MEDIA RELEASE

Myths Debunked by Facts Says Local Government NZ

Wednesday 15 September 2010

Councils are spending less, as a per centage of GDP, and as a per centage of total public expenditure, a report by Local Government New Zealand reveals.

Mythbusters: examining common assumptions about local government in New Zealand shows local government expenditure has remained quite static, as a proportion of GDP, at around 3.1 per cent, since local government reforms in 1989.

The publication follows the release of quarterly statistics on local government expenditure which shows councils recorded an operating deficit of $20 million in the June quarter.

This represents a $81 million drop since March, which recorded an operating deficit of $101 million. This is the smallest quarterly deficit since March 2008. The statistics also show employee costs have plummeted from $345.4 million in June 2008 to $64.1 million in June 2010.

Mythbusters demonstrates while local government expenditure as proportion of total public expenditure has increased slightly since 2003, it has plummeted in the last 20 years, from almost 15 per cent to around 9 per cent in 2007.

LGNZ President Lawrence Yule says Mythbusters unveils the facts behind commonly misunderstood assumptions about how councils spend money, and operate.

Mythbusters points out flaws in the way the Reserve Bank calculates the effects rates increases have on inflation, concluding the measurements techniques the bank uses are flawed.

Mr Yule says Reserve Bank Governor Alan Bollard’s persistent comments about rates increases being inflationary are ill advised.

New Zealand’s inflation rate reflects changes in the CPI which measures changes in the price of goods and services over time.

“When assessing change in price economists make sure they compare like with like. As the nature of goods and services change – for instance new cars have more features like airbags, adjustments must be made to the CPI.”

This approach isn’t adopted for local government says Mr Yule.

“Our concern is this approach over estimates local government’s contribution to the CPI. So no attempt is made to identify changes in service quality or quantity, such as a council moving from pumping raw sewage into the sea to a fully treated effluent system for waste water. The additional cost is treated as inflationary.”

The report quotes the New Zealand Institute of Economic Research as saying “the failure to make the adjustments for changes in the quality of services provided by local government is likely to result in over estimation of the price movement in local government services funded via rate.”

Mythbusters also debunks the myth about councils’ spending on non-core activities pushing rates up. In fact, on average, councils spend just 18 per cent on community services, compared to 44 per cent on transport and 29 per cent on the three waters; storm, potable and waste.

Mythbusters debunks 20 myths about local government and can be found in full on www.lgnz.co.nz.

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