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Wednesday, 22 April 2009

Local government rates ballooning

An interesting NBR article about rate rises. Do we need some mechanism to stop there uncontolled spending? How could we do this?

Allan Swann | Monday March 16 2009 - 01:32pm

Local government rates are up 8% for the quarter on this time last year, well above the rate of inflation, to compensate for increased costs and reduced returns.

Proving that the public sector isn’t entirely immune from the effects of the global slowdown, figures released today by Statistics New Zealand show that councils have hiked rates to compensate.

Revenues were up $115.1 million when comparing the 2007 December quarter to 2008, a boost of 7.1% on the back of an added $72.3 million in rates (up 8.1%).

New local government minister Rodney Hide has made it clear he intends councils to focus on core activities and cull any luxuries, and has also pushed for the capping of rates at the rate of inflation – or less.

Auckland City Council, for example, has allowed for for “affordable progress” in its 10 year budget plan, using the council's rate of inflation as a marker, meaning the average ratepayer will see their rates climb at a compounded rate of 3.8% for the ten years.

However, Statistics New Zealand has pegged the central price index increase at 3.4% from December 2007 to 2008, meaning most councils are increasing their rates above this figure.

The Royal Commission on Auckland Governance has also been factoring rates in to its agenda.

Total local government expenditure in the December 2008 quarter increased by $125 million compared with the same quarter in 2007, which the report attributes to increases across all expenditure categories.

Employee costs were also up compared to the December 2007 quarter, growing by $38.3 million, or 10.9%.

Government grants and subsidies also added $55.1 million (up 28.5%, regulatory income and petrol tax was down $2.1 million (2%) and investment income was down $14.6 million, or 13.6%.

Cost cutting is expected to get more vicious as several larger councils face the double whammy of increased costs, combined with increased expenditure surrounding the Rugby World Cup.

Auckland City Council has already committed to raising a further $6.9 million from rates, which would require additional rates increase of 0.4% for 2009/2010, 1.0% for 2010/2011, and 2.6% for 2011/12.


trev said...

Of course local rates are ballooning - have been for decades and unless the basis for capital provision for infrastructural projects is changed the rate
of rate increases will continue upwards. What Rodney Hide is intending will not solve the transport woes of our nation - his solution is based on playing politics rather than addressing the need to change the funding
mechanism. Perhaps he could tell NZ what happens to rates if, as could be the case, inflation turns into deflation - would local authorities then be forced to return 'money' to the ratepayers at whatever the rate of deflation
Is change needed simply too simple for minds mired in complexity to
In simple terms all that is needed to provided the 'money' needed is an interest free credit facility issued by a properly constituted entity set up
through the auspices of our democratically elected representatives. When a
train or bus or roadway is needed then the local authority submits a
proposal which is considered under an established and agreed set of
criteria, a contract is negotiated and the 'money' in the form of an
interest free advance is created. The project is done and out of the revenue stream the project generates the credit created for the project is repaid and cancelled.
No political involvement required, just a simple commercial transaction within a set of rules and guidelines which protects the interests of all the
parties involved. Compare that with the complexity around
the present debacle over transport and other essential infrastructure.

Steve Baron said...

Didn't Hitler try that to fund the second world war? How did it go there?

trev said...

Hitler used a mechanism to provide capital (money) to build his war machine - The same mechanism has been used over the past two decades to provide the capital (money) used by the finance industry to build their particular empire.
That mechanism creates money in the form of interest bearing debt debt and is the primary driver of the inflationary process that has been a millstone around the neck of economic activity for near on a century.
Hitler's use of the debt as money mechanism for his purposes is paralled in today's use of the debt as money mechanism by those who own and operate it for their purposes.
If Hitler had used an alternative mechanism that injected purchasing power into the economy debt free and used the 'money' thus created to build schools, hospitals and essential infrastructure history would have been writ somewhat differently.
The reality is that the power conferred by the ownership of the money (debt) mechanism means that any proposals to change it to one that actually works for all the people has been and will be rubbished as 'cranky' thinking.
An interest free credit facility to provide funding for the essential infrastructure required to meet the needs and aspirations of all the people engaged in economic activity within society is neither cranky nor outside the realms of possibility - given the repeated crisis of the past few decades a new approach/mechanism is about 315 years overdue.

Steve Baron said...

The fact of the matter is that when governments print too much money that causes inflation. Why would your suggestion not cause inflation too?

Anonymous said...

C'mon Steve - you know the debt mechanism was an accident of history and it has taken about three hundred years for economists to start to realise that the cause of the great depression and the current crisis have the same commonality e.g. the debt mechanism established in 1694 which creates money as interest bearing debt.
The term printing money has little relevance to anything unless the term 'money' is explained in the context of the action or policy being implemented. The same applies for 'cash' - what is it and where does it all come from and in what form!
The current crisis has exposed the falsity of the theory, subscribed to by Bill English, Dr. Michael Cullen, Don Brash and I assume also by the current Reverse Bank Guv, Alan Bollard, that all banks actually do is lend their depositors funds. Well if that were indeed the case then where has all the money, up to 30 times the equity base of some banks, come from, in what accounts was it deposited and from whose accounts has the 'money' lost been taken?
The old cry of 'printing money' is admission of a failure to understand the process of debt creation and the myriad problems that have accumulated through persevering with that mechanism as the monopolist foundation of virtually all economic activity around the globe.
I pose the question as to why every economy in the world with left, right or centre governments are in the grip of an economic meltdown? You would expect at least some of those administrations would have within their ideology at least a semblance of a solution to the fundamental issue which is belatedly being recognised as having its genesis in the debt system. But no, all of them are running around like possums in the headlights trying to find solutions within the same parameters that the crisis originated out of.
Until the issue of virtually every unit of purchasing power being created and injected into the real economy as interest bearing debt is addressed and a new unit of 'money' is created that does not put every person on a pathway to penury then the current crisis will be a forerunner of the next one, as was the great depression of the 1930s.

Steve Baron said...

Be they banks or private individuals lending money, the will still expect a return on their investment. That return is the interest rate they charge otherwise why would they bother to loan the money? Are you suggesting that the charging of interest on all loans should be abolished?