Councils out of control

The debate over Auckland's Supercity seems to be happening in a type of vacuum. There's a lot of noise about how it's being done and whether it should be done, but little talk about why it is being done and whether it will actually fix the problem. Rodney Hide's missionary-like zeal to get it done seems mystifying and has not been explained to the rest of the country.

Anyone looking for the reason needs to look no further than an obscure set of figures released every three months by Statistics NZ called the Local Authority Statistics.

They are never reported in the same breathless way that the unemployment rate or the budget deficit might be. Yet they are a very public consolidation of one of the biggest bills any homeowner will receive every year.

Ratepayers are intensely aware of this core problem in local government but it's rarely articulated in public debate about the Supercity and local government reforms.

Here's the problem: local government is growing at least five times faster than the rest of the economy. Those costs are being passed on directly to ratepayers in the form of rates, fees and fines that are growing at least four times faster than prices elsewhere in the economy.

The latest Local Authority Statistics released this week showed council spending nationwide rose 10 per cent to $6.21 billion in the year to June from the previous year.

Total revenues collected rose 6.8 per cent to $6.15 billion, which meant the collective council budget balance slumped into a deficit of $56 million. That will eventually be reflected in higher debt.

To put this growth in spending and rates into context, our economy contracted 1 per cent in the year to March in real terms and was flat in actual terms unadjusted for inflation. So how are all these revenues raised? General rates nationally rose 7.8 per cent to $3.33 billion in the year to June, while water rates rose 10.3 per cent to $263 million. Fees and fines rose 10 per cent to $376.6 million. Meanwhile the Consumer Price Index rose only 1.9 per cent in the year to June.

So how are the councils spending all the extra money?

It's going mostly on salaries and wages, but interest costs are also rising fast as councils choose to lift debt rather than rates to pay for their spending. Employee costs rose 9.7 per cent to $1.42 billion the year to June. Interest on debt rose by 33 per cent to $320.8 million.

Spending on services such as rubbish collection, grants for the arts and donations rose 7.9 per cent to $3.45 billion.

Councils argue they are spending extra on infrastructure that has been neglected in previous decades or on bureaucratic tasks, such as building consents that have been forced on them by central government.

Ratepayers will know whether they're getting more for the extra money they're spending. Most say they're not. My experience is of a bureaucracy gone mad while basic services are no better.

This explosion in council spending is a major part of the unbalancing of the economy.

New Zealand's domestic, non-trading sectors have grown at the expense of the productive sector. Somehow New Zealand has to find a way to produce more of these local government services for the same cost, rather than the same services for more.

This is what is driving Rodney Hide's zeal for reform.