From Question Time on Thursday:
Local Authorities—Increase in Council Debt Since 2002
6. JACQUI DEAN (National—Waitaki) to the Minister of Local Government: What reports has he received on increases in local government council debt since the Local Government Act 2002 was enacted?
Hon Dr NICK SMITH (Minister of Local Government): The local authority financial reports show that council debt has quadrupled from $2 billion in 2002 to over $8 billion today. The increase
in debt is significantly greater than any other sector, and is noted by local government analyst Larry Mitchell to be the No. 1 issue facing that sector.
Jacqui Dean: Has local government borrowing slowed in response to the global debt crisis, in the same way that households and businesses have become cautious of debt?
Hon Dr NICK SMITH: No, household debt grew sharply between 2000 and 2008, but stabilised in 2009 and has reduced in 2010 and 2011. Farm debt has also responded prudently to the global financial crisis and not increased since 2008. In contrast, council debt has been growing at a faster rate—$500 million of borrowing in 2007, $800 million in 2008, $1,100 million in 2009, and $1,800 million in 2010. This ongoing increase in local government debt is not sustainable.
Jacqui Dean: Why is this increase in debt a concern?
Hon Dr NICK SMITH: There are three concerns. The first is that council debt is actually just rates deferred. The greater the debt the less opportunity there is in future for containing the cost of rates for households and businesses. Secondly, council debt contributes to New Zealand’s overall indebtedness. Households and businesses are doing their bit by pulling back their borrowing, and local government needs also to tighten its belt. My third concern is that for some councils their level of debt-servicing costs is becoming so great that it puts the financial viability of their council at risk.
Central government and households have tightened their belts and are doing their best to reducedebt.
Councils must cut their costs and reduce debt too.