Hide Rodney: Local Government Act 2002 Amendment Bill — First Reading 
Hide Rodney: Local Government Act 2002 Amendment Bill — First Reading 
[Volume:662;Page:10694] 
Hon RODNEY HIDE (Minister of Local Government) 
: 
 I move  
That the Local Government Act 2002 Amendment Bill be now read a first time. 
 I intend to move at the appropriate time that this bill be referred to the Local Government and Environment Committee. Local government delivers services vital to the lives of all New Zealanders. For many years ratepayers have expressed concern about rate increases that have well outstripped inflation. The previous Government responded to those concerns by setting up a ministerial inquiry the Local Government Rates Inquiry and then ignoring its recommendations. This Government will not be following up its recommendations either. That is because the objective of the inquiry was to “provide recommendations to the Government for enhancing rating and other funding mechanisms for local authorities”. The inquiry was not permitted to address the real problem which is a failure by councils to control their spending. 
Unlike in many countries New Zealand local government enjoys a high degree of autonomy and locally sourced funding from rates. The main restraint on local government activity in New Zealand is the exercise of local democracy: the control of council activity by ratepayers and electors. That control needs to be strengthened. When I was appointed the Minister of Local Government I said that I considered myself the “Minister for Ratepayers”. This bill is a major step forward in fulfilling the commitment I made to make councils more accountable to their ratepayers. It requires that each council first have particular regard to the contribution that the core services specified in the bill make to their communities; second develop a financial strategy containing quantified limits on council rates and debt and quantified targets for returns on council investments; and third produce a pre-election report to encourage and inform debate at the time of local elections. The bill also removes unnecessary procedural requirements that delay local authority decisions and add to local government bureaucracy. 
Many of those changes have been made specifically at the request of the local government sector. The question of what the core services are that councils should deliver has generated a lot of debate. The bill lists a number of local government core services. They are services that are widely acknowledged to be at the heart of local government’s role in New Zealand. Services such as water supply sewage disposal and roading are essential to the quality of life in our communities as are services like libraries parks and community halls. There is also a core local government responsibility to protect the community from natural hazards and disasters such as flooding. 
The Local Government Act 2002 already states that local government has a role to exercise the regulatory duties required by other statutes. That is why regulatory functions such as those contained in the Resource Management Act and the Building Act have not been listed as core services. It remains equally important that councils carry out those functions with proper consideration for the effect they have on their communities. The bill does not prevent councils from engaging in services outside those listed. However it gives councils a clear indication first that they need to do core services well before they engage in other services and second that they need to get a proper mandate from their community for these services rather than giving away to the demands of small but often vocal pressure groups. 
It may surprise members that we need to legislate to require councils to produce a financial strategy. Some councils have set themselves clear long-term limits on rate increases and debt levels but many—indeed most—have not. The fact that councils set rates each year provides a looser budget constraint on councils than applies to central government where increases in tax rates are rare and subject to intense public scrutiny. Requiring councils to consult on a financial strategy with quantified targets for rates and debt levels will encourage councils to debate with their ratepayers more carefully the trade-offs between additional expenditure and the effect on rates and debt. It is important that ratepayers can understand the financial information that is presented to them by councils and can easily compare the financial statements of their council with those of other councils. The bill therefore provides for greater standardisation in financial reporting by councils. For example officials have identified three substantially different ways in which councils report their rates income in annual plans and reports. That means that ratepayers cannot even compare something as basic as rates income amongst councils. The bill provides for regulations to be made to ensure consistency in financial reporting amongst councils. 
The bill also requires councils to report separately on the major infrastructure services they provide. They are the most expensive of the core services that councils provide and concern the major part of councils’ capital expenditure budgets. To allow ratepayers to compare fully councils’ performance on these essential services the bill also provides for a standard non-financial performance reporting system to be developed for those services. The bill provides for an additional funding statement to be included in council reports. That statement will be more meaningful to ratepayers than present financial reports. This package of measures plus additional other minor enhancements to financial reporting fulfil the commitment to implement plain-English financial reporting for ratepayers. 
I will expand a little on the issue of council investment in companies. Many councils own companies of one sort or another. For example much of New Zealand’s port sector is council-owned. I am concerned that in some cases councils are not managing those investments well and they are not being transparent to their ratepayers about the returns they are getting from those investments. The House has recently had to deal with the governance of Environment Canterbury. Members may not be aware that that council owned a company called Target Pest Enterprises which is reported to have made a profit only once in its 8 years of existence. The company went into receivership in May 2007 owing creditors—many of them just ordinary small businesses—millions of dollars. That is one example of a council making an unwise business investment and there are many more. This bill requires councils to set clear targets for returns on investments. Councils will be required periodically to review the expected returns from those investments against the inherent risks of being involved in business ventures. 
The third major initiative of this bill is the introduction of the pre-election report. There has been concern about the declining voter turn-out in local elections for some time. Simply exhorting people to vote seems unlikely to change that trend. The pre-election report is intended to draw together some key information about the past performance of the incumbent council and the future plans it has for its community. That will enable voters to scrutinise the performance of existing councillors more closely. It will also provide a factual basis against which candidates can state their position on future council plans allowing electors to then vote for candidates whose preferences reflect their own. The pre-election report will be prepared by council officials; it will not be a ratepayer-funded platform for promoting incumbent councillors. 
There is one area that has been of concern to some local authorities and that is the cost of auditing long-term plans. I gave careful consideration to that and the advice I received was that there was limited scope to address it other than to remove the requirement altogether—and I was not prepared to do that. Ratepayers are entitled to the assurance that the plan put before them is soundly based. The bill does remove a significant amount of descriptive and operational material from long-term plans. That will greatly reduce the number of occasions on which local authorities have to pay audit fees for minor amendments to their previous plans. That will reduce audit costs. The bill also merges the present community outcomes planning process with the long-term planning process. I cannot see the sense of having councils run two planning processes. 
Finally the bill removes a number of impediments to the local government sector using the private sector to deliver local government services. As I said at the beginning of my speech local government in New Zealand enjoys a high degree of autonomy from central government. That is a quality that I want to see maintained. To maintain that autonomy requires a high degree of transparency and accountability. That is achieved in this bill. I thank members for their time.