On Wednesday, MP Nick Smith gave a sweeping speech to the Nelson Rotary in his home constituency. He focused mostly on issues in his two ministerial portfolio areas … the environment and local government.

What he said about local government reform is an important message all local government officials in Hawke’s Bay — and their ratepayers — ought to hear. Here are excerpts of Minister Smith’s remarks on local government. Next time we’ll talk about his views on the environment. His full speech is here.

Nick Smith speech excerpts:

“I want to stress at the outset Government’s view that an efficient, responsive and well focused local government sector is absolutely vital to New Zealand. Our 78 Councils are responsible for $100 billon worth of public assets, employ 23,000 people, spend $7.5 billion each year of public money and everyday make thousands of regulatory decisions that impact on the lives of all New Zealanders.

If they do these jobs well, they can be a turbocharger for New Zealand Incorporated, but poorly and they become a handbrake on this country’s success. My ambition is to work with Councils to ensure they are a help not a hindrance to New Zealand getting ahead.

My number one concern is about spending and the financial burden of rates on households and businesses.

Over the past decade average rates across the country have grown by 6.8% per annum, or by more than twice the rate of inflation. It is telling, that of all the inputs into the consumer price index, rates have gone up by more than any other cost. Food price increases since 2002 have on average increased by 3.3%, transport 2.6%, clothing 0.1%, and housing 5%. The 6.8% rates rise figure is just unsustainable.

It is not just rates on the rise that have me concerned. Most New Zealanders would be shocked to learn just how quickly our councils have been racking up debt. Council debt has roughly quadrupled from $1.8 billion to $ 7 billion over the past decade. Debt is the issue of our time. Since 2008 it has been crippling economies internationally.

There has been a lot of commentary about Government and private sector debt increases over the past decade yet Council debt has grown faster than any other sector. It is now at levels unprecedented in the 140 year history of local government in New Zealand.

The $8 billion of local government debt might seem low when compared to the $100 billion of council assets. The issue is that very little of these assets are income generating and fewer still could be cashed up. The worry is the capacity to service this increasing debt burden from a relative low income stream of rates. Government has previously put debt limits on councils but these were repealed two decades ago. This may need to be reconsidered.

The underlying issue here is that while central government, households and businesses have responded to the crisis internationally over debt by pulling in spending local government has been slow to respond.

There is evidence of this in the labour cost index.  In 2005 to 2008 period pay rises in the state and local government sectors significantly exceeded that of the private sector.  National has been successful in pulling back state pay costs to an increase of 3.9% over the last three years, a third of the increase over the previous term.  My concern is that local government labour costs over the last three years increased by 7.6% or nearly double the rate of the state sector and still ahead of the private sector.

My endeavors will be about how government can better support more efficient councils. Inevitably this raises the question over local government reorganization beyond the big changes made in Auckland.

I wish to make it plain however that the Government is not going to embark on a central government led, nationwide programme of forced change as occurred in the 1980’s. Nor do we take the view that bigger is necessarily better.

I believe the new council in Auckland poses a real challenge for the rest of New Zealand. Its single voice, coordinated planning and efficiency gains are going to give it a competitive edge. Other communities need to start thinking about how their area can do better and what future structure of councils will best assist their regions’ prosperity and growth. From the Government’s perspective, we want the rest of the country as well as Auckland to be successful and want to facilitate a sensible dialogue on reform.”

Minister Smith, you have an open invitation to speak in Hawke’s Bay. I guarantee we can pack the house.

Tom Belford

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