan to change the incentives that operate in the local government sector > It is a genuine desire to share the funding burden (reduce the importance of property tax) > It is a genuine desire to address looming demographic issues

22 Incentives & performance > Public costs and benefits of development separated > Taxes on economic activity go to central government > Costs associated with increasing economic activity (esp. infrastructure) are borne locally > Almost by definition central government is progrowth and local government becomes an obstacle to growth

23 Four Key Themes > Need for central-local government partnership > A local government sector that constantly innovates and seeks to improve its value to ratepayers > Diversity of New Zealand s communities raises different challenges > An appropriate funding mix required

24 The 10 ideas 1. Special economic zones 2. Cost sharing 3. Remove rating exemptions 4. Simplify the rates rebate scheme 5. User charges vs. rates 6. Road user charges etc. where economically efficient 7. Share in value uplift 8. Minerals royalties 9. Tourist levies 10. Fit for purpose development contribution regime

25 How would these options deliver value? > Greater surety of long-term affordable funding lines = more sustainable communities across New Zealand > Stronger links between asset/service provided and funding stream heightening public s understanding of value > Encouraging councils to ensure policy settings do not inhibit activity that would constrain funding options

26 What are the barriers to change? > Convincing communities that change is necessary > Convincing political parties that change is necessary (tax change is not a vote winner)

27 What can you do? > Encourage debate about whether the status quo is a sustainable model > Move beyond clichéd arguments (it s time to grow up): Local government just wants to raise more tax Debt is bad Local government makes bad spending decisions If they just cut salaries everything would be ok > Understand that whatever is provided someone has to pay (there is no free lunch) > Debate whether we can sustain current service levels based on property taxes alone Do we raise money in different ways or do we lower service levels? > Understand that many First World countries have quite different approaches to that of New Zealand

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