Local Govt has to tighten belt too

Prime Minister John Key’s address to the Local Government conference included this message:

. . . Councils have a role to play in creating an  environment that is conducive to sustained economic growth – just as  central government does.

And just as central government does,  local government also needs to work on delivering better services to New Zealanders within tight financial constraints. . .

Better services within tight financial constraints isn’t easy but it’s necessary.

Central government has done its bit by tightening its belt.

Businesses, households, individuals and farms have also reined in debt, increased  savings and made changes in response to the Global Financial Crisis.

Like everyone else, local government needs to do the same, and continue to  do so as we move forward. And I am aware that, in some cases, that  process has been started.

Some councils are already thinking outside the box and proactively working together to share resources, thereby cutting costs.

As I said earlier local government makes up an important part of the  economy – around 4 per cent of GDP – so it has a big part to play.

Times are tight and ratepayers just can’t endure unaffordable rates rises. We are not telling you how to do your jobs, but we would urge you to think carefully about the capacity of your communities during these difficult financial times. . .

Rate increases have consistently been much greater than the rate of inflation, even if population growth is taken into account too.

One reason for that has been costs imposed on local government from central government.

But that is only part of the problem.

Too many councils have created empires of people who appear to do little more than add to the costs for ratepayers. Others have got away from their core business and poured money into expensive and unsustainable projects.

Central government has tightened its belt, businesses and households have tightened theirs, it’s time local government did too.

8 Responses to Local Govt has to tighten belt too

  1. David says:

    Rate increases have consistently been much greater than the rate of inflation, even if population growth is taken into account too.

    Does anyone who trots out this line ever stop to think?

    When I last looked at my council’s financials I didn’t see them spending much on Corn Flakes, but I did see them spending a lot on bitumen and cement.

    The CPI is useless as an indicator of cost inflation faced by councils.


  2. homepaddock says:

    Fair comment, David – but if you’re in a business where your core costs go up you cut your costs elsewhere.


  3. Rob Ripley says:

    Was Loopy Len there?

    He’s got some cheap V8s to sell.


  4. David says:

    Sorry Ele, you’re not making sense.

    First, a council is not a business, and trying to pretend they are is cause of the problems we have seen recently.

    Second, if every business cut its costs elsewhere when core costs go up how can core costs go up? its a bit circular, in a round about way, don’t you think?

    If your theory held, there would be no inflation. Ever.

    Now, when it comes to the purchase of items such as cement and bitumen, the buyers are at the mercy of overseas suppliers, exchange rate fluctuations, freight costs, etc.

    Back to John Key. What has he done/ is he doing to reduce the burden central government has palced on local?

    What has he done/ is he doing, to remove GST from rates, the tax on a tax?

    John key talks a nice speech, but doesn’t walk a very active walk.


  5. homepaddock says:

    David – Council’s might not be businesses but they should act in business-like ways.

    The alternative to cutting costs is increasing your prices – businesses which do that face a market which will resist if the price goes too high, councils don’t face that discipline.

    Cutting central government costs, as National is doing, will help councils too though I think it would be good to examine central government requirements on local bodies to see if these could be eased.

    The costs of complicating GST outweigh any benefits.


  6. Bulaman says:

    Again.. No public servant should be paid more than half to 2/3rds of an equivalent private sector pay rate. Workin for the guy with the money tree reduces the personal risk by at least this salary level. Likewise heads of SOE should get no more than 20 times the salary of the lowest paid employee of that SOE. About the only thing I can agree with Hollande on..


  7. Richard says:

    Ele. This subject has come up before on this blog. I remember commenting that much of the extra costs of local government had been imposed by central government (as you point out)-under the labour government. At the same time local government were given powers to spend at will; I think that spending door has been closed e.g. Dunedin’s stadium.
    Its going to take time to get local governments back to their core business. That means change, change in culture, change in local body employees and politicians who understand the role of local government.


  8. Ross says:

    Ele, it is good that the Prime Minister is encouraging every public sector organization to examine their costs and keep the cost of service to the community as low as possible.

    The issue with local government cost rises is complex and multiple:

    1. For the past 30 years central governments have devolving and legislating functions that local government have to manage and administer – there are a multitude of examples – gambling bylaws, liquor licensing, prostitution bylaws are some of the more recent ones.
    2. The regulatory and accountability requirements of local government have also increased considerably over the past 3 decades requiring reams of annual paper work, scrutiny, accountability, consultation, audits, reviews etc – this all takes time and costs money
    3. Central Government continues to pass new laws that require local government to change service standards – in your area Ele one that has had a big impact is the Health Amendment Act that requires upgrading of most of the water supplies – across NZ this has added about $700 million capital costs to local government. Central government (Labour at the time) were told about this cost loud and long by local government and promised lots of subsidies – but only about $200M was provided, the remaining $500M has fallen on small and rural communities to pick up across the country
    4. As other comments have noted – the construction, bitumen and concrete prices have risen over the past 20 years far faster than CPI due to oil price changes, materials and skills shortages
    5. In civil engineering particularly there are massive skills shortages in NZ, about to be made much worse by the requirements of the Christchurch rebuild, and the continual loss of skilled staff resources to Australian mines and local governments, who are bidding salaries up regularly. Councils have to compete in this salary market, and due to the shortages have to pay a reasonably high price to secure sufficiently skilled and qualified resources. If you think screwing Council staff salaries and conditions down is going to save money – those days are long gone (that is late 1980’s thinking that got us into the skills shortage mess in the first place). People will just bail, and if you think hiring contract / consultants to do the work of staff is going to save you money – have another think.
    6. Many New Zealand Councils have large amounts of infrastructure assets that are entering major asset updating and renewal phases. This all costs large amounts of money, and for many communities this is the first time they have had to pay the full cost of these assets, as large amounts were built in the 1950’s – 1970’s when generous central government subsidies were available. A lot of the grumbles in communities about rates is driven by asset replacement costs – they want some one else to pay – but who? The truth is (sorry socialists I know it is hard to bear this truth) there isn’t an endless money tree, and we can’t just borrowing and hoping. Ultimately stuff has to be paid for.

    All of these factors have lead to rates rises people are currently experiencing.

    Despite this for urban rate payers particularly, the services they receive from their Council are actually as cheap as chips. I get roads, water, sewerage, rubbish, pools, sports centers, parks, sports fields, libraries, art galleries, events, community sponsorship, community resources, regulation services for an ordered society AND my friendly local Councillors for about $2000 a year.

    I pay roughly twice that much per year for one service – electricity.

    Why write all this – I would like you to understand where the costs come from. We actually have a system we like to grizzle about all the time, but which in reality runs on the smell of an oily rag, and is quite cheap for what we get.

    I am concerned that the National lead government are at risk of breaking something that does a reasonably good job for not too high a cost. If the government do wreak local government (through lack of understanding of the issues) what do you think the chances are the next solution will be as effective or as low cost?

    Ultimately there is a really easy way to reduce the costs of local government – that is to stop spending money on infrastructure, let it fall to bits, and see the services we take for granted gradually fail and get a lot less reliable.

    The trouble is, we did that to some extent for a decade from 1985 to 1995 so we know what it looks like. It has taken us 15 years to catch up – and we are still not quite there yet – hence for example the governments programme of major investment in roads.

    Whilst it is a short term cost fix, it is actually a really dumb way to manage infrastructure and all the economic benefits that come from good quality infrastructure, particularly in the medium to long term.

    A sustained, on-going and reasonable programme of investment makes much more sense, maintains a steady level of expertise and resources to build, operate and manage infrastructure, and delivers a consistent level of service and benefit to communities. This approach provides by far and away the best medium term value for money.

    The only problem with this approach is that it costs a bit of money.

    Interesting set of choices……..


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