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Incentives for local government needed

Published in Insights, The New Zealand Initiative’s newsletter, 17 July 2015

From Sunday, my colleague Jason Krupp and I will be attending the annual Local Government New Zealand conference. It is LGNZ’s flagship event of the year, bringing together 600 delegates from New Zealand’s councils along with key players from the private sector, business, government and non-government agencies.

Local government reform is one of the Initiative’s key research themes for the coming two years, which is why LGNZ’s conference is so important for us. If you want to feel the pulse of local government, this is the best opportunity.

But there is another reason why Jason and I are looking forward to the event. It is also the place where LGNZ will present its manifesto for local government funding.

To declare an interest, I was part of the working group which helped to guide LGNZ’s local government funding review. This group was made up of people representing a wide range of views: councils, universities, business groups. As such, there was no shortage of debates around the table, but what united all participants was an understanding that the current set-up of local government finance was far from ideal.

Over the past year, we had a constructive and ongoing dialogue within the working group and with LGNZ, and so I look forward to the publication of the final report and its recommendations.

From the Initiative’s perspective, what matters most to us are the issues which we have frequently written about over the past three years. We believe that local government works best when it has better incentives to promote economic growth and development. In fact, this is where we believe the current system of local government finance is not serving New Zealand well.

The basic problem is this: It appears that a growing economy mainly benefits central government in the form of increased tax revenues. At the local level, meanwhile, we notice that infrastructure investment to accommodate economic development is costly but that councils do not see much of a fiscal positive in return.

This is where we hope LGNZ’s funding manifesto will have an impact on the debate. We believe it is vital that well-performing, growth friendly councils get rewarded for their actions. In this way, we can turn councils into enablers of economic development – and it would also resolve the often antagonistic relationship between councils and the Beehive.

We look forward to the conference and the debate on local government finance which should follow it.

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