Advice suggests Government’s water reforms will cost Aucklanders less than Labour’s - for now

Prime Minister Christopher Luxon, Minister for Auckland Simeon Brown and Auckland City Mayor Wayne Brown at the announcement of Local Water Done Well in Auckland. Photo / Alex Burton

Figures collated by the Department of Internal Affairs suggest the new Government’s replacement for Three Waters will cost Aucklanders less than Labour’s two attempts at water reform, at least initially.

Over the weekend, Local Government Minister Simeon Brown announced a solution to the challenge posed by the high cost of water investment, which looked like it would cost Aucklanders a projected 25.8 per cent increase in water rates if undressed.

Brown announced legislative changes to achieve balance sheet separation between Watercare and Auckland Council that will allow Watercare to borrow more.

This will bring the projected water rates rise down to just 7.2 per cent. Under the previous Government’s reforms, this year’s increase could have been 16 per cent followed by a 10 per cent increase next year - however, those figures were uncertain, and do not include the cost of stormwater, which Labour’s plan would have handed to a water entity, but which the new Government is keeping in the hands of Auckland Council.

Nearly every council in the country faces the same problem as Auckland. Fixes for them will be more challenging than in comparatively wealthy Auckland and must be found soon.

The balance sheet separation idea was at the heart of the previous Labour Government’s plans to address the same problem. Labour’s plan was to roll council water assets into four (later 10) entities which would be owned by councils but separate from them. Controversially, the boards of these entities would be appointed and answerable to an organisation that was co-governed by Māori and councils.

The Department of Internal Affairs has released figures to the Herald showing that the Auckland-centred “Entity A” of both of Labour’s two models would probably have put up charges higher than National’s Watercare fix.

“The Water Industry Commission for Scotland (WICS) analysis modelled a 16 per cent increase in user charges for Entity A in the financial year 2024-2025 financial year followed by a further 10 per cent increase in FY25/26,” A DIA spokesperson told the Herald, referring to the very first set of modelling commissioned by the former government on Three Waters.

It is not a given that these charges would have actually eventuated, however, with an initial plan suggesting lower levels of spending in the first 10 years, which may potentially have meant lower charges.

“The draft initial Entity A Funding and Pricing Plan had a different price path for user charges, lower levels of capital expenditure early in the initial 10-year period, and higher debt levels than WICS’ modelling. When operational, Entity A would also have been loaded with approximately $400 million of establishment costs, including paying for the Systems of Record and Corporate Services and Operational Technology IT systems,” the spokesperson said.

This was later reviewed by Entity A’s establishment board. A final figure was not landed upon before the election and subsequent repeal of three waters by the new Government. The spokesperson did say however that the board of the entity included “significantly higher charges than proposed in the draft initial FPP [Funding and Pricing Plan]”.

While the difference between the two plans is likely Auckland’s gain, it could indicate a cost for Northland. Under Labour’s plan, Auckland and Northland would have been in the same entity, allowing Auckland to subsidise Northland’s water investment.

Labour’s Local Government Spokesman Kieran McAnulty said Aucklanders would likely pay more under the new Government’s scheme if you factored in a longer timeframe.

“The complete WICS report Department of Internal Affairs provided the former government had modelling for the next thirty years. This information was verified and peer-reviewed. It was clear that cost incurred by Aucklanders would be lower than that under the Government’s new arrangement announced on Sunday,” McAnulty said.

“The information quoted is counter to this. It appears to be derived from an incomplete piece of analysis that was scrapped when the National Government was elected. The Minister confirmed during Annual Review debate in the House today the Government does not know what the credit rating Watercare will be, and won’t know for some time. This affects the cost and capacity to borrow. This casts serious doubt over the numbers they released on Sunday,” he said.

Brown told the Herald that DIA had advised him that “some of the previous government’s financial assumptions were’very dubious.’”

“The previous government placed a cap on Entity A’s price path which would have put Watercare’s capital programme at risk and mean that critical water projects would need to be delayed or cancelled.

“Labour should front up and tell Aucklanders what projects would be cut under their Three Waters plan - clean drinking water or clean harbour projects?” Brown said.

Thomas Coughlan is Deputy Political Editor and covers politics from Parliament. He has worked for the Herald since 2021 and has worked in the press gallery since 2018.