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On the 4th of July the New Zealand Productivity Commission released a draft report on Local Government Funding and Financing. This report is the result of the Government’s request for the Productivity Commission to undertake an inquiry into local government funding and financing; and where shortcomings in the current system are identified, to examine options and approaches for improving the system.
While there were a number of suggestions made, the draft report found the current framework is broadly sound. The Commission Chair stated “The current framework measures up well against the principles of a good funding and financing system for local government. It is clearly separated from the central government’s tax base which is an important feature. It is relatively simple and economically efficient. It also provides a high degree of flexibility for councils to shape how they raise their revenue.” Existing toolsThe report notes that councils can make better use of the tools they already have access to, and there is room to improve organisation performance, transparency and decision making that will help to relieve cost pressures. These existing tools include rates, fees are user charges, development contributions, central government funding and debt. The Commission favours the “benefit principle” as the primary basis for deciding who should pay for local government services. Those who benefit from a service should pay for its costs. Additionally, where local services benefit national interests, central government should contribute. User charges or targeted rates should also be utilised. The Commission found that there is no clear evidence that rates have become less affordable over time, despite this being one of the key reasons the inquiry was undertaken. Overall, rates have continued to broadly align with population and income growth over the past 3 decades, but have not become relatively more burdensome. Cost pressures and new toolsThe report noted some new tools are needed to help councils deal with some specific cost pressures. The highest priority pressures have been identified as: