Dear Prime Minister

Local Government Bill

The Local Government Forum was established in 1994 as a pan-industry group of business organisations, with the objective of promoting greater efficiency and effectiveness in the local government sector and to contribute to policy issues affecting that sector [1]. It is in this context of efficiency and effectiveness that the undersigned Chairpersons and Presidents of the organisations represented by the Forum are writing to you in relation to the Local Government Bill.

As you are aware, the existing legislative framework for the functions and powers of local authorities is set out in the Local Government Act 1974. The Act is cumbersome, complex and overly prescriptive, and over the years it has been made worse by numerous amendments. We agree with the Government, Local Government New Zealand (LGNZ) and others that the Act is in great need of reform and should be replaced.

However, we are deeply concerned about the overall direction and detail of the Local Government Bill. Instead of a first-principles review of the functions, powers, and funding of local government, involving all stakeholders, what eventuated was a review that was the result of a close 'partnership' between the Government and LGNZ. There was no meaningful consultation or engagement with those who pay the bills, including business ratepayers (who pay about 50% of rates nationwide), at the critical policy development phase.

While businesses and ratepayers were able to comment on a public discussion document last year, it seemed to us and other submitters that the Government had decided in advance the direction and much of the detail of the reforms. Despite the vast majority of non-local authority submissions being strongly opposed to the discussion document's proposals, the Government proceeded with its preferred policy in the form of the Local Government Bill. In a meeting last year we asked the previous Minister of Local Government if she could identify any changes that were made in response to our submissions. She was unable to.

Apart from the lack of meaningful consultation, what are the business community's key concerns about the Bill?

The Bill has a very wide purpose statement encouraging local authorities to actively promote social, economic, environmental, and cultural well-being. In the Forum's considered view, this would diminish the importance of economic efficiency and fiscal discipline, while encouraging minority pressure groups to put pressure on councils to increase the scope of their activities. Meanwhile, the Bill's broad power of general competence would give local authorities a powerful tool to engage in activities better carried out by the private and voluntary sectors, and/or central government agencies.

While LGNZ claims that in practice the power of general competence would not result in councils doing more than they currently can under the prescriptive Act, we have little confidence in their assurance. Already many councils have moved far beyond their core role of ensuring the provision of genuine public goods and services, including appropriate regulation. The Forum's view is that the Bill would make it easier for local authorities to do more, and the wide purpose statement will encourage them to do more – the combination of these two key elements in the Bill would, in the view of the Forum, result in a significant increase in local government spending. In addition, the Bill would give regional councils significant new freedoms, which in our view would result in conflicts with territorial authorities, increased bureaucratic structures, and the duplication of activities already undertaken by cities and districts.

Meanwhile, there has been no consideration of the funding implications resulting from a more empowering Local Government Act. We consider that funding issues must be considered, particularly if councils are to be encouraged to enter into activities such as promoting 'social well-being'. Nor has there been any robust analysis of the costs and benefits of a more empowering Local Government Act, particularly in the areas of economic impacts and business compliance costs, where the quality of the Bill's Regulatory Impact and Compliance Cost Statement is among the poorest Forum members have seen attached to any policy proposal or piece of legislation. LGNZ has indicated that the Bill will lead to increased compliance costs, but our concerns about the impact of the Bill on business and the economy are much wider.

The Bill reduces the importance of Council-Controlled Organisations operating efficiently as successful businesses and provides increased impediments for local authorities wishing to divest or transfer control of assets and services that would be more effectively and efficiently operated by the private sector. There is also a reduced emphasis on financial disciplines in planning processes and accountability documents and a move away from objective output-based measures towards subjective 'desired outcomes'.

The Bill contains arbitrary and extraordinary specific restrictions on local authorities selling parks, exiting delivery of water supply and wastewater services, and from charging membership fees for libraries. These are in contradiction to the stated greater freedom to be accorded to councils and seem to be ideologically driven rather than based on sound public policy. Also lacking sound public policy justification are special consultative and electoral arrangements for Maori, and specific funding and financial policies for Maori land.

Furthermore, there is the proposed abolition of the non-resident ratepayer franchise, which is seen as an attack on the fundamental democratic right of 'no taxation without representation'. LGNZ also shares the business community's opposition to this proposed amendment.

We do not see the additional consultative processes proposed in the Bill as ameliorating these problems. Evidence has shown that consultations on council plans are often a meaningless 'sham' (a term that has been used by the Auditor General to discuss local authority consultation).

So, what is the Local Government Forum's alternative solution?

We believe that our solution to the Bill is straightforward and sensible. We recognise that the 1974 Act is overly detailed, cumbersome and prescriptive and that modernisation and simplification is needed. However, instead of the approach favoured by the Bill prepared by the previous Minister of Local Government, we believe the roles and responsibilities for regional councils and territorial authorities should be clearly set out in the Act (the 'what' of local government). How local authorities go about fulfilling their roles and responsibilities would be left up to them (the 'how').

What is required now is for the current Bill to be deferred so that a proper first principles review of local authority functions, powers and funding can be undertaken. This was the approach recommended by the Government's own Ministerial Panel on Business Compliance Costs. Such a review must involve all stakeholders and include representatives from local and central government, business and ratepayer groups. LGNZ has said that it is in no hurry for the Bill to pass, acknowledging that it is important for it to be 'got right the first time' and that in any event the earliest many of the Bill's provisions could be implemented would be 2004-05.

The previous Minister of Local Government stated in May 2000: "before the Government could consider giving local authorities the power of general competence, there must be a far greater level of sign-up from those who, at the end of the day, pay the bills". This condition has not yet been met.

The Forum appreciated the opportunity to have its submission re-heard by the new Local Government and Environment Select Committee on 3 October. To be provided with this opportunity was very important, as only three members of the new Committee have been retained from that which was in the midst of considering the Bill prior to the election. While we remain grateful for that opportunity, we have been concerned by recent statements made by the Minister of Local Government that the Bill is likely to proceed largely unchanged, despite the issues raised by the vast majority of submitters who were opposed to the Bill.

The perception that the Bill appears to be proceeding with undue haste has generated strong feeling within the wider business community and among ratepayer groups. This feeling has been manifested in the response to a petition organised by the Forum, which gathered over 5,500 signatures in less than four weeks, excluding more than 1,000 that arrived at our respective organisations after the petition was tabled in the House on 16 October. We look forward to Parliament's careful consideration of its recommendations.

The Government stated in the Speech from the Throne at the beginning of the current Parliament that it sees "its most important task as building the conditions for increasing New Zealand's long-term sustainable rate of economic growth". Local government is a major player in the economy, and it needs to be focussed on its core roles and responsibilities, and to undertake them efficiently, if it is to contribute to the achievement of the Government's goals. As it stands, in the Forum's view the Bill is clearly negative for growth.

Forum members would be available to meet with you to discuss the Bill and we would welcome the opportunity to do so.

Yours sincerely,

Mr Douglas G Marsh President Business New Zealand

Mr Tom Lambie President Federated Farmers of NZ

Mr Peter Berg President NZ Forest Owners Association

Dr Murray J Horn Chairman NZ Business Roundtable

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