Submission on Christchurch City Council
2020-2021 Annual Plan
This is only the introduction and the conclusion. Read the full submission here (pdf)
We have major concern about the enormous sum of ratepayers’ money that is being wasted annually in interest payments on the council’s debt.
The plan’s financial pages show estimated council debt of $2.2 billion.
They also show estimated interest on council borrowings of $89 million in the coming year, yet the community will have not one additional facility or service improvement to show for that expenditure.
The council’s capital works programme is outlined in the plan at $512 million, roughly 17% of which could be paid for out of revenue if the council was not paying interest.
The council, through its membership of the Local Government Funding Agency, and the Local Government Association, should be pushing for much better funding arrangements for capital works.
Instead, for instance, of the Local Government Funding Agency issuing bonds that are bought by the privately owned commercial banks and other investors at between 3% and 4% interest, the Agency should be seeking purchase of those bonds by the Government owned Reserve Bank at zero interest.
After all, the commercial banks create new money with which to purchase those bonds or make loans and the Reserve Bank can do the same. The difference is of course the massive saving in interest charges, and that the profit (if any) of the Reserve Bank would go back to the Government.
There would be no need for additional legislation to allow this proposal to proceed.
The Public Finance Act (1989) permits the borrowing of funds from the Reserve Bank of NZ on terms favourable to the public interest.
In fact, following the 2008 Wall Street crisis the RBNZ offered the major banks a five billion dollar credit facility to see them through their liquidity crisis. If the Reserve Bank can prop up the overseas owned banks then similar credits can and should be made for local government infrastructure projects.
In the face of the Covid 19 crisis the Reserve Bank has created $60 billion dollars to purchase government and local body bonds back from the banks and other investors that hold them in order to ensure there is enough ‘liquidity’ (read money) in the financial system. The Bank could instead purchase newly issued bonds directly, rather than investors ‘clipping the ticket’ along the way.
Instead of millions of dollars per year being wasted on interest, Christchurch ratepayers would pay the construction cost of projects only, rather construction plus interest, because the cost of interest would be zero. Additionally the risks associated with hedging and derivatives would be removed.
What I am suggesting would be a win-win situation. It’s been done before, right here in our own country. It’s just that we have granted private companies a licence under legislation to create new money (credit) for their own profit, and at our cost, and allowed them to take a strangle hold on the process.
The privately owned overseas banking companies that currently create the new money for councils to borrow, would be less happy of course. But that is not something that the council should be concerned about.
“The NZ banks' combined net profits after tax last year were approximately $6 billion dollars, much of which went out of the country to overseas shareholders. I have no problem with the banks charging commercial rates to commercial entities. However, charging such rates to non-commercial local bodies for essential public works is an anachronism and need not continue.
We realise also that your Council alone would have little success in demanding a reform of this system when policy is made by Government. However, as long as local bodies meekly accept this iniquitous situation, it will persist.
We would like to see the plan contain a commitment from council to work with the Local Government Funding Agency, the Local Government Association, and other local bodies to get the proposal for Reserve Bank funding at very low rates of interest for local body capital works adopted by Government.
Verbal Supporting Submission
Lawrence McIsaac - Waimakarere Candidate
Thank you for the opportunity to present some comments to support our written submission.
This council is proposing to spend about $90 million dollars of our money -that's mine, yours, and the other ratepayers in the district - on paying interest to private investors on money the council has borrowed.
When ratepayers pay their rates bills they expect to get council services in return, not see their hard earned dollars being shovelled out the council door into the pockets of rich investors.
That $90 million dollars could have produced a rates reduction this year rather than a rates increase, or it could have gone into better council services, roading, free buses, or a host of other things to benefit ratepayers.
So how could that have been achieved?
Did the council approach to government or the Reserve Bank with a proposal to source its funding requirements direct from the Reserve Bank at zero interest as our submission suggests, and if not why not?
Did the council approach the government to discuss Social Credit’s proposal for the government to pay the latest rates bill for everyone in the council’s area as part of the Covid-19 recovery package?
We all know that the Reserve Bank is in the process of creating $60 billion dollars in new money.
So why is the council pursuing business as usual rather than exploring these ideas which the former chairman of the council’s finance committee, Raf Manji, has been writing about for some time?
Our submission lays out the basis for councillors and council officers to research and understand the process of money creation along with authoritative references from such institutions as the Bank of England, the International Monetary Fund, and our own Reserve Bank, as well as examples of where it has been used previously to benefit New Zealanders.
Has any councillor or council officer undertaken any research on that and if not why not?
We are in exceptional economic times. Business as usual is no longer acceptable.
There is a sound, well supported basis for the proposals in our submission. Leading economists like Ganesh Nana, Dr Geoff Bertram, and others support it.
The Reserve Bank has already proven it can create new money.
What is required is for the council to take note of those two facts and act.
The decision to do so could achieve for ratepayers the greatest service the council has ever provided.
That is, the use of ratepayer money, all of it, not just some of it, to provide facilities and services.
We look forward to you taking up that challenge.