Wellington (4 July 2019): The New Zealand Initiative commends the New Zealand Productivity Commission’s draft report on local government funding and financing.

“The report stresses the importance of high performing local government for community wellbeing. It considers that changes in governance, transparency and funding arrangements could help them improve their performance,” said Dr Bryce Wilkinson, Senior Fellow at The New Zealand Initiative.

Our 2019 essay, #localismNZ: Bringing power to the people, stressed the importance of local government for community wellbeing and advocated greater devolution, along with effective local accountability.

We particularly agree with the Commission’s conclusions that new funding mechanisms are needed to help local authorities fund growth-related infrastructure and additional responsibilities imposed on them by central government.

The New Zealand Initiative’s submission to the Commission’s inquiry argued that current funding and financing mechanisms were holding back competitive innovation across councils. The resultant housing crises and impaired economic development were at a serious cost to community wellbeing.

The recommendations in our 2013 report, Free to Build, included providing for:
• Housing Encouragement Grants - a one-off payment to local councils for every new house built in their area. Grants would be benchmarked on the GST levied on the house, recognising the impact of sales tax on house prices, and
• Community Development Districts - a new kind of infrastructure funding that will be able to privately raise debt finance to build new infrastructure and charge residents an ad-valorem tax to repay the debt. This would serve to pay off the infrastructure costs over the life of a house and not capture it in the upfront price of a new home.
Dr Eric Crampton, the Initiative’s Chief Economist, added further, “The Commission’s regulatory recommendations around minimum water standards and an independent regulator are an improvement where the government has been considering a full take-over of Council water supply. But any minimum standards need to reflect the differences in costs face in smaller communities.”

The New Zealand Initiative looks forward to the results of the Commission’s further deliberations when it publishes its final report later this year.

Read: #localismNZ: Bringing power to the people
Read: Free to Build: Restoring New Zealand's housing affordability
Read: In the Zone: Creating a toolbox for regional prosperity

ENDS

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