New Zealand: Local government seeks new funding sources – again

Brief Counsel

Local Government New Zealand (LGNZ) has released a discussion paper seeking new funding sources to reduce its reliance on general rates.

It has made the argument many times over the years but says the need for change is becoming more urgent given the dual impact of an ageing population and galloping infrastructure costs.

Submissions are due by 27 March 2015. They should be sent to

A heavy duty effort

LGNZ assembled a heavy duty working group chaired by Auckland Councillor and former Rodney Mayor, Penny Webster, to guide the preparation of the discussion paper.

Other members were: Michael Barnett (Auckland Regional Chamber of Commerce), Peter Bodeker (Otago Regional Council), Mark Butcher (New Zealand Government Funding Agency), Rob Cameron (Cameron Partners Ltd), Nick Clark (Federated Farmers), Adam Feeley (former SFO head, now on the Queenstown Lakes District Council), Dr Oliver Hartwich (The New Zealand Initiative), Raf Manji (Christchurch City Council), Chris Ryan (Waitomo District Council), Professor Claudia Scott (Victoria University), Stephen Selwood (NZ Council for Infrastructure Development) and Phil Wilson (Auckland Council).

A big battalion was needed as this is a battle local government has fought many times, as the paper acknowledges, saying:

"Ever since its establishment in 1842, the funding of local government has been a problematic issue. It has become a matter of such concern that a considerable number of funding reviews have been undertaken over the past 65 years, with all reviews highlighting the need for councils to have additional funding sources to complement rates".

LGNZ President Lawrence Yule reinforced this point at the launch of the report, stating that councils account for about 10.5% of all public expenditure but raise only 8.3% of public revenue.

However the response from the Government, delivered by the Prime Minister at his regular post-Cabinet press conference last week, was not encouraging. He said, while they were "happy to discuss" the paper with LGNZ, they were "very cognisant of putting more cost on taxpayers and ratepayers".

Proposed reform directions

Four reform "themes" are identified:

  • the need for an effective "principles-based" partnership between central and local government to allow joint decision-making and an opportunity to move away from "a regime that sees frequent tweaking of local government policy settings"
  • the need, before pursuing new funding mechanisms, for local government to assure the public that it is open to innovation in service delivery
  • the need to recognise the diverse nature of New Zealand communities, and the different challenges that diversity generates for local government (e.g. 32 of the 78 territorial authorities expect a decline in their populations by 2031, while Auckland will experience strong growth), and
  • a funding mix that includes greater use of tools already available, in particular the use of price signals (user charges) where appropriate, and a prudent use of debt (especially for assets which will confer an inter-generational benefit).

Current funding mix

The average composition of funding across all councils is shown in the table below.

Funding source % total council revenue            
Rates 49   
User fees and charges ?15
Current grants (mostly NZTA operational contribution to
Capital grants (mostly NZTA capital contribution to
Vested assets 7
Regulatory income, petrol tax 5
Interest and dividends 4
Development and financial contributions 2

But the mix varies significantly from council to council. For example, the Far North collects $2 in user charges for every $10 collected in rates, while the figures for Napier, Auckland and Hurunui are $5, $6 and $9 respectively.

A partnership approach

This envisages arriving at an agreement under which central government, when making decisions which will have cost impacts on local government, will:

  • consult local government and include in any cost benefit analysis the costs and benefits for local government, and
  • share the administration costs where a policy is intended to generate national as well as local benefits (or only a national benefit).

The paper asks why central government accepts the co-funding principle for transport but not for the implementation of the new National Bottom Lines under the NPS for Freshwater Management although these also confer a national benefit and will require many city and district councils to upgrade their three waters infrastructure (particularly waste and storm water networks).

Improving the current rating system

LGNZ argues that many of the current statutory exemptions from rates should be abolished. In particular, it suggests that:

  • central government should take responsibility for the full cost of providing conservation, health and education services rather than requiring a "back door" contribution through the rates exemption from local government
  • there is no reason why commercial entities such as airports, ports and railways should not pay rates just as other businesses do, and
  • communities should have autonomy to decide if they wish to subsidise religious and charitable groups.

Options for change

A range of possibilities are canvassed but some more seriously than others. For instance, while the possibility of councils being able to levy income taxes is discussed, LGNZ seems to accept that this is not a starter in New Zealand.

The idea of revenue sharing by central government to recognise the costs and the profit opportunities created by local government is explored in more detail. Examples where this might be applied include:

  • on the income tax revenue derived by developers from the profits on land sales where the land has been rezoned by the local council (the rationale being that much of the increase in the land value was made possible by local authority infrastructure investment), and
  • on the royalties from mining.

Local expenditure taxes: these could include regional sales taxes, hotel room taxes, or – more novel in a New Zealand context – a portion of GST revenues being paid by central government to local government to recognise local government support for regional economic activity.

A mechanism similar to this exists in Australia between the Federal and State governments. In New Zealand, however, the policy trend has been in the opposite direction. For example, the ability for councils to request that central government allow them to institute a regional fuel tax was removed in 2013 so would now require specific legislation.

The paper argues that selective taxes can be justified where there is a close relationship between the expenditure being taxed and the activity being funded by the tax e.g. water right charges, the motorway charge being proposed by Auckland Council to fund its transport programme, regional fuel taxes and property development contributions.


The paper makes interesting reading and makes a number of strong points, at least some of which will have to be seriously considered by central government at some stage. However that time may be a long while coming because the politics will always be problematic from the central government's perspective.

The information in this article is for informative purposes only and should not be relied on as legal advice. Please contact Chapman Tripp for advice tailored to your situation.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions