We need an inquiry into local government funding, but it must have cross-party support and a clear commitment to implement its recommendations, write Andy Asquith, Adjunct Research Fellow, University of Western Australia and Jeff McNeill, Honorary Research Associate at Massey University.
One of us is a classically trained musician. The other grew up in the United Kingdom during the 1980s. Both our experiences are somewhat pertinent to the current situation around local government funding in Aotearoa/New Zealand.
Jeff still enjoys playing in orchestras. Mozart, when he composed the symphony Jeff’s currently rehearsing, used all the instruments of the orchestra, sometimes together and other times individually to create the masterpiece that it is. A single orchestral instrument lacks the colour, expression and ability to play the harmony as well as tune simultaneously – the right instrument, oboe, clarinet or bassoon, at the right time – to paint the musical picture Mozart intended.
Which brings us to the delicate issue of local government finance in 2026 – specifically rates capping. Local government funding is an immensely complex issue – one which the Government has approached in the classic ‘one size fits all’ way for far too long. We are now at a crisis. Almost everyone recognises that this approach doesn’t work. There is, however, great divergence in thinking about what’s best to do.
The current Government – having been elected on a platform that included ‘localism’ but which otherwise showed little interest in local government – has now concluded our councils ARE the big issue facing the nation. We are confident this has nothing to do with the Coalition’s general ineptitude elsewhere. Front and centre of this new fixation with local government is the recently announced rates cap of between two and four percent to be imposed on all local councils.
This is where Andy’s 1980s experience helps. In 1983, former British Prime Minister Margaret Thatcher’s government was determined to deal with what it saw as profligate, wasteful local councils. After several failed attempts to curtail rates increases, Thatcher introduced rates capping. She justified this interference by saying local government existed at the behest of Parliament, and that Parliament could do what it wanted, to whoever it wanted, when it wanted.
A centrally defined, one-size-fits-all rates cap formula was applied to all councils. Hence idyllic, rural Ryedale District Council in Andy’s beloved Yorkshire was exposed to the same funding formula as the industrial city of Birmingham. In an NZ context think of Buller and Auckland councils, which will be treated exactly the same – both are councils after all!
Thatcher soon discovered two important things: firstly, local government was far more agile and innovative than she had thought. A small number of predominantly urban councils with dynamic political and managerial leadership soon began exploiting loopholes in the legislation – forcing Thatcher to embarrassingly re-legislate to close them.
We can think of councils in this country that have similar leadership dynamics. Secondly, the incompetence of central government public servants was painfully exposed – they simply did not grasp the scope, scale, and complexity of local government.
What Prime Minister Christopher Luxon and Local Government Minister Simon Watts have done is bypass the earlier failed UK reform attempts and gone straight for the iron-fist approach of rates capping.
No attempt has been made to understand the issue or examine the underlying problems. Local government interference – particularly funding through the poll tax – ultimately cost Thatcher her premiership when communities revolted. We are not at that point yet, but the interest and concern in this country is palpable.
It is now almost 20 years since former Prime Minister Helen Clark established the Independent Inquiry into Local Government Rates chaired by David Shand, ably assisted by our esteemed former colleague Christine Cheyne and Graham Horsley. That Inquiry produced 96 recommendations, which if implemented would, we suggest, have gone some distance towards providing our councils with a viable, sustainable funding system that was fit for purpose. We doubt we’d be in the fix we are in today.
We all need a new Shand-like Royal Commission into local government funding. However, unlike Shand or the earlier Royal Commission on Auckland Governance, the one into local government funding must have cross-party support and a clear commitment to implement its recommendations. Without this, recommendations can be simply ignored – as with Shand, or cherry picked – as happened with the Royal Commission.