Local Government Act 2002 Amendment Bill Submission

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Table 1 Five key issues# Issue Measure used Proper measure Rationale Conclusion1 Rates have increased atdouble the rate ofinflation1) Average annual increase inCPI (2003-2010)2) Annual % change: 1993-20111) Real rates revenue per household2) Rates revenue as a share ofproperty values and an incomemeasure (such as GDP)1) Rates are charged per household2) The value of properties is the localauthority‟s rateable base3) The income measure signalsaffordability and demand for servicesRates have increased, but are containedrelative to property values and incomes2 Significant increases inLG labour costsLabour Cost index comparing LGwith core state sector1) Index of LG real wages comparedto central government and overalleconomy2) LG sector employment growthcompared to core state sector andoverall economy1) Indicate if LG wages are growingfaster than other sectors2) Identify if the growing wagespending is a function of LG simplyemploying more peopleLG wages have by and large grown in linewith economy-wide measures3 Total LG expenditurehas increased as aproportion of GDPRatio of LG expenditure to GDPgrew from 3.1% (2002) to 4%(2011)Comparison of spending/GDP ratiowith central governmentSee if local government spending hasincreased in general and relatively morethan the central government sectorSpending has increased in recent years,but not clear this is an issue in context of aweak economy4 Capital expenditure hasincreased by 154%Quotes numbers and graph, butno data source given1) Ratio of capital expenditure toassets (LG and CG)Reveals how much LG and centralgovernment are investing in capitalCapex is lumpy, but not clear whetherdeficient or excessive relative to the assetbase5 LG debt has quadrupledover the past decade &is expected to continueto growDebt ($m) from Local AuthorityFinancial Statistics and analysisof 2009 LTCCPThe RIS uses total debt(historical and forecast) fromthe DIA paper1) Real debt per household2) Debt/asset ratio of LG andcentral government3) Interest paid on LG debt to LGrevenue ratio4) Debt/GDP ratio of LG and centralgovernment1) How much real debt is LG holdingwhen you take into account the numberof households2) Indicates the % of LG assets that areprovided via debt, and compares it withcentral government3) Indicates cost of debt servicing4) Indicates level of indebtedness,comparing it with central governmentDebt and gearing is low, and interest costsare at a prudent level relative to incomesand quoted benchmarksSource: NZIER
4 Rates RevenuesLocal Government in New Zealand is funded through a variety of means. These include:Rates on property values (the primary source of revenue)The national road tax (in the case of road construction and maintenance)Development contributions (capital spending forecast to be increasingly funded by this).In this section we compare trends over time in local authority rates with the number of households and property values. Wealso consider the local government operating balance.4.1.1.1.1 The key issueThe RIS and the Discussion document compared the Consumer Price Index (CPI) with the rates component of the CPI. Thisshowed that rates had relatively increased; since 2003, rates had increased 6.8% compared to a 3% increase in the overall CPI.Rates have increased, but by itself it is not clear that this is a problem. Increases in rates (and expenditure) may be the choiceof local communities, and should be considered relative to measures of income and wealth.4.1.1.1.2 Real rates per householdThe data show rates have increased in real terms and on a per household level.Figure 1 Real rates per household 62,600Real rates per household2,4002,2002,0001,8001,6001,4001,2001,0001993 1996 1999 2002 2005 2008 2011Source: Statistics New Zealand4.1.1.1.3 Rates relative to property valuesRelative to property values, which is a measure of wealth and the rateable base, rates have been contained.6Real rates calculated by deflating rates revenues by annual averages of the CPI index.The number of households is taken from Statistics New Zealand’s population data.
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Local Government Act 2002 Amendment Bill Submission

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