Size is not the same as efficiency

Published in Insights, The New Zealand Initiative’s newsletter, 9 August 2013

Ever since the creation of the Auckland super city, murmurings have surfaced in Wellington about a greater Wellington council to include the Hutt Valley, Wairarapa and Kapiti. Intuitively, large councils seem undesirable; why take local governance further away from locals? Now a report into the proposed amalgamation has shown intuition is backed up by fact.

The report, Governance options for the Wellington, Wairarapa Regions: An Economic and Financial Assessment by TDB Advisory, is an excellent read. It weighs up the benefits or losses that might accrue to each council in the wider Wellington region. It also considers possible new rates structures, debt burdens, service provisions and which ex-council areas might be better or worse off out of a single unitary authority.

In a substantial survey of the international literature, TDB finds that there is basically no agreement on an optimal size of local government. However, it also finds that both internationally and in New Zealand, efficiency gains from amalgamations only apply to mergers leading to a combined population of approximately 50,000 people. In this sense, the report suggests the amalgamation of Wairarapa councils might make sense, but across the whole of Wellington, Wairarapa and Kapiti, it does not.

Further, the report notes that areas in which the councils might realise some efficiency gains are in network services, for example a regional authority approach to water and road infrastructure. This seems like a good idea, as it is difficult to see where local political involvement in the technical delivery of these services adds any value.

Additionally, the maximum efficiency gains of any merger are estimated at a paltry 3%. This is primarily because many of the infrastructure services provided by councils are labour intensive, which makes the scope for gains severely limited. The TDB report also echoes the Productivity Commission’s report into local government regulation that suggested there is a far greater link between best practice and efficiency, rather than size of council.

On top of this, there is the sheer cost of an amalgamation. The costs of these rearrangements tend to be regularly understated, and rather high. If the efficiency gains are dubious, which they are, the case for a ‘super Wellington’ seems rather thin indeed.

Many Wellington local politicians are pushing this ‘super city’ idea, but is it really good for local government? Or is it simply the tempting, less democratic prospect of being the mayor or councillor of an engorged Wellington?

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