Briefly in Aotearoa’s political economy around housing, poverty and climate on Tuesday, December 2:
The Government has announced plans to specify council rates increases in a range of 2-4% from mid-2029, which is a higher range and later than some councils expected. That would outlaw zero rates increases and tie rates to a range between Consumer Price Inflation and GDP growth.
However, the rates controls don’t cover water charges, other fines and fees, and do not exclude spending on roads, rail and bridges, which councils had hoped for.
Auckland Mayor Wayne Brown, who has just confirmed a 7.9% rate hike, said the rates cap wouldn’t work. He said much of the increase was related to demands by the Government and a rates cap would just handicap those investments, such as the City Rail Link (CRL). Brown said: If they want a rates cap, we’ll end up with a CRL with no trains or drivers.”
In my view, most of the rates increases are caused by the Government withdrawing or delaying capital grants for water networks and roads, the Government’s own project spending forcing matching council spending, climate-change-related spending, including $600 million alone to buy out land redzoned by the Auckland Anniversary and Gabrielle floods, a decade of capital spending on infrastructure maintenance and renewal of an average of 76% of depreciation, and higher interest rates caused by the Reserve Bank’s tighter monetary policy.
Potential solutions to this breakdown in financial relations include the Government providing capital grants and regular funding help, including the Government paying rates on Crown land, the Government rebating GST on rates and construction materials used in a council area, and the Government rebating GST from tourism spending in council areas.
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Govt hits councils for rate hikes caused by Govt
Unintended consequences and surprisingly negative feedback loops beckon for the Government if it actually proceeds with its 2-4% rates restrictions announced yesterday. The move seems to be politically appealing in the short run, but may frustrate the Government’s own hopes for growth in the long run, as well as reflect badly on the Government’s own investment restrictions since its late 2023 election.
The performance of PM Christopher Luxon and Local Government Minister Simon Watts yesterday hit all the click-baiting hot buttons of an electorate angry about price increases.
“Rates are taking up more of household bills, and some communities have faced double-digit increases year after year. This is unsustainable and is only adding to the cost of living for many Kiwis.
“Ratepayers deserve councils that live within their means, focus on the basics and are accountable to their community. The Government’s decision to introduce a cap on rates will support that ambition and protect local government’s social license for the long term.” Simon Watts in a statement.
However, a closer examination of the rates and fee increases measured by Stats NZ and cited by the Reserve Bank in its Monetary Policy Statement (Figure 2.14 on page 16) last week showed the prominent role of the Government itself in first causing the inflation, and then adding to it.
Why councils put up rates
Watts and Luxon framed the rates guide as a response to councils ‘over-spending’ on ‘nice-to-haves,’ with Luxon calling on councils to “stop the dumb stuff.”
But the increased council spending and resulting rates increases have been caused mostly by factors out of their control, and have followed long periods of not spending enough on maintenance and renewal of existing infrastructure.
Those outside factors included:
the Government withdrawing or delaying capital grants for water networks and roads in early 2024;
the Government’s own project spending forcing matching council spending on both capital investment and operational spending, with the City Rail Link being the primary example;
climate-change-related spending, including $600 million alone to buy out land redzoned by the Auckland Anniversary and Gabrielle floods;
a decade of capital spending on infrastructure maintenance and renewal at an average of 76% of depreciation and 81% of budgeted spending; and,
higher interest rates caused by the Reserve Bank’s tighter monetary policy.
‘You’ll kill off the growth you want’
Auckland Mayor Wayne Brown was scathing about the plan.
“How else does the government think we’re going to pay for what Auckland needs and for things like the City Rail Link - which were the result of decisions made by previous governments and councils?
“I’m an advocate for getting value for money for Aucklanders. That means knowing the problem we’re fixing before we fix it. Putting a cap on rates isn’t going to solve anything. It will just defer it for a couple of years then ratepayers will be paying even more.
“The main reason rates will go up next year is because we have to pay for the City Rail Link - a project the government is jointly responsible for. If they want a rates cap, we’ll end up with a CRL with no trains or drivers.” Wayne Brown via RNZ
Infrastructure New Zealand CEO Nick Leggett was worried the rates cap would handicap infrastructure spending.
“Any form of rate capping must not come at the expense of building desperately needed new infrastructure and maintaining the crucial assets local governments already own.
The Government’s proposed rate capping policy risks weakening councils at a time when the country urgently needs stronger, better-resourced local government to maintain and build the infrastructure communities rely on.
“This is a blow to the infrastructure sector already under immense stress.
“How are councils going to pay for new infrastructure or fix what they’ve already got when their primary funding tool is being restricted without any credible alternatives being offered?” Infrastructure NZ CEO Nick Leggett via a statement.
The Daily Chart Pack:
The seasonal rise in consumer demand for loans is kicking in…
…but business credit demand remains at 2023 levels…
…partly because company liquidations are at a 14-year high.
57% feel locked out of home-ownership & 46% have given up…
…while 66% of GenZ buyers got deposit from family, Lotto or inheritance
My Pick n’ Mix of links elsewhere
Paying subscribers can find the full Picks ‘n Mixes online only here:
Rachel Graham for RNZ: Mouldy school lunches: ‘Evidence that some had eaten some of this putrid stuff’
Thomas Manch for BusinessDesk-$: Infrastructure Com not let in on RONS
Phil Pennington for RNZ: Infrastructure Com wants phased approach to RONS
Mihingarangi Forbes for Mata/RNZ: How police lost two houses, and an iwi’s trust
Column by Duncan Greive for The Spinoff: The signs all point to the end of NZ’s property obsession. ‘Millennials and gen Z are investing in shares, while politicians are looking to nudge capital away from housing and into business.’
Op-Ed for the PHCC: Reconsidering our low-risk alcohol advice: The dark influence of the alcohol industry
My curated ‘Picks ‘n Mixes’ of links to news, analysis, commentary and cartoons elsewhere are available in full only online below to paying subscribers in the ‘Early Bird’ as it has too many links to email the full version.
Cartoon: Dear Santa…
Timeline-cleansing nature pic: Merry (early) Christmas
Ka kite ano
Bernard
