Funding options for local government

Local Government NZ has released a 10 point plan on how to fund local government and incentivise economic growth.

I’m against an increase in the overall funding for local government, but do think the current rates based system is inadequate, and we should look at other complementary methods.

One problem with having local government funded by rates, is that local councils do not benefit from local economic growth, and hence are often not incentivised to support economic growth. Central Government does benefit from economic growth – an increase in the economy leads to more income tax and GST revenue.

Their 10 points are:

1. An agreed priority and action plan to advance “special zones” for growth to test new ideas and drive economic prosperity
2. When new centrally imposed costs are considered (and particularly where national benefit applies) a cost benefit analysis and agreed cost sharing with central government should be mandatory
3. Mandatory rating exemptions should be removed
4. The application and administration process of the rates rebate scheme should be simplified to increase uptake
5. Better guidance is needed to assist councils make decisions on trade-offs about whether to fund services from prices (user charges) or taxes
6. Road user charges, targeted levies and fuel taxes should be allowed where it is economically efficient
7. Councils should be able to retain a share of any value uplift arising from additional economic activity related to local intervention and investment
8. Local authorities should receive a proportion of any mineral royalties attributed to local activities
9. Allow councils to levy specific charges and taxes on visitors where economically efficient
10. Reconsider the decision to limit the range of community amenities funded through development contributions

I especially like the first proposal – the ability to trial new ideas in special zones. We should have the flexibility to trial out different ways of funding new areas. To some degree, a lot of the economic growth in China has come from areas with special zones.

I also support the ending of most mandatory exemptions from rates. Everyone should pay their fair share whether they be the Government or churches.

Also been a long term advocate of road user charges and congestion charging so that transport is funded on a user pays basis, not on the basis of the value of your house.

And there is much merit in allowing local authorities to get a proportion of mineral royalties from their regions, as that would incentivise them to support economic activity in these areas.

Well done to LGNZ and their review group for a useful document. However again I would caution that these should be seen as alternate way to fund activities, not additional ways on top of rates – ie any new income sources should be compensated for by reductions in rates.