Caution on council budgets

The comments from Dunedin Mayor Dave Cull that the city is in "a very agreeable position'' as it considers its budget for the next financial year is both heartening and concerning.

Dunedin, despite income over many years from council-owned companies that must be the envy of many districts, has endured hefty rate increases along with a hefty debt burden.

Some of this, of course, can be blamed on the expensive and, as it has transpired, valuable stadium.

But the council overspent in various ways, both on projects and in the way it was run.

As a consequence, the ratepayers have, and are, paying the price.

Dunedin could once pride itself on the relatively low level of its rates, especially important in a centre with low incomes and many elderly.

Although most councils face their own rates issues, and rates just about everywhere have outstripped rises in wages and benefits, Dunedin's position has deteriorated markedly.

The good news is the council has reduced debt by $20 million and the starting point for the rates debate this year is a 1.5% increase, certainly much lower than at the start of most budget rounds.

Good efforts, and some tough decisions, have been made to promote efficiency and reduce costs.

But it also appears insufficient credit is being given to falling interest rates.

This lowers the costs to the council and helps the bottom line. Just imagine if interest rates were rising.

This would be blamed prominently as a major reason for rising rates.

Repaying debt has helped reduce interest costs, a figure of $2.8 million being cited.

This is a process that must continue.

It should be accepted as well that the city cannot stand still.

Scorching the earth will not help the city prosper nor make it an attractive place to live.

Spending must go on, and shrewdly targeted it is beneficial.

While there are encouraging signs of life in Dunedin these days, the city needs to build on these.

No-one expects, and few might want, rapid growth.

But Dunedin remains vulnerable and cannot go backwards.

Dunedin is also susceptible to expected sea-level rises and it is prudent to begin studies on safeguarding South Dunedin.

That area of town, packed with residents, businesses, schools and infrastructure, is Dunedin's elephant in the room.

What is disconcerting, however, is the impression - despite the mayor's caution 3% was not a target - that a 3% rise in rates would be satisfactory.

That, after all, is the self-imposed limit on the council.

But both the good fortune in lower interest payments plus the fact this figure was set at a time when inflation was expected to be in the Reserve Bank's 1% to 3% intended range should be noted.

There are now fears of deflation and consumer price inflation ended 2015 at just 0.1%.

Savers are earning less on their deposits and a 3% rates rise is now well above inflation.

Wage increases, on the whole, are well below that figure.

Noted, too, should be years of rates rises well above inflation and the compounding effect of that.

Last year's increase, for example, at 3.8%, broke the 3% cap.

Already, proposed extra spending could push the rates increase close to 3%.

Further pressure will come from the public and from all sorts of worthy spending options before rates are set in the middle of the year.

Ratepayers and residents should be wary, too, of increased charges for council services.

They are clearly an impost on citizens and can, in part, be a backdoor way of avoiding higher rate rises.

There are dangers councillor and staff complacency on council spending is emerging on the back of improvements in the underlying financial position.

Intense pressure must be maintained.

A little here, a bit there, and soon the rates are steadily rising once again.

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