Call to decentralise government and empower the people through local councils

Neil Simmons, CE of Electra (sponsor) and Dr Oliver Hartwich, executive director of the New Zealand Initiative.

Fresh out of the bureaucratic wrangling process, new New Zealand citizen Oliver Hartwich from Think Tank the New Zealand Initiative, and a relatively freemarket economist in his own estimation, has had his finger on the pulse of a few countries economically speaking, from his native Germany to the UK, Australia, and since 2012 New Zealand.

His diagnosis: There is something fundamentally wrong with the way government is structured in Aotearoa New Zealand.

"Wellington is suffocating us.

Long-term performance of real GDP per capita (% of US). New Zealand has dropped from almost 100 per cent to 65 per cent.

"Much more power and money need to go to local government and their communities. Wellington's one size fits all approach doesn't work," he told Horowhenua business leaders recently.

He pointed out that a lot has happened since the 1950s when we were one of the most efficient and richest countries in the OECD.

"While we all work hard, other countries have begun to work smarter. We are now poor and stagnating. Taking the USA figures as the magic 100 per cent, our GDP has been sliding down for years, while in 1950 we were close to that 100 per cent. While we may have only a few tarriffs, only 50 per cent of our GDP is traded."

He said the key to growth is: people respond to incentives and there are so few incentives here.

On housing he said, only 8 per cent of the country has been developed so far, while previous governments have stimulated immigration.

"It is our own fault really that we do not have enough houses."

New Zealand shows poor trade performance, poor GDP per capita, poor productivity and poor foreign investment.

"Wellington is the problem. They control 89 per cent of all spending and push more and more projects down to local levels, without any way to pay for them.

Taxing Imbalances around the world show percentages of tax money going to central government (orange), state or regional government, local government (yellow), social security funds or supranational.

"Wellington is suffocating the country. New Zealand is unique in the world because it has the most centralised form of government. New Zealand's way of governing is extreme by international standards.

"It wasn't always that way, but New Zealand's local government has been at the same size for the past 150 years and controls only 2 per cent of GDP, while central government is always growing."

He said recent OECD figures show decentralised countries do much better and show greater economic growth, and get richer as a result, because there are incentives at local levels and each council can tailor-make its programmes suited to their unique situation.

"Centralised economies like ours result in a one size fits all approach and that does not work."

"It is time to empower local government and trust local communities more."

When he talks about housing, he said compared to the 1970s, housing here is 356 per cent more expensive, while in Germany and Switerland house prices haven't changed much.

Is wellington the problem? Central government spending as a percentage of total government spending around the world. New Zealand sit at almost 90 per cent, while Switzerland sits at about 15

"Germany has more rules for building houses, so legislation isn't the problem."

Visits to Germany and Switzerland has taught him: the key is local government finance.

In Germany and Switzerland residents pay local taxes which help fund infrastructure, for example, as well as other services.

"There is an incentive for local government to grow, and attracting more residents means more tax.

"In Switzerland central government is very small, only seven cabinet ministers and most parliamentarians are part-timers, while it receives 20 per cent of the tax collected, the rest goes to councils and cantons."

He said local bureaucracy is also much leaner and more efficient. "It takes a week in Germany to get planning permission."

He said in both countries local councils compete for residents. New residents mean more tax money and lower taxes for residents and if they do not like the way their local council does things, they move down the road, to another council.

That is rather easy to do over there. While NZ has 78 councils, Switzerland which is the size of Canterbury, has 2200 councils and 26 cantons, and 8.8 million residents, so hopping across the border is easy.

New Zealand productivity is poor and stagnating.

"Referendums happen regularly there, several times a year, whenever enough people disagree with council policy.

"There councils build houses, decide on the education systems, health services, welfare entitlements, and even issue passports.

"In New Zealand 93.6 per cent of income tax goes to Wellington, only 6.4 to councils. Councils have to beg Wellington for money.

"If we want to fix our problems, from healthcare, to education to employment and housing, we must trust local communities more and empower them to solve their own problems. We have to change the structure of government.

"Here there is no incentive for councils to do something."

He said before Covid hit NZ collected $3.8 billion in GST from tourism ... but only $30-40 million of that went to councils.

"Queenstown could not build enough infrastructure to cope with the influx of tourists.

"One tier of government does all the work, while another gets all the money. Councils are the ones building infrastructure and that is very expensive."

As a step towards a solution he said, "If the GST from new developments went to councils, that would make a difference to start with."

While the current system of governing has developed over 150 years, and countries like Switzerland were never centralised in the first place, he said he fears any attempts to try to turn back the clock will take longer than the process of centralising.

"We cannot wait that long."

Hartwich said a radical overhaul is needed to help Aotearoa New Zealand improve its position in the world.

Dr Oliver Hartwich present at Electra Buisness After Five - 25 March 2021 from Get-Go on Vimeo.

"Wellington should be in charge of defence, some strategic infrastructure and foreign affairs.

"Functions like issuing passports, handling social welfare, education and housing can easily be taken away from Wellington and done better by local councils, the Swiss and German experience shows," he said.

He said decentralisation will have a positive effect on voter turnout for local elections and will increase interest in local politics as residents have a much bigger say in what happens.

There is a lot of information on the NZ Initiative website. If you want to know more: https://www.nzinitiative.org.nz/