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Howard's End: Lessons From The US For Local Govt.

New unfunded mandates from central government will likely force district and regional councils to spend more ratepayer's money in social and environmental areas as part of two central government reviews of laws governing them. And Local Government Minister, Sandra Lee, has refused to rule out new taxes such as a poll tax or local GST as new ways to finance councils. John Howard writes.

The government is reviewing the 1988 Rating Powers Act about the ways local councils finance themselves. And last month it issued a policy statement to review the 1974 Local Government Act which will include the future responsibilities councils will have. The government says it intends to change these laws over the next two years.

While refusing to rule out new taxes for councils, Sandra Lee has indicated that rates would remain "the principal revenue base."

But local body leaders have complained for years that since the 1989 local body amalgamations, more than 60 functions had been placed upon them which were previously carried out by central government. Now, central government wants them to become even more involved in responsibility for social and environmental areas they say.

In the United States starting in 1991, thousands of states, counties and cities were placed in a similar position and were struggling with how to pay for, and comply with, mandates imposed by the federal government.

They argued that unfunded mandates had stripped local people of their right to representative government and self determination at the state and local level.

Not unlike New Zealand, US local councils faced budget problems. Many of them came close to bankruptcy and credit ratings were lowered to almost junk bond levels.

US Federal Government mandates were essentially forcing them to spend more than necessary on everything from welfare, to the environment, to road building with a complex web of laws binding them together with the federal treasury.

The problem was that any Federal Government money US councils received came with strings attached because they had to abide by costly rules and regulations which pushed up local spending. This meant higher budget costs for the local councils which, in many cases, pushed them close to or over the financial edge.

Moreover, many federal laws imposed on the states, counties and cities were imposed withour careful consideration of the impacts on local economies, local productivity, property rights or even national competitiveness.

The Federal Government even threatened to withhold money unless the local authorities acquiesced to federal wishes.

US local leaders reasoned that citizens of local communities elect local officials to direct the future of their areas based on the priorities established by those closest to the problems and the challenges.

The answer was simple. Any central government law that creates a mandate should also provide the funds necessary to pay all of the compliance and operational costs associated with the mandate. Furthermore, any law or regulation which impacted on local communities must be fully debated including its impact on local economies, local productivity, property rights and national competitiveness.

Last weekend, Gisborne set the scene to come with a protest march of some 3,000 people angry at the rates rises of a council that cannot raise the revenue it needs.

Gisborne Mayor, John Clarke said, " The guts of it is that Government has withdrawn from local areas and placed a whole lot more social responsibility by default on councils who simply cannot afford to do it."

Should New Zealander's be considering new forms of local taxation like poll taxes, GST or even a new local income tax as a first resort? Or should central government simply be paying its way by properly funding the mandates it is imposing on local government?

Our central government coalition would be well advised to recall the fate of former British Prime Minister Magaret Thatcher when she made similar poll tax proposals. She forgot a basic political lesson that in a democracy, a legitimate government is empowered by the consent of the governed.

The coalition had better learn that lesson or it may become the one-term government that it's trying so hard not to be.

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