Twyford Phil: Local Government Borrowing Bill — Second Reading 
Twyford Phil: Local Government Borrowing Bill — Second Reading 
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PHIL TWYFORD (Labour) 
: 
 Labour members are happy to stand today in the House and support the Local Government Borrowing Bill. We supported the bill at its first reading and there was a lot of consensus at the Local Government and Environment Committee that this was a useful positive bill that should be supported. 
The idea I think first raised its head from the Capital Market Development Taskforce and Phil Goff spoke out strongly at the Local Government New Zealand conference last year calling for progress on the concept of a local government bond bank. I am pleased to say that I think there is a high degree of consensus across political parties and across the local government sector that this bill and its promise of coordination efficiencies and cost savings by local councils is well worth supporting. 
I note that the figure of $25 million has been cited throughout the debate on this bill. I think it came from the work that Local Government New Zealand has done. I note that in “BusinessDay” back in April Hugo Ellis a partner in Cameron Partners was quoted as saying thar the possible savings from the establishment of the agency were based on council borrowing rates from September which had fallen by up to 35 basis points since then. So he casts doubt on whether the $25 million figure is credible but in the same article he notes that one of the reasons that the cost of local government borrowing has fallen is in fact in anticipation of the bond bank being set up. So this is a remarkably efficient bill which saves—who knows—possibly millions of dollars in local government borrowing costs before the legislation has even passed its second reading in the House. 
I want to talk about the broader question of local government debt. We heard much in early 2010 from the Minister of Local Government about the ballooning levels of local government debt. There was talk of a crisis in local government with local councils being unable to meet the costs of infrastructure ballooning levels of local government funding and debt getting out of control. This talk was bandied around as some kind of justification for the Minister’s agenda of rate capping of trying to roll back the scope of local government through his core services agenda and of opening up municipal water services to what we regard as an effective privatisation through 35-year public-private partnerships. The last of those three items was in fact implemented in the Local Government Amendment Act that was passed at the end of last year. 
Interestingly the Auditor-General’s report on the trends and financial information in long-term council community plans offers some really interesting reading about the state of local government debt. This is the most rigorous most authoritative data that we have at hand—coming from the Auditor-General’s office—on this issue. It came out in August 2010 and I will just quote one or two passages from the Auditor-General’s report. The long-term plans which go from 2009 out to 2019 were analysed and clearly showed an increasing use of debt a trend that was evident in local government from about 2004. The debt was forecast to reach its highest level over the 10-year period in 2015 peaking at $11.2 billion. Although the total debt is clearly significant in dollar terms the Auditor-General notes that the amounts are “not so large”—those are the Auditor-General’s words—“when considered in the context of local authorities’ overall balance sheets and annual revenues and expenses.” The debt as a percentage of total assets over the 10-year period was forecast to move from 7.4 percent in 2009-10 to peak at 9.5 percent as a percentage of total assets then fall again to a little over 8 percent by 2018. 
That is not the kind of picture that was painted by the Minister of Local Government and his followers in early 2010 when they sought to paint a picture of escalating debt getting out of control in some kind of financial apocalypse in local government. The cost of borrowing is significant whichever way we slice it for local government. According to the Auditor-General $6.7 billion will be spent—that is the cost of capital for local government investment in capital items—in the decade 2009 to 2019. That reflects a more than 100 percent increase in the annual interest expense compared with the financial year 2008. 
The general picture is that debt is increasing. It is not increasing to levels that are unsustainable; it will peak then fall away again towards the end of the decade. But whichever way we slice it we are talking about large amounts of money that are a cost to ratepayers—$6.7 billion during the decade we are talking about 2009 to 2019. The Auditor-General’s final verdict was: “We do not consider that this level of interest expense is high or poses a likely risk of compromising the prudence with which local authorities are managing community assets.” So debt is increasing but it is well within the normal standards of financial prudence that are expected from local government. 
Needless to say it did not really matter that the Minister’s fantasy of ballooning out-of-control debt and the need to rein in these irresponsible councils—that story—collapsed because by then the Minister had been reined in by his own Cabinet colleagues who had told him that they did not want to see any more of the extreme agenda he was promoting through 2010. 
Labour supports this bill. We support the establishment of the Local Government Funding Agency because it is consistent with the fundamental Labour principle of owning our own future. This bill will make it easier for councils to offer retail bonds to mum and dad investors which will allow them a secure option for investing their money and for investing in the vital infrastructure needed in communities throughout New Zealand whether that is water supply transport infrastructure or new buildings—you name it. This is an opportunity for New Zealanders to make sound and secure investments in the future of their country. 
But I contrast this with the approach that National is putting before the people of New Zealand in this election campaign. It is putting up on the auction block our most profitable and our most well-run State assets. National is putting up those organisations on the auction block and will be selling off 49 percent of them in a way that contrary to the blithe reassurances we have heard from the finance Minister will inevitably end up with a substantial amount—if not all—of those shares in foreign hands. That is irresponsible it is wrong and I am sure the people of New Zealand will reject that policy resoundingly. 
Privatisation is very much on the agenda of this National Government and its allies and we have to wonder whether that will come back to bite New Zealanders if National is re-elected for another term. Will National force the city of Christchurch to sell its assets in order to fund the reconstruction of that city? That is a question that National MPs should answer in this debate. I call on Christchurch members in particular to stand and take a call in this debate. Will this Government force the city of Auckland to sell its shares in the Ports of Auckland in order to fund the rail infrastructure that is so desperately needed in Auckland?