Timaru named for refusing to cover inflation

Last updated 05:00 07/12/2012
Lyn Provost
MAARTEN HOLL/Dominion Post
AUDITOR-GENERAL: Lyn Provost.

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The Timaru District Council has been named yet again by the auditor-general for refusing to include inflation in its Long Term Plan (LTP) financial forecasts, but it still insists inflation-free figures are the right way to go.

In her annual report to Parliament yesterday, auditor-general Lyn Provost named Timaru as one of three councils with "uncommon aspects" to their LTP.

The council has always refused to include inflation in the main financial forecasts, but does include the figures in the LTP's supplementary reports.

"Inflation is significant. In our view, excluding inflation from financial forecasts could distort decisions made by the local authority to save, borrow and invest in the long term," the report states.

"We do not consider an assumption of no inflation after June 30, 2013 to be based on the best information available or to be reasonable and supportable."

At the same time the report acknowledges the council has good asset management plans to support its decisions to invest in its long term infrastructure.

"Despite this we consider the Timaru District Council is not providing its readers with transparent information about the level of funding required, particularly the level of rates the council is proposing to collect during the LTP period. Nor is the council preparing a plan based on the best estimate of costs during the period.

Also concerning the auditor general was the valuation of council's fixed assets using "deemed costs" rather than "fair value" depreciation. Both are legitimate methods, with some government departments using the "deemed cost" model.

But council chief executive Peter Nixon said depreciating assets at today's replacement cost would see ratepayers paying twice - both for the loan to purchase the asset as well as funding depreciation for its future replacement. Such a system would require a higher input from rates.

Mayor Janie Annear was adamant that rather than doing anything wrong, the council was in fact leading the way when it came to its stance on inflation.

"We think we are giving our ratepayers more transparency.

"Federated Farmers agrees with us and has written to the auditor general supporting us."

Mrs Annear suggested that businesses did not automatically include inflation in their budgets each year, but rather looked to cut costs and do more with less.

She suggested the Government was practising just such an approach with roading budgets which had not been inflation adjusted for six years.

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- The Timaru Herald

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