Local Government Funding Review Submission
February 15th 2019
This is only the introduction and the conclusion. Read the full submission here (pdf)
Over the last 30 years local councils have seen significantly increased demands being placed on their funding, organisational, and service delivery capabilities.
Councils have been able to increase rates and charges to fund some of those requirements, but that is being constrained due to the country’s aging population, with more ratepayers on fixed incomes, and due to the fact that New Zealand is operating a low wage economy, meaning the majority of wage earners are already living with household budgets under stress.
Many councils have joined the Local Government Funding Agency in an effort to obtain better borrowing rates. The LGFA website says ‘We provide investors with a new source of securities rated at AA+ by international credit ratings agencies’. Ratepayers expect the money they pay to go towards providing services in their area, not to be the source of a significant contribution to the development of Capital Markets for wealthy investors.
Already over $800 million dollars of taxpayers money is spent every year on paying interest on council borrowing, when it could (and should) be providing services and facilities for local communities.
There is however another funding option that has not been investigated by local government New Zealand or by individual councils.
In 2012 the International Monetary Fund published a lengthy report entitled the Chicago Plan Revisited.
Their conclusion was that governments should issue credit through their Central Banks for use to, for example, provide the country with funds for building assets.
The implementation of the mechanism would remove very considerable stress on government finances in that the 5 billion dollar saving in interest annually would significantly boost funding for difficult areas such as in health, education, and state sector salaries while the creation of Reserve Bank credit would provide funds necessary for things like investment in transport projects, water supply, wastewater treatment, forestry, in the regions and in environmental protection, to name just a few.
These investments could be made by granting no interest loans to local councils, and/or suspensory loans which would not require repayment. Water supply, wastewater treatment, and earthquake strengthening would be suitable candidates for this type of funding.
We urge you to investigate the possibilities, our references, and include those recommendations in your report.
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