Rates rises a bitter pill for ratepayers and councils

Sunday, 30 June 2024

Now is not the time to pull back on critical infrastructure spending, writes Nelson Mayor Nick Smith

Local Government spotlight: Dr Nick Smith is Mayor of Nelson and was previously a cabinet minister in the Bolger, Shipley, Key and English governments.

Opinion: Councils around the country have this past week been finalising their Long Term Plans for 2024-34 and setting the annual rate rises that will apply from tomorrow. The level of rate hikes nationally is the highest in decades. It will be a bitter pill for ratepayers to swallow at a time when households and businesses are already under huge cost pressures.

West Coast Regional Council tops the increases at 27%. Canterbury’s hike is 17.9%. City Council increases are 6.8% in Auckland, 16.5% in Hamilton, 17% in Wellington and 9.9% in Christchurch. Many Councils are in the 19-25% range such as Hastings, Napier, Gore, Clutha, Buller and Central Hawke’s Bay. My Nelson Council settled on 8.2% but we are also imposing a $300 storm recovery charge so, together, that equates to a 15% hike. Nowhere in the country are rates rising at less than the latest official inflation rate of 4%.

The economic impact of these rate hikes goes beyond ratepayers struggling to pay the bill. They will feed into Stats NZ’s measurement of inflation and interest rates staying up for longer. It’s in everyone’s interests that we get to the bottom of what’s driving these rate hikes and take steps to better constrain these costs.

The lazy response is for local and central government to blame each other. Councils point the finger at government for imposing extra responsibilities and compliance requirements. Government points to the bureaucracy and inefficiency of Councils and the billions it provides to help Councils. There is some truth in both arguments. The way forward lies in determining the real drivers behind the increases, and central and local government working together to get them under control.

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The cost of infrastructure is the single biggest driver of rate hikes. My Nelson Council proposes over the next decade spending $523m on wastewater, drinking water and stormwater and a further $303m on roads and other transport infrastructure. This equates to $36,000 per household. The combination of NZ’s infrastructure deficit and soaring construction costs is at the core of Councils’ rating woes.

Councils would be doing NZ a disservice by pulling back on investments in infrastructure. We need look no further than Wellington to see the folly in neglecting underground services. I was no fan of the previous government’s Three Waters reform as I did not want Nelson to be picking up the bill for Wellington’s failures. There is no question that Councils need to up their game and invest in improved water services but we also need to be wary of the new regulators setting health and environmental standards with little regard for the huge costs. The way forward is in ensuring an open dialogue between central and local government about these costs and benefits.

Another issue we must confront is the escalation in project and construction costs. There is overreach in traffic management around construction works where the smallest of jobs means spending thousands on signage, cones and traffic safety staff. I met with civil contractors in Nelson this week about massive new costs associated with regulations requiring surplus topsoil and hardfill from construction sites having to be transported and dumped at Council’s landfill adding 20% to project costs. Consultation and consenting requirements are also driving up costs. Each of these problems arises from a complex mix of central and local government regulations where risks are being overstated and costs underestimated.

A significant chunk of the rate increases flows from the same cost pressures hitting households and businesses. My Nelson Council has this year had interest costs rise by $4.2m, depreciation by $1.5m and insurance by $750,000. We have no choice over these cost hikes that added more than 6% to rates.

Another problem for Councils is scope creep. Council’s income from rates is just 3% of the nation’s compared with Government’s 30% but the Local Government Act creates an expectation that we provide for our communities’ social, economic, environmental and cultural wellbeing. We would do better with a narrower mandate that better matched our financial resourcing.

I also believe Councils need to look at how we could better organise ourselves. Every week I experience the inefficiency of my region having a council for Nelson and another for Tasman when our economies and communities are so integrated. It is equally ridiculous that a region like the West Coast with 33,000 people has a regional and three district councils. Similar arguments apply to regions such as Southland and Hawke’s Bay.

Councils are right to challenge the Government about some of the costs it is imposing but we also need to be prepared to reform ourselves and become more efficient.