Thomas Coughlan: Will this be enough to make NZ fall in love with Three Waters?

The Government pours parts of Three Waters down the drain. Photo / Laura Smith

Politics, policy and economics are at constant war in Wellington.

What might be good for one is often bad for the other two. Good economics often makes terrible politics - ask poor Adrian Orr - and vice versa.

Labour’s new Three Waters policy (not that you’ll hear them use those two words again - it’s Affordable Water Reform now) tilts the good ship of state firmly in the direction of the political and away from economic and policy objectives.

Gone are the four mega water entities, replaced by 10 smaller, more geographically coherent entities.

The change puts Labour in an awkward position. Three Waters is about taking water assets like pipes and infrastructure off councils and placing them into much larger entities that have the financial ability to borrow the vast sums of money - as much as $185 billion over the next 30 years - needed to fix New Zealand’s rotting water infrastructure.

The entities are meant to make this cheaper, thanks to their ability to borrow cheaply and realise cost savings that the current, Balkanised model of council-led water service delivery could not.

The four old entities delivered massive cost savings, keeping water bill costs - usually charged with council rates - at $800 to $1640 a year with reform, down from $1900 to $9000 a year without reform.

Ten entities water down - pardon the pun - these cost savings, although it is unclear by how much as the Government has produced new modelling for this new version, which frustrates easy apples-with-apples comparisons.

Local Government Minister Kieran McAnulty, who took over from Nanaia Mahuta this year, said this model will save households $2770-$5400 a year by 2054.

At the extreme end, that suggests this model delivers about $2000 less a year for some councils than what Mahuta had promised.

The irony is the Government’s “Affordable Water Reform” is significantly less affordable than what it proposed a year ago.

In fact, the policy has already cost councils $1.5b in lost income they would have received from the Government under the old system. That money is now gone.

The Government has traded those economic benefits for political ones.

Under the 10-entity system, councils will have a far greater degree of input into the entity that delivers their water - they will not be lost among the dozens of councils bunched into one of the four mega entities.

Does that make it an easier pill to swallow? Maybe. Local Government moves slowly. Councils are still making up their minds.

Local Government New Zealand, which has been battered and bruised by its member councils’ unhappiness over Three Waters, decided to sit on the fence as of today.

Local Government Minister Kieran McAnulty and Prime Minister Chris Hipkins announcing their Affordable Water Reforms to replace Three Waters. Photo / Mark Mitchell

However, South Wairarapa Mayor Martin Connelly said he believed the announcement to have gone down well, noting mayors hearing of the proposal on a Zoom call on Thursday morning seemed well disposed to the proposals.

Labour-aligned Hutt City Mayor Campbell Barry, a member of the working group that looked at Three Waters in 2021-22, the last time the Government got nervous about the policy - this is arguably its third attempt at getting something over the line - put it best when he Tweeted “10 entities is politics over good policy making. 4 entities stack up better when it comes to affordability.”

Moving to a 10-entity model also removes one point of distinction with National, which favours a more liberal ad-hoc approach to reform, giving councils greater freedom to decide whether they will or will not merge with others.

This would inevitably lead to some mergers to the point that National’s model might end up looking a lot like what Labour is proposing - a patchwork of regional water mergers.

Labour has one thing on National, which is that its mandated approach makes cost savings easier to advertise and promote. National’s more liberal approach means cost savings are impossible to forecast and advertise because the actual outcome of the policy hasn’t been mandated and cannot, therefore, be easily modelled.

Whether the political adjustments to Three Waters will be enough is difficult to sell.

One of the most unpopular elements of the reforms, co-governance, remains - with the 10 entities governed by boards that are appointed by and responsible to local representative groups that are comprised of local government and mana whenua on a 50-50 basis.

Prime Minister Chris Hipkins is clearly concerned about this, saying today that the policy did not have co-governance in it - and that previous Three Waters policies didn’t either.

This is factually wrong. In patsy questions from Labour’s Tangi Utikere to Mahuta last May, both leaned into the co-governance model and talked up its benefits.

“Let me be clear. Co-governance arrangements exist at the regional representative group level, where 50/50 governance oversight between councils and mana whenua is exercised for the broader wellbeing and benefit of the whole community by setting the strategic performance expectations of the newly created water service entities,” Mahuta said.

That’s a far cry from Hipkins’ remarks that his policy is “not co-governance and it wasn’t co-governance”.

Act is already claiming that Hipkins was unable to stare down Labour’s Māori caucus to nix co-governance from the reforms entirely.

It’s certainly unusual that one of the most unpopular parts of the policy managed to survive a process that was explicitly designed to make Three Waters more politically palatable.

One aspect that is not yet clear is whether Hipkins and McAnulty’s denial that their model is co-governance will actually save them, given there’s plenty of evidence of Labour MPs saying that it is.

It certainly makes you wonder whether it might be easier to call the co-governance aspects of these reforms for what they are and make the case for why they’re important and valuable, rather than denying that it exists when most observers can see that is plainly incorrect.