Reining in local government

19:23, Mar 20 2012

In 2002 local councils were given the power of general competence. It meant they could do anything at all, so long as a majority of councillors voted for it. Any amount of spending could be justified so long as it contributed to the social, economic, cultural and environmental wellbeing of their communities.

For the life of me, I can't think of anything that wouldn't be justified under those criteria. A local council could probably build its own air force and claim it was essential to their social wellbeing.

Since 2002 the rates homeowners and businesses pay have increased by 7 per cent on average, almost double the average rise in the previous decade. This is well beyond wage growth, which means a higher proportion of what we earn has to be spent on rates or rent. Local authority debt has also quadrupled from $2 billion to $8 billion.

A lot of spending goes on council staff salaries. In the past eight years these have gone up a total 86 per cent, compared to 9 per cent in the previous eight years.

The Government announced this week a package of reform measures for local government. The two most likely to have an impact on rates are the proposed new focus, and the proposed fiscal cap.

The proposed new focus is "providing good quality local infrastructure, public services and regulatory functions at the least possible cost to households and business". The inclusion of public service still leaves lots of room for councils to have flexibility, but hopefully will see most of them focus on doing a few things well, rather than trying to do everything.

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The fiscal cap is based on the central government one of expenditure rising no faster than inflation, on a per capita basis. It will be a soft cap, so councils will be able to spend more if necessary, but doing so could trigger monitoring or intervention.

Some have argued that these proposed reforms are undemocratic. They say that a local council should be able to spend ratepayers' money on anything they want, and it is up to the local voters to keep them or sack them. They say the Government should leave it to local voters.

The problem I have with this argument is that many large items of expenditure that councils approve are not known before elections, and councils proceed regardless. Some of them turn into disasters such as the Hamilton V8s. Yes, you can sack the councillors responsible at the next election, but that doesn't stop you being left with the bill regardless.

So I think the reforms are a much-needed step forward. I don't think they will magically stop rates increasing every year, but I think they will make a difference.

Do you think the reforms are needed? If so, do they go far enough?

David Farrar is a centre-right blogger affiliated to the National Party. His disclosure statement is here.