Councils urged to restrict spending

With local authority rates rising last year at three times the rate of inflation, a business-oriented lobby group says ratepayers expect more frugality from councils this year.

Local Government Forum chairman Charles Finny said that, as councils prepare their 2010 draft annual plans, they need to take heed of Reserve Bank Governor Alan Bollard's message for government to unwind its fiscal stimulus.

Yesterday Dr Bollard held the Official Cash Rate at the all-time low of 2.5 percent and said: "As growth becomes self sustaining, fiscal consolidation would help reduce the work that monetary policy might otherwise need to do."

"While the Government is the primary target of Dr Bollard's message, he has previously remarked on the impact of local government rates on inflation," Mr Finny said.

"According to Statistics New Zealand's local authority statistics, for the year to June 2009 local government operating spending was up 9.3 percent and over a longer time period spending was up over 55 percent between 2003/04 and 2008/09.

"This spending growth has an inevitable impact on rates, with rates revenue up 5.5 percent in the year to June 2009 and almost 45 percent between 2003/04 and 2008/09. These rates increases suck money out of ratepayers' pockets and this has been most unwelcome to businesses, farms, and residents facing tough economic times."

Statistics NZ reported that local authority rates rose 5.6 percent in the September quarter -- the period councils normally strike new annual rates levels -- and the annual increase in the consumer price index was 1.7 percent. At the end of December annual inflation was 2 percent.

Mr Finny said persistently large rates increases had helped keep non-tradable inflation too high for the Reserve Bank's comfort and kept monetary policy tighter than it would otherwise need to be.

"Local government blames unavoidable infrastructure cost increases for large rates increases but it is telling that employee costs have increased at the same rate of total operating spending (9.3 percent in the year to June 2009 and 51 percent from 2003/04 to 2008/09).

"With the numbers of people employed by councils up around 20 percent over the past five years, this indicates not only continuing growth in employee numbers but also ongoing growth in remuneration rates at a time when most people out there are having to tighten their belts."

While some councils should be commended for showing restraint, "ratepayers will be expecting frugality and prudence to be much more widespread this year".

The Local Government Forum's members include Business New Zealand, the Electricity Networks Association, Federated Farmers, the Business Roundtable, Chambers of Commerce and Retailers' Association.