The Local Government Funding Review discussion paper released today is useful and should spark discussion on wider issues including the proper role and limits of local government, says BusinessNZ

The paper outlines several options for new approaches to local taxation to address local government’s funding shortfall.  But the paper fails to adequately address the spending side of the equation, says BusinessNZ Chief Executive Phil O’Reilly.

“Any organisation faced with a funding shortfall must address its spending as well as its funding.  Business would be happy to respond to a discussion paper on reducing council spending.  One key way would be to constrain the very wide role of local government to its core services.”

But Mr O’Reilly said it was useful to review local government’s funding sources.

“Greater use of user charges could apply for what are essentially private goods.  Waste and water services are still largely funded from rates, limiting the incentives for optimal use and conservation.

“The paper highlights current rating practice that could be improved.  Differential rating for example, where businesses are charged higher rates than other ratepayers without being justified by the services delivered.

“The paper considers the option of greater funding from a wider tax base than simply property owners.  Since all adults are able to vote in local government elections, there is conceivably a case for the local tax base to be extended to all adults in conjunction with a higher uniform annual general charge.

“The paper also considers the establishment of local income tax, levied via payroll, as practised in some other countries.  However, New Zealand differs from many comparator countries in the amount of services delivered by central government, welfare services for example, where New Zealand’s smaller size and population base probably make central provision more efficient than local taxation and provision.

“The paper suggests consideration of local authorities getting a prior claim on income earned in their region, from exploration royalties for example.  While attractive at face value, this could have a high opportunity cost, since the reduced Crown funding could mean a commensurate reduction funding for roads, schools and hospitals for the rest of the country.”

Mr O’Reilly said BusinessNZ would respond to the Local Government New Zealand discussion paper on behalf of the business sector which is deeply impacted by local government activity.

Contact: Phil O’Reilly 04 4966552 or Kathryn Asare 021 555 744

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