Local Government Funding and Financing

Local Government Funding and Financing - Hospitality New Zealand

The Productivity Commission have released their Local Government Funding and Financing Issues Paper consultation document.

They say:

The Government has asked the Commission to undertake an inquiry into local government funding and financing and, where shortcomings in the current system are identified, to examine options and approaches for improving the system.

Submissions to the Productivity Commission close:

Friday 15 February 2019

You can provide feedback via the options below – be sure to include your name and contact details with your feedback:

Online: By filling in the electronic form (and uploading your submission in word or pdf)
Email: info@productivity.govt.nz
Post: New Zealand Productivity Commission, PO Box 8036, The Terrace, Wellington 6143

We encourage all members to make a submission and give their views to the government on this.

• Hospitality NZ is also interested in your views on this – we would welcome your feedback to help shape our submission too – please email our Advocacy and Policy Manager, Nadine Mehlhopt by Monday 7 January 2019. nadine@hospitality.org.nz


Consultation documents are available to read at the following links:

Local Government Funding and Financing Issues Paper

Other documents, including media release and terms of reference


Overview from the consultation document:

This inquiry is about the cost of services provided by local government and how they are paid for. It will examine the adequacy and efficiency of the current local government funding and financing framework.

• Funding tools are the sources of money available to provide for infrastructure and services over time. For example, a council may fund an infrastructure project through sources such as rates and use this revenue to recover the costs of financing (which would comprise interest and capital repayments in the case of borrowing).
• Financing refers to the way in which debt and/or equity is raised for the delivery of a project or service at the time it is needed. So, for example, a council may finance an infrastructure project through borrowing to ensure that it has the cash on hand to pay the upfront bills.

The Commission will investigate the factors that drive local government costs now and in the foreseeable future. This will focus particularly on the drivers of cost and price escalation, including: changing policy and regulatory settings; growth and decline in population; the role of tourism and other temporary residents; the impacts of Treaty of Waitangi settlement arrangements; and the costs of climate change mitigation and adaption.

Having considered the factors underpinning local government cost pressures, the inquiry will explore the range of options for funding services. This will include assessing the ability of the current funding and financing model to meet local governments’ obligations, now and in the future. It will also consider alternative approaches to managing cost pressures, including the potential for productivity improvements and innovative responses to service delivery.

The Commission will base its analysis broadly on the scope of services currently delivered by local government. To the extent that there are shortcomings with the current framework for funding and financing, the inquiry will identify and appraise new local government funding and financing tools and consider how a transition to any new funding and financing models should be managed.

Important criteria against which any new funding and financing models should be assessed include efficiency, equity, effectiveness and affordability. The Commission is also interested in the wider effects that the funding and financing system can have – for example the extent to which it creates incentives for councils to facilitate population and economic growth. The Commission will also assess whether changes are needed to the regulatory arrangements overseeing local government funding and financing.



The growth of tourism, particularly international tourism, has been identified as a source of funding pressure for some local authorities. In particular, influxes in visitor numbers, which are often concentrated in just a few months of the year, can put significant pressure on infrastructure networks. For example, during peak times 58,600 people, of which 38,300 are visitors and 21,300 are residents, are using Queenstown’s infrastructure.

Several tourism-specific revenue streams are available to meet local tourism expenditure.

• User charges – for example, for car parks, information site services, and council-owned commercially run services such as museums.
• Revenue captured indirectly – for example, from commercial rates for accommodation, retail, hospitality, and other tourism-oriented businesses, and dividends from investments in companies such as airports that derive some of their profits from international tourists.
• Tourism Infrastructure Fund – this central government fund provides financial support (up to $25 million per year), primarily to local governments, to support local tourism-related infrastructure.
• Targeted rates – for example, in June 2017 Auckland Council adopted a targeted rate on commercial accommodation providers with proceeds funding Auckland Tourism, Events and Economic Development’s budgeted expenditure on visitor attraction and major events.
• Visitor levies – although local authorities can set targeted rates to fund specified activities, the LGRA does not allow local authorities to introduce levies on visitors. Specific legislation is required to introduce such a levy. Currently, there is only one example of such legislation – the Southland District Council (Stewart Island/Rakiura Visitor Levy) Empowering Act, which took effect in October 2013. This enabled Southland District Council to establish a visitor levy, which is collected by tourism operators when visitors travel to Stewart Island/Rakiura. Queenstown-Lakes District Council has expressed a desire to be able to implement a local levy to support tourism infrastructure in Queenstown.

Although tourism can produce revenue for local governments, some evidence suggests that this is outweighed by the costs local governments face in accommodating international tourists. Deloitte Access Economics (2018) conducted three case studies examining local government revenue and expenditure associated with international tourism. Their results for Southland and Nelson indicate that international tourism expenditure only marginally exceeds revenue, while in Auckland expenditure exceeded revenue by a more significant margin.

The questions:

The Productivity Commission have set out 49 questions which they are interested in – found throughout the document and as a complete list at the end of the document. Members can respond to as many, or as few, as they want. Members are not limited to these questions and can provide any feedback that is within the scope of the consultation.

Some examples that are of particular relevance are:

Q1. What other differing circumstances across councils are relevant for understanding local government funding and financing issues?

Q5. To what extent is tourism growth resulting in funding pressures for local government? Which councils are experiencing the greatest pressure, and how is this manifesting?

Q6. Is an expansion of local government responsibilities affecting cost pressures for local government? If so, which additional responsibilities are causing the most significant cost pressures and what is the nature of these increased costs?

Q11. Is local government expenditure shifting away from traditional core business into activities such as economic development, sport and recreation and community development? If so, what is the rationale for this shift, and could these activities be better provided by other parties?

Q15. How effective is the Long-term Plan process in addressing cost pressures and keeping council services affordable for residents and businesses?

Q16. How effective are councils’ Long-term Plan consultation processes in aligning decisions about capital investments and service levels with the preferences, and willingness and ability to pay, of residents, businesses and other local organisations?

Q26. What measures do councils use to keep services affordable for specific groups, and how effective are they?

Q28. Do councils currently distribute costs fairly across different groups of ratepayers? If not, what changes to funding and financing practices would achieve a fairer distribution of costs across ratepayers?

Q32. Is there a case for greater use of certain funding tools such as targeted rates and user charges? If so, what factors are inhibiting the use of these approaches?

Q34. In addition to restrictions on how targeted rates are applied and the types of services where user charges can be levied, do any other restrictions on existing funding tools unduly limit their uptake or usefulness?

Q37. Under what circumstances (if any) could there be a case for greater central government funding transfers to local government? What are the trade-offs involved?