Address to NZ Contractors Federation Annual Conference

Good afternoon to you all, It's a pleasure to be back in Nelson. I hope you've all enjoyed your lunch, and thank you to NZCF President David Jewell and CEO Jeremy Sole for inviting me here to speak to you all today.

The theme for this conference, "A New Environment", is a timely one. Since becoming Minister of Local Government back in late 2008, I've seen that there are significant challenges facing the local government sector and plenty of scope for change.

Ratepayers have long expressed concern about rates increases well outstripping inflation. Recent analysis by the Department of Internal Affairs shows the cumulative increase in rates per head over the next 10 years is 39 per cent. Rates will continue to rise faster than council costs, while public debt for the sector is forecast to increase by 97 per cent and interest expenses by 91 per cent.

I'm happy to say that this year councils have collectively reduced their projected rates revenue increases by a total of 1.5 per cent, which amounts to around $55 million in savings for ratepayers. It's a good start, but we have to do more.

The sector's financial challenges are partly a result of the economic environment, as rising costs of labour and materials put pressure on Council rates.

Central government hasn't helped. Successive governments have imposed additional functions on local government, without proper assessment of the impact these new regulatory functions might place on ratepayers' pockets.

However, local government's financial challenges have often been exacerbated by the actions of councils themselves. There are instances where local government spending has clearly lacked focus, and where these costs have been passed on to the ratepayer.

With this in mind, increasing the efficiency and effectiveness of local government has been my number priority.

To that end, I have three big jobs underway. The first two, Auckland's Governance reforms and the amendments to the Local Government Act, have been well discussed. The third and most significant is a review of the constitutional status of Local Government in New Zealand.

Today I'll touch on how these changes might affect your industry.

I don't need to explain to those in attendance what a problem Auckland has been in the grand scheme of New Zealand's governance.

Here we have a beautiful, vibrant city, home to a third of our population and the nation's central business hub, stifled by 100 years of bureaucratic infighting and stagnation amongst 8 councils.

On November 1, the Auckland Council, under a single council and mayor will produce strong regional governance, integrated decision-making, greater community engagement and improved value for money. It will streamline operations and reduce bureaucracy, through consistently delivered policies, lowered fees and costs, simplified paper work and improved customer service across the region.

For example, the process for resource consent applications will be standardised, along with fees for services such as building inspections.

I'm sure you'll all be pleased to hear that the reforms will also result in a region-wide alignment of engineering codes of practice for infrastructure. This will decrease the cost of tendering, engineering and delivery of projects, while increasing productivity and value for money.

The Auckland Spatial Plan will set out how the region develops in the future, where critical infrastructure services will be located, such as water, sewerage and roads, and plan future residential, business and industrial activities within specified geographic areas.

The National Infrastructure Unit, a specialist unit established within Treasury, will develop a National Infrastructure Plan which will work hand in hand with industry to permanently lift the sustainable growth rate of the economy, through improved management of Crown assets.

This combination of the Spatial Plan and the National Infrastructure Unit will improve the planning of major infrastructure work across the Auckland region, through better sequencing, more certain timelines and funding, and increased involvement with the private sector.

The new Auckland Council will be responsible for contracting services throughout the region. I expect that a range of contractors, big and small, will provide services for the Council and the people of Auckland. I have every confidence in the ability of New Zealand based contractors to be competitive and innovative in this environment.

As a result of these benefits, I am often asked whether similar reforms will be rolled out in other parts of the country. Let me be clear, the Auckland governance reforms are the Government's specific response to a unique set of circumstances that led to a Royal Commission of Inquiry and a clear recommendation for change.

I'm not a fan of amalgamation for amalgamation's sake, and I don't see problems of a similar scale anywhere else in New Zealand.

Nevertheless, it has been pleasing to see councils in other regions taking a critical look at the effectiveness of their own governance arrangements in response to changes in Auckland. A recent petition from residents and ratepayers in the Nelson/Tasman region calling for amalgamation of the Nelson City and Tasman District Councils is an example of this. This reorganisation proposal has been received by the Local Government Commission, and I understand they will be looking to call for submissions shortly.

The second big job I have underway is a review of the planning, decision-making and accountability aspects of the Local Government Act 2002. This will focus on the transparency, accountability and financial management of local government.

The bill proposes to that councils provide in-depth information about their budgets, rates and activities in an easier to understand format. This ensures that constituents can hold their councils to account for decisions made, and that funds are utilised appropriately.

The bill also pushes councils to focus on core services. By core services, I mean those things that most people understand and expect their councils to provide, such as infrastructure, waste collection and public transport.

These amendments will also allow greater use of public-private partnerships in the construction and operation of water and wastewater treatment plans. It gives councils the option to extend the 15 year limit on water services contracts and joint arrangements with the private sector to a potential 35 years. This change will allow both public and private partners to realise long-term benefits.

The Bill also looks at councils' consultation processes, which I believe are unnecessarily onerous and complex. By removing red tape and other handbrakes on construction, I hope these proposed legislative changes will ensure more effective working relationships between the local government sector and industry.

The Local Government Act 2002 Amendment Bill is currently being considered by the Local Government and Environment Committee, and will report back in November this year.

My third job is the largest and most significant.

I want to produce next year a first-principles discussion document of the proper constitutional status of local government in New Zealand, how its proper function and structure should be evaluated, and how central and local government can better mesh both their decision-making and their work programmes to improve the service we provide in the communities we represent.

I have tentatively called this project "Smarter Government - Stronger Communities".

We need to clarify the role of local government and its relationship between central and local government. In my view, local government should not be seen as subservient to central government. To me, local government is a distinct tier of government, focused on a particular set of core services. Too often central government sees local government as a government department it can impose its will upon, with little or no consultation.

This discussion document will look at the problems and engage the public in a debate about the position of local government.

Some of the big questions that "Smarter Government - Stronger Communities" must grapple with include:
• Are we clear about why we have local government? Why and for whom does it exist?
• Which principles should guide which functions? What decision-making should rest with central government, and what should rest with local government, and, indeed, what should rest with individual citizens?
• How should local government be constitutionally established and protected, and to what extent?
• How do we ensure that we have stable, durable local government institutions while allowing communities genuine opportunities to change structural arrangements from below?
• Should central government actively monitor and intervene in local government, or is it better to enhance the ability of local ratepayers and voters to hold their councils to account?
• What would the outcome be if local government was a fully respected partner of central government? Would we need formal cooperation mechanisms like those in larger jurisdictions, or could we agree on some fundamental principles and just "get on with it" in a way that suits New Zealand?
• How can we build council boundaries, powers and governance arrangements that reflect local communities and, as section 10 of the Local Government Act 2002 say: "enable democratic local decision-making and action by, and on behalf of, local communities"?

This project is a huge task, taking two to three years. We'll further consider what the issues are by seeking public feedback on the discussion document, which I expect to release sometime next year.

Wearing my other hat - as Minister for Regulatory Reform - I am committed to addressing the high compliance costs hampering our economic growth.

I am absolutely committed to better and less regulation, essential to boost New Zealand's productivity growth, international competitiveness, living standards and potential.

The Government is also committed to reform work on the Resource Management Act, which has affected New Zealand's economic growth and productivity, and caused numerous frustrations for applicants.

I expect Dr Smith will explain this work in more detail during his address tomorrow morning.

My colleague, Maurice Williamson is also working on the the Building Amendment Bill which will speed up the building consent process and reduce costs.

To conclude, while there are concerns in the construction industry that councils are cancelling or deferring non-essential projects, we must remember that councils are under increasing pressure to keep rates and expenditure at a level acceptable to their communities.

As you will all know, the answers don't always lie in legislation. We can only do so much before we have to find more effective and efficient ways to operate ‘on the ground'.

It's also worth remembering that a sound business plan combined with lower construction and material prices means there is still opportunity out there for constructors and councils alike, so always keep those communication lines open.

I am pleased to hear that the New Zealand Contractors' Federation is looking to develop closer working relationships between local government clients, consulting engineers and contractors across the country.

I encourage the Federation to continue its work in identifying issues in the LG sector, and I hope you continue to work to find solutions through organisations such as Local Government New Zealand, INGENIUM and even by running suggestions to my office personally.

Thank you for listening to me. I'm looking forward to your questions and comments.