Perhaps worthwhile goals – but show us the money.
Federated Farmers had a lot more to say than that in a detailed, 43-page submission on the Review into the Future for Local Government (2022) draft report, but those eight words represent a central concern.
The Feds submission, co-ordinated by Senior Policy Advisor Nigel Billings, responds to the second of three reports by an independent panel “exploring how local government can enable communities to thrive, now and into the future”.
A final report is due to be delivered to the government in June this year.
The draft review makes 29 recommendations centred around five categories where it is argued “shifts” are required:
• Strengthened local democracy
• Authentic relationships with hapū, iwi and Māori
• A focus on wellbeing
• Genuine partnership between central and local government
• More equitable funding
Well and good, but funding is the key, Feds said.
Local government is limited by its dependence on property value rates as its principal source of taxation revenue. That puts an unfair burden on many rural families whose farms have a high land/capital value, and whose rates bills running into many thousands, if not tens of thousands of dollars, can bear little or no correlation to the value they get from council services.
“A local government focused on wellbeing – beyond its traditional role as an infrastructure and service provider – would require systemic financial assistance from central government to this purpose,” the Federated Farmers submission said.
Over a number of years the government has transferred any number of responsibilities and requirements from taxpayer to ratepayer, with no matching resources.
“The wellbeing purpose for local government envisaged by this draft report should not add to the sum of these unfunded mandates. Genuine partnership with central government, which implies mutual confidence and shared resources, must first be achieved,” Feds said.
“The vision for local government as an activator and champion of wellbeing is unrealistic given that many councils are already fully stretched meeting their present obligations. We acknowledge the unique proximity councils have to their local communities, but considerable work to build capacity within local government would need to first occur.”
A shared investment approach is a worthwhile model to consider if the government wants to give councils wellbeing responsibilities beyond the capacity of ratepayers to fund. That could be similar to FAR (funding assistance rates via Waka Kotahi) that is used to support local government on roading.
But for small rural councils in particular, central government’s contribution would need to be a significant proportion of costs if wellbeing itself is not to end up contributing to the unfunded mandate, the Feds submission said.
What’s ‘wellbeing’ anyway? The Federation’s take on the nature of wellbeing centres on the successful provision of infrastructure and regulation as necessary to human health and trust in local governance. Vital to this key role are the sources of revenue including the primary taxation basis, which also contributes significantly to trust, participation and the confidence a community has in its local authority.
“Our experience with rural communities demonstrates the significance of a safe local roading network to their wellbeing and overall disposition toward their district council,” Feds said.
For farmers, the quality of relationships with the regional council on regulatory matters and services such as catchment management have a lot to do with wellbeing. They are part of the tangible essentials of good local governance and are expected in the first instance at a reasonable price. A wellbeing role for local government beyond tangible, measurable essentials is difficult to contemplate while land and capital value rates remain as the fundamental source of council revenue.
The desire for improved engagement with hapū/iwi and Māori communities, and genuine Tiriti-based partnerships, cannot be realised with local resources alone, the Federation argued. Central government should review and resource this area of engagement such that smaller councils are not left behind.
“It is important that successful models and partnerships already working within local governance are not lost in a centralised process.
“There has been much progress on Māori representation in recent years, with Māori wards now embedded in legislation. We see little further that could be done to augment Māori representation at council level without risking fundamental principles of representative democracy,” the Feds submission said.
What about future funding?
The independent panel’s draft report on the Review into the Future of Local Government recognises that the current funding arrangements for local government are unsustainable. But it also defends the continued use of property-value based rates as the most appropriate, main way for councils to allocate costs.
Federated Farmers said the apparent contradiction is puzzling.
That the current panel finds existing arrangements are unsustainable is not a new observation; the 2007 Local Government Rates Inquiry drew a similar conclusion.
“Sadly, there has been a complete lack of political will to do anything about this. Rather the system has remained the same while central government has continued to expand the brief of local councils,” Feds told the panel.
Given the very high price of local government through rates, failings in the current system impact farming to a significant degree. Feds agrees with the panel’s funding that the current system of funding community outcomes is disjointed. It is characterised by one-off contestable funds and a multiplicity of arrangements between individual councils and government agencies.
“Smaller councils can be at a disadvantage in terms of their capacity to prepare a business case, and the future is left uncertain. The PGF (Provincial Growth Fund), for example, stimulated projects that in future years will need to be maintained by the local council and, if a facility, the depreciation on it funded. A less haphazard formula needs to be found,” the Feds submission said.
In the absence of a systemic revenue share for community wellbeing, where councils receive general funds from central government to that purpose, it can be argued that the piecemeal approach has advantages. While disjointed, it ensures accountability and that the right incentives are in place to achieve a particular outcome. It ensures ratepayers are not overwhelmed by the aspirations of and demands on councils.
“Our particular concern with this draft report is that wellbeing will be added to local government’s purpose, or even become its central purpose, but in the end the funding system remains the same, ratepayers pick up the cost, and many councils continue to fail at their core functions,” Feds said.
Local government has been hamstrung by its legislated reliance on property value rates as the key form of taxation revenue. This produces a split in the interests and motivations of citizens who pay rates directly – for whom costs are visible – and those that pay theoretically via prices and rent.
This dynamic is obvious in participatory processes such as consultation on Annual and Long-Term Plans. Ratepayers are generally more reluctant to support new or intangible initiatives at the expense of maintaining core infrastructure and ensuring basic community needs are met.
“This is not an elite dominating the long-suffering needy,” Federated Farmers said. “The curious effects of property value rates can mean elderly on fixed incomes are strongly on the side of tight budgets, along with farmers and local businesses big and small.”
The Panel’s view that rates are “still the best means of funding council activities” ignores a fundamental link between taxation methodology and democratic participation. It closes off analysis of the role rates allocation plays in perceptions of a council’s success,” Feds submitted.
“It ignores the natural difficulty which will arise in any conversation with a farmer paying $30,000 in rates per year, on a dodgy local road, about a re-purposed role for local government. It does not address the question as to whether voter participation statistics are dominated by ratepayers.”
While it is true that there are major societal and environmental challenges ahead, governments funded principally by property taxes are naturally constrained in dealing with such issues.
There are no sovereign governments in the world that choose property value rates over income and sales taxes, and this is for the good reason that the tax base is too narrow, selective, and vulnerable to substantial distortions.
New Zealand’s local jurisdictions are too small to generate general tax revenue on an alternative basis – such as the sales tax revenue cities and counties might gather in American jurisdictions.
“The re-purposing of local government contemplated in the review panel’s draft report would therefore require substantial and systemic financial input from central government.”
As substantial individual contributors to local government’s coffers, the farming community encourages central government to think about putting their money where their mouth is, Feds said. Aside from the Waka Kotahi-administered Funding Assistance Rate for local roading, there is no systemic contribution from central government to local.
“If local government is to in future focus on intangible theoretical by-products of good governance such as wellbeing, we suggest a revenue share to this purpose like FAR – perhaps a “Wellbeing Assistance Rate” – based on metrics that relate the merits of a council’s wellbeing initiatives to socio economic indicators to produce an annual subsidy.”
Local government would then at least then have some accountability to a higher authority for its decision making.
Feds added: “It is important for the credibility of this review and the Panel’s work, that the assumption is not made that ratepayers will willingly bear the cost and risk of change.”