Speech to Local Government New Zealand 2018 Conference

Thank you very much for having me here today. I know the Prime Minister would have loved to be here, but I’m sure you can all appreciate she’s somewhat preoccupied at the moment.

She did ask me to relay a message to you all. It reads:

“I’m sorry I couldn’t make it today. I know you’ll be hearing from several Ministers over the next few days, so I’ll keep my message short!

“Having met with many of you as I’ve travelled the country and with your National Council at our first Forum in May, I’ve seen the level of passion you have for the work you’re undertaking and the huge amount of leadership within local government. You are tackling difficult local and increasingly, national issues, on a daily basis. That is why I am so pleased to see the partnership we are building. 

“I have said many times before - the ambition that this Government has for New Zealand, and the vision I know that you have for your communities can’t be achieved by acting alone.  

“We’ve all agreed on what we want our priorities to be - climate change, water, regional development and housing. To make progress on those at the local and national level we need a strong relationship and I’m committed to that, as is our entire Cabinet. 

“I’ll be meeting with President Dave Cull regularly to talk about those issues and review progress against the things we agreed to do at the Forum, but I also want to hear from you about any other issues you may be facing. And that includes if the issue is in fact, us. Holding ourselves to account is the only way we will move forward. 

“For now, enjoy your time at the conference, and I look forward to seeing you all again very, very soon!”

I want to start off my address by adding some extra words from her – which were in the Speech from the Throne outlining the purpose of the Coalition Government’s plan:

“New Zealand has a great opportunity now to become a kinder, more caring and confident nation. This will take courage. We will have to do things differently. But it is possible, if we include each and every person, in each and every town and region of New Zealand.”

The Government recognises that we are facing some major challenges, and that we can’t tackle these challenges all on our own. But in facing these challenges we are also presented with opportunities. That’s what I would like to talk to you about today.

I want to discuss how local and central government can work together on the challenges that we face, through a renewed relationship that ensures better outcomes for all New Zealanders.

For us in central government, this means doing things differently and measuring success differently.

Previous governments have measured success in terms of economic growth – simple measures such as GDP. But while measures like GDP remain important indicators of economic activity, they do not paint a full picture of people’s wellbeing or living standards.

Many of our international peers have been envious of the GDP growth New Zealand experienced in recent years. But we’ve also seen increases in statistics that suggest that growth did not result in real tangible improvements to many people’s lives.

For example, our levels of homelessness have been described as the worst in the OECD; the number of children living in poverty is not something we can be proud about, and tens of thousands of our young people are not in employment, education or training. This is not success.

We believe that economic growth is a means to an end, not an end in itself.

We are taking a broader view of success, by looking at how we improve the living standards and wellbeing of all New Zealanders.

By placing wellbeing at the heart of what we do, we will be able to measure the extent to which our policies and investments are making real improvements to peoples’ lives.

As I’m sure many of you are aware, the Treasury is developing the Living Standards Framework (LSF). The LSF uses a set of indicators for the current wellbeing of New Zealanders, and for their future wellbeing, based on the stock of the four capitals which determine intergenerational wellbeing: Financial/Physical, Natural, Human, and Social.

This work will underpin our world-first Wellbeing Budget in 2019. This Budget will be the first major step for the Government in applying a wellbeing framework to strategic decisions.

Wellbeing is not only driven by central government actions. We recognise the crucial role local government plays in maintaining and enhancing New Zealanders’ wellbeing through the services, infrastructure, regulations, and place-making you provide to your communities.

This was factored into the original Local Government Act 2002, by requiring local government to focus on promoting the social, economic, environmental, and cultural wellbeing of communities, in the present and for the future. However, in 2012 the previous Government removed these four well-beings from the Act, arguing that local government needed to be ‘streamlined’.

The Local Government (Community Wellbeing) Amendment Bill, which is currently before Select Committee, seeks to restore the wellbeing needs of communities to their rightful place as a central focus of Local Government decision-making, recognising the important role local government plays in ensuring people’s wellbeing.

There is an obvious overlap with the four capitals of the Treasury’s LSF, meaning that both local and central government will soon be working with a closely aligned core focus on improving the wellbeing of our people.

Complementing this alignment, we’ve also built a strong foundation for a productive and positive working relationship. I was very pleased to be able to attend part of the Central and Local Government Forum back in May, where we agreed that we will work together under the principles of Respect, Reciprocity, and Trust.

This is extremely important for us to be able to address the issues in which we all have a stake, such as climate change, infrastructure, regional development, water and housing.

Tackling these problems will require a coordinated approach at all levels.

The relationship cannot be Wellington telling you what to do. Rather, we want to work with you to help deliver local solutions to local issues.

For example, with our Provincial Growth Fund we aren’t taking a top-down approach. We aren’t interested in coming to tell you what you’re good at and what you should invest in.

The ideas are better generated from the ground up. We want you to tell us what would benefit your region. That’s the only way such an initiative will work.

But we understand that for local government to be in a position to provide local solutions, you need the ability to finance them.

We know there has been a huge increase in demand for investment in infrastructure all across the country.

The previous Government did not recognise the scale of development, maintenance and replacement of infrastructure needed to support a rapidly growing population and a surge in international visitor numbers.

Infrastructure investment plays an important role in increasing housing affordability, by allowing for new developments to take place and catering for increasing demand on existing systems.

We recognise there are some constraints that are preventing local authorities from effectively funding their obligations and from financing community expectations. Some of these can be described as ‘hard’ constraints, while others may be ‘soft’:

  • Hard constraints could be regulatory or legislative barriers that prevent local authorities being able to fund or finance infrastructure;
  • Soft constraints could be factors that influence the behaviour and practice of local authorities.

Addressing the challenges of infrastructure funding and financing (IFF) is a key pillar of the Urban Growth Agenda (the UGA). The UGA is an ambitious and far-reaching programme designed to improve housing affordability for New Zealanders by addressing the fundamentals of land supply, development capacity and infrastructure provision.

IFF is specifically about reforming the existing system to provide a broader range of funding tools and mechanisms, as well as creating alternative financing models. The underlying question is whether there are funding or financing constraints hindering the timely rollout of infrastructure.

Efficient construction of infrastructure in support of urban developments is, of course, a key determinant of the rate of land supply and therefore housing affordability.

Different councils face different issues, yet affordability, availability of funding streams, and appropriate pricing are key to any solution. We acknowledge that some high-growth councils are up against their debt limits, so financing is the key constraint. That’s why we are also exploring the potential for diversifying the available sources of project financing.

Project financing requires a dedicated revenue stream to service that capital; a revenue stream derived from charges for the provision of the infrastructure.

The ability to identify and charge beneficiaries influences the viability of those projects, and so provides an important signal as to which projects should proceed and when. So, there is an efficiency element to this work as well.

Central government will be exploring ways to get past funding and financing barriers. Yet we cannot do this in isolation. This is about partnering with local councils to ensure that you have the tools to provide the much-needed infrastructure for your communities.

Ladies and Gentlemen, our commitment to this issue is demonstrated by the fact that it is contained in the founding document of the Coalition Government.

The Coalition Agreement between Labour and New Zealand First says that we will hold a public inquiry “a decade after Shand” to investigate the drivers of local government costs and its revenue base.

It has been more than ten years since the Shand inquiry reported to Government in 2007. Many of the pressures recognised back then have remained or grown. Rates rises have outpaced increases in other indices measuring average costs and incomes.

We understand that cost pressures are mounting. We understand that Councils are limited in their ability to further finance infrastructure investment.

In recent years, demand for ongoing capital investment has been generally increasing due to the development, maintenance and replacement of the infrastructure required to support a growing population and more international visitors.

We have recognised this and have already taken action to try and take some of the pressure off you.

We know that we must work together, invest in the infrastructure your communities need.

For example, you will all be aware of the consultation undertaken by Tourism Minister Kelvin Davis on an International Visitor Levy. Tourism has been a success story for the New Zealand economy. But our infrastructure is struggling to keep up with this increased demand.

The Government Policy Statement on Land Transport released by Phil Twyford last month introduced new targeted and enhanced Funding Assistance Rates to reduce ‘local share’ funding requirements for high-priority transport projects that will give effect to GPS priorities of safety and access.

There is more we can do to help you, and to get a better understanding of what needs to happen at a policy and regulatory level to ensure local – and central – government can provide the infrastructure that our communities require, in a way that doesn’t put continuous upward pressure on your rating bases.

On Monday 9 July, Cabinet confirmed the terms of reference for an inquiry into local government funding and financing, to be carried out by the Productivity Commission. The work will begin shortly.

We believe that the Productivity Commission will bring independence and high quality analytical capacity to this inquiry. It will build on the Commission’s previous inquiries into better urban planning, housing affordability and local government regulation.

The Commission’s report will not be ignored.

The terms of reference will enable the Productivity Commission to conduct a broad review of the drivers of increasing costs and expenditure. The Terms include investigation into:

  • Cost and price escalation for services and investment, including whether this is a result of policy and/or regulatory settings
  • Current frameworks for capital expenditure decision making, including cost-benefit analysis, incentives and oversight of decision making
  • The ability of the current funding and financing model to deliver on community expectations and local authority obligations, now and into the future
  • Rates affordability now and into the future
  • Options for new funding and financing tools to serve demand for investment and services. This will appraise current and new or improved approaches for considering efficiency, equity, affordability and effectiveness, and how the transition to any new funding and financing models could be managed
  • Constitutional and regulatory issues that may underpin new project financing entities with broader funding powers, and
  • Whether changes are needed to the regulatory arrangements overseeing local authority funding and financing.

This analysis will inform an assessment of current funding and financing tools available to councils to meet costs, alongside consideration of current and alternative tools. Rates affordability will of course be an important part of this.

The Commission will also be empowered to investigate the regulatory and institutional frameworks that might underpin alternative financing tools.

The terms of reference are set up so the Commission’s work can receive and complement existing programmes, particularly the Urban Growth Agenda and the Three Waters reviews – you’ll hear more on Three Waters later in the conference from the Minister for Local Government, Nanaia Mahuta.

The full text of the terms of reference will be made public on the Productivity Commission website within the next few days.

In conclusion, we have a lot of work ahead to overcome the challenges before us. The Coalition Government recognises that you are all facing various obstacles to progress, but we are working hard to remove them.

I am very pleased that we have established a solid foundation for a renewed working relationship between local and central government.

What’s more, our goals and aspirations are aligned around improving the wellbeing and living standards of all New Zealanders.

We have made a very positive start, and I’m optimistic about the prospects for our relationship going forward.

I look forward to continuing to work with you all.

Thank you.