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BusinessNZ: 2016 wishlist from local government

Phil O’Reilly Outgoing Chief Executive BusinessNZ

Phil O’Reilly, outgoing chief executive of BusinessNZ says a sharper focus on rating differentials, council enterprises and land supply could help improve relationships between councils and businesses in 2016.

The wider community is the winner from constructive relations between local government and business, so their relationship is important. In 2016 it would be good to see local government and business better aligned in their thinking, processes and goals.

It is possible to achieve outstanding results when business can consider development proposals in the context of their wider community and can work constructively with local government.

Significant progress can also be made when there is a personal willingness by mayors, councillors and council executives to engage constructively with business, seeking to understand business realities and consider ways in which business development may be facilitated.

Local circumstances can look very different when viewed from different viewpoints. For example, business may benefit from councils investing in retail districts, yet may suffer from the high costs of council spending decisions overall.

Meanwhile, councils may invest in activities which assist business, but which bring no return in rates or other contributions.

Development is a big issue where business and councils are not well aligned.

The incentives and rewards associated with business development can be quite different for each party.

Development is central to enterprise. Business is carried out by developing assets, resources and people. Development is what business is about, and business fundamentally values development.

But for local government, development can mean something different. For councils, development can entail political risk, opposed constituencies, difficult communications, costly investment and sometimes net loss. For local government, the benefits of development can feel very diffuse.

It is not surprising then that proposals for development can sometimes be a point of contention between business and local government.

Resource Management Act

To a degree, the situation is aggravated by the Resource Management Act (RMA), which business strongly believes is blocking development.

The Purpose Statement of the RMA says its purpose is to “promote the sustainable management of natural and physical resources”.

Business argues that rather than sustainable management, this should surely be sustainable development. Business believes that the role of the RMA should be to facilitate development while protecting and enhancing the environment.

Development is needed to grow businesses, grow an economy, pay wages and feed, educate and care for people.

Management alone – without development per se – is not capable of that. After all, you could sustainably manage a resource forever, without ever developing anything.

This is the conundrum and the challenge of the RMA – ‘management’ overrules ‘development’.

Given that this and other problems with the RMA go to the heart of the relationship between business and local government, it is surprising that the relationship is as good as it is.

What could help improve the relationship further?

Business might point to three areas: differentials, council enterprises and land supply.

Rating differentials

Rating differentials have long been a concern for the business community. The practice by some councils of imposing higher rates for business than domestic ratepayers means that business now pays around half of all rates paid in New Zealand.

Business believes it is unfair for a small sector to be required to pay the largest share of rates payments.

The practice is also electorally unbalanced, as the small size of the business vote will always be outweighed by the general vote. It could result in rating practice at the expense of business becoming entrenched.

Business would welcome dialogue on this issue with local government in 2016.

Council enterprises

A second issue that is important to business is the matter of council enterprises.

Many councils undertake commercial enterprises in competition with local businesses – such as cinemas, cafes or gyms.

The events that lead to this outcome are understandable – in some instances councils have ended up running enterprises that were started but not continued by a private sector business.

In other instances the enterprise is a logical and needed extension of services already supplied by a council – eg, a gym attached to a municipal swimming pool.

The definition in the Local Government Act of what activities councils may undertake does not give helpful guidance in this regard.

However the end result can be a situation that is difficult for local business. It is hard to find an even playing field when your competitor is a local body that can underwrite its commercial activities using rates money and is at the same time a regulator. This can also mean that potential new business is discouraged by local government filling the space.

Surveys of business show there is widespread opposition to this practice. The 2015 Mood of the Boardroom survey asked a large number of businesses of all sizes whether councils should be allowed to establish enterprises in competition with private sector businesses. Two thirds of respondents said no.

Land supply

A third issue that impacts on business in some areas is that of land supply for new housing.

While not a core business issue it nevertheless affects business in skewing investment and reducing business profitability. Inadequate land supply for new housing raises the price of housing, forcing additional investment into housing that supplants investment in business.

Land supply is mostly an issue for Auckland, also New Zealand’s largest business centre.

The 2015 Mood of the Boardroom survey shows businesses see local government’s actions in constraining land supply as the main reason for inflated Auckland house prices.

Over 80 percent of respondents said councils should take action to free up land supply consistent with projected population growth or abolish urban limits altogether.

Control of land supply is another issue where business would like meaningful dialogue with local government in 2016.

These three issues are not new. Some councils are attempting to achieve change in these areas, and we welcome this.

With more engagement these are some of the problems that could be solved by local government and business working together in 2016. The wider community would benefit as a result.

This article was first published in NZ Local Government Magazine’s Perspectives 2016.

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