Councils Should Heed Bollard’s Message

As councils prepare their 2010 draft annual plans, the local government sector needs to take heed of Alan Bollard’s message for government to unwind its fiscal stimulus, said Charles Finny, Chair of the Local Government Forum.

Mr Finny was commenting on today’s Official Cash Rate announcement, where Dr Bollard said “As growth becomes self sustaining, fiscal consolidation would help reduce the work that monetary policy might otherwise need to do.”

“While the Government is the primary target of Dr Bollard’s message, he has previously remarked on the impact of local government rates on inflation.

“According to Statistics New Zealand’s Local Authority Statistics, for the year to June 2009 local government operating spending was up 9.3% and over a longer time period spending was up over 55% between 2003/04 and 2008/09.

“This spending growth has an inevitable impact on rates, with rates revenue up 5.5% in the year to June 2009 and almost 45% between 2003/04 and 2008/09. These rates increases suck money out of ratepayers’ pockets and this has been most unwelcome to businesses, farms, and residents facing tough economic times.

“Rates might be a small component of the consumer price index, but in the five years to June 2004 the local authority rates sub-group was up 35%, more than twice the 16% increase of the CPI. Persistently large rates increases has helped keep non-tradable inflation too high for the Reserve Bank’s comfort and has kept monetary policy tighter than it would otherwise need to be.

“Local government blames unavoidable infrastructure cost increases for large rates increases but it is telling that employee costs have increased at the same rate of total operating spending (9.3% in the year to June 2009 and 51% from 2003/04 to 2008/09). With the numbers of people employed by councils up around 20% over the past five years, this indicates not only continuing growth in employee numbers but also ongoing growth in remuneration rates at a time when most people out there are having to tighten their belts.

“While some councils have been showing restraint and should be commended, ratepayers will be expecting frugality and prudence to be much more widespread this year,” Mr Finny concluded.

ENDS

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