Local government funding shake-up pushed as shortfalls put councils under pressure

A local government funding review paper has had a lukewarm response from Prime Minister John Key, who is concerned at the suggestion of new taxes.

The paper was released in Wellington today and looked at options to combat the soaring cost of infrastructure.

Local Government New Zealand (LGNZ) warned councils would face bigger bills from natural hazards and environmental challenges in years ahead.

Its funding review discussion paper cited several possible ways to fix funding shortfalls including legislative changes or creating new local income taxes.

But at his post-Cabinet press conference today, Mr Key said the Government was "very cognisant of putting more cost on taxpayers and ratepayers".

"I don't think anyone has ever argued that rates is the perfect system, but one concern we would have is that if we opened the floodgates to a whole range of taxes and ways of funding local government, then the cost would dramatically go up, the services wouldn't necessarily improve and you could see consumers paying a lot more."

The Government worked with individual councils on special infrastructure needs such as after the earthquakes in Christchurch and with Auckland on the national convention centre, he said.

"But across the board, wholesale restructuring and reform of the way local government is funded is not something we have on the agenda at this time."

The Employers and Manufacturers Association (EMA) said the review offered "few new insights" on how councils should pay for the infrastructure needs of the communities.

"A much wider range of revenue raising measures and techniques are used by local councils throughout the world than are mentioned in this report," EMA executive researcher Peter Atkinson said.

"The report's authors appear either unaware of them or have not considered how they might apply in New Zealand," he said.

"We disagree with the report's suggesting that local councils should have the ability to levy local income taxes, though there may be some merit in the suggestion that local authorities should have the ability to levy a small royalty on minerals extracted in their region."

Local Government Minister Paula Bennett welcomed the release of the review.

"It's a good opportunity for communities and the sector to start talking about the future of local government spending and revenue. I encourage people to take part and put their views forward."

LGNZ, made up of heads of local government, said councils spent about 10.5 per cent of all public expenditure in New Zealand, but raised only 8.3 per cent of all public revenue.

One solution touted was the payment of gas and coal royalties to councils in areas such as Taranaki and the West Coast, respectively the locations of those natural resources.

Other new revenue-raising options canvassed were local income taxes, regional fuel taxes, and local expenditure taxes. LGNZ said these would all require legislative change and fell outside the Local Government Act.

LGNZ said the next stage would involved collecting submissions from the public before release of a final report in June.

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