Can local community growth pay for itself? In other words, can economic growth itself pay for the community’s required infrastructure expansion (e.g. from revamped wastewater and drinking water networks to the proper provision of local amenities and safer roads)?
If the answer is no, then homeowners and renters alike – i.e. everyone, including yourself – are the ones who either directly or indirectly bear the growth costs mainly via property rates.
No wonder local communities can become vocal – and quite often successful – opponents of new housing developments and large tourist influx.
This self-funded growth conundrum is at the heart of the Productivity Commission’s recently released draft report on local government funding and financing.
Too often ratepayers in fast-growing communities throughout New Zealand struggle to bear the costs of new demand for infrastructure, while a fiscal windfall in terms of GST and income taxes flow directly to central government.
Even if – and it is a big if – additional property rates and residual user charges eventually end up covering the council’s initial growth expenses, it might take many years to happen. Meanwhile, current residents keep footing the bill.
To address the issue, the Commission recommends an array of incremental changes, from a stronger focus on targeted rates and user charges to greater flexibility on council debt limits.
On housing, the report supports the expansion of Special Purpose Vehicles to independently finance new infrastructure and the creation of central government grants rewarding new local building consents – both ideas long sponsored by The New Zealand Initiative.
On tourism, the report endorses introducing accommodation levies to help communities providing for incoming visitors – whose numbers can often be multiples of local residents during peak seasons.
These are all good first steps, but ultimately, for growth to pay for itself, local authority’s revenues must suffice to fund economic development.
As an example, communities facing fast-growing infrastructure pressures could be granted access to a share of GST and income taxes generated through local activity.
Alas, such a proposal was not endorsed by the draft report – although the Commission promised to investigate the issue further before releasing its final report.
For the sake of allowing growth to pay for itself, let us hope the Commission’s final recommendations recognise that councils must have skin in the game to join the growth game.