Local Democracy Under Threat? Officials Warn Against Removing Council 'Four Wellbeings'
The report shows the approach taken by the government can be expected to overall improve clarity and concerns about spending "beyond core infrastructure" - but would undermine stability and localism.
It shows the Department of Internal Affairs would have preferred to keep the status quo.
The Local government (System Improvements) Amendment legislation passed its first reading last night, with the select committee reporting back in November.
The government and the minister have made their views clear, stating that councils have "lacked fiscal discipline", that they "are not mini-Parliaments; they are service delivery agencies", and that residents have become increasingly concerned about rates.
The opposition parties have argued it is a power grab that degrades the rights of democratically elected councils.
Removing 'four wellbeings' to have little impact
A key part of the bill is the government's proposal to remove all 10 mentions of the "four wellbeings" - social, economic, environmental and cultural - from the law governing councils.
However, the Regulatory Impact Statement (RIS) on the bill from Internal Affairs said that in isolation, this change was "unlikely to benefit communities more than the status quo".
"Previous regulatory impact statements have suggested that despite various changes to the purpose by successive governments, there has been limited impact on council decision-making, activities, and service levels, regardless of intended focus.
"Refocusing the purpose of local government will likely have limited impact on its own and may create implementation costs and issues."
The paper highlighted that the "proposed changes will likely disrupt the sector" and had led councils to do "costly compliance exercises in the past to determine which activities fit within a narrower purpose".
Despite this narrowing, it said the purpose of local government "should reflect the broad range of responsibilities local authorities have under all primary and secondary legislation in New Zealand" - pointing to the 47 statutes councils already have responsibilities under.
It noted that departmental feedback from agencies, including the Infrastructure Commission and the Ministry of Housing and Urban Development, as well as the independent Future of Local Government Review (FLGR) - effectively binned by the government a year ago - had "contrary views to those of ministers".
"Feedback suggested that removing the four wellbeings could be seen as disempowering local government, and while focusing councils on low rates may succeed, it would likely come at the expense of key council services and infrastructure development."
It noted the FLGR had found successive governments' changes to councils' purpose were disruptive, and recommended the four wellbeings be entrenched in law to provide greater certainty.
Removing the wellbeings "could impact [Treaty of Waitangi] settlement arrangements between iwi or hapū and councils".
However, some councils had told the minister, "they felt it would also help them to manage community expectations and do fewer things better".
In a table assessing the costs and benefits of the legislation, the officials found that "restraint" (addressing concerns about spending beyond core services) and "clarity" (providing useful direction about what councils should be expected to do) were improved compared to the status quo.
However, "stability" (minimising disruption and allowing councils to plan effectively) and "localism" (recognising the broad role of councils valued in communities and empowering them to decide for themselves) would be worse than the status quo.
Effect on rate rises?
The RIS suggested that other changes proposed by the government, including additional performance monitoring and rate capping, were "more likely" to support the government's objectives.
While ministers have continued to say the changes are targeted at a lack of fiscal discipline by councils, the RIS stated "cost pressures on councils are being driven by capital and operating cost escalation, flowing from supply chain upheaval and a tight labour market during the Covid-19 pandemic, and accelerated headline inflation since".
"Infrastructure costs have long been a major cause of rate increases, with councils needing to upgrade infrastructure, especially for water and wastewater treatment plants, and invest in more infrastructure to meet growth demands.
"Around two-thirds of capital expenditure for councils is applied to core infrastructure, not including libraries and other community facilities, or parks and reserves."
Local Government Minister Simon Watts, at the first reading speech on Thursday, said, "We looked at the evidence and it showed that whenever the four aspects of community wellbeing are included in the purpose of local government, rates go up as councils are focused on too many things".
Internal Affairs' analysis showed rate increases were "about two percent higher when the four wellbeings are in the Act", so while it bears out the minister's statement, the effect cannot explain the full weight of rate rises across the country.
The data used also did not account for population growth or distinguish between residential or commercial ratepayers.
"Usually, where rates have increased faster, this is because costs for councils have risen faster.
The current infrastructure deficit for local government is evidence of prolonged underinvestment, where rates (along with other revenue sources) did not increase enough to enable responsible asset management.
"For example, despite rates appearing to increase more towards 2007, the Infrastructure Commission has identified the period from 1995 to 2008 as a time when rates were consistently below their post-World War II average as a share of gross domestic product, and this coincided with a deterioration of the stock of transport, water and waste assets."
Limited consultation and scope for analysis, rates capping process uncertain
The analysis stated that the minister only allowed officials to examine two options: the status quo and his preferred approach.
"The data and evidence used in carrying out this analysis was generally low quality due to limitations on options exploration and consultation.
"There was a heavy reliance on previous regulatory impact statements that covered the same or reverse law changes."
The inclusion of the wellbeings has been added to or removed from the law four times since the Act came into force in 2003, so there were more than enough previous analyses to draw from.
It remains unclear whether rate capping, which the minister wants "before Christmas", would be included in the bill after the select committee reports back in November.
In a response to RNZ, the minister said decisions had not yet been made on whether rates capping would be added to the current bill, or in new legislation.
"This week I confrimed that the government is exploring a rates capping system with policy work underway since Cabinet agreed in April. I will bring advice back to Cabinet for consideration later this year. I intend to progress work on a rate-capping system suited to New Zealand that is flexible enough to support our housing growth aspirations and which allows us to respond to the infrastrcuture deficit while limiting spending on nice-to-haves.
"We want ratepayers to get value for money and with issues like average rate increases in 2024 of 9.6 percent vs CPI inflation at 2.2 percent , constraining increases is an option we are actively considering."
However, the analysis repeatedly highlights that efforts to "limit council revenue from rates" are part of the government's intended package of reform, and a section laying out a timeline of changes includes a redacted entry that follows the implementation of the changes described in the bill.
The disclosure statement prepared by the department noted that the RIS was limited to assessing the impacts of refocusing the purpose of local government.
It said the Regulations Ministry had determined other aspects of the bill did not need to be assessed, "on the grounds that these proposals would have no or only minor economic, social, or environmental impacts".
The ministry also asked the minister to provide an analysis on rates capping when reporting back to Cabinet on the overall bill in December.
The statement also showed Watts had asked for consultation relating to transparency and accountability with the Free Speech Union lobby group, the Taxpayers Union lobby group, the New Zealand Initiative think tank, Transparency International, and other ratepayer groups and academics.
On performance management, the department also sought feedback from a reference group, and on regulatory relief, the department was instructed to consult LGNZ, Local Government Professionals NZ, Federated Farmers, and Business NZ.
Officials also shared a clause of the draft bill with the Local Government Funding Agency.
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