Productivity Commission Local Government Funding and Financing

Local Government Funding and Financing - Hospitality New Zealand

The Productivity Commission have released their Draft Report following the consultation on the Issues Paper document.


They say:

This draft report aims to assist individuals and organisations to participate in the inquiry. It outlines the background to the inquiry, the Commission’s intended approach, and the matters about which the Commission is seeking comment and information.
This draft report contains the Commission’s draft findings and recommendations. It also contains a number of questions to which responses are invited but not required. The Commission welcomes information and comment on any part of this report and on any issues that participants consider relevant to the inquiry’s terms of reference.

Consultation documents are available to read at the following links:

Full Draft Report

At A Glance Summary

Other information

Submissions to the Productivity Commission close:

Thursday 29 August 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)
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 Tuesday 30 July 2019.


Overview from the consultation document:


The funding and financing framework for local government must incentivise good performance and enable local authorities to deliver quality services in line with the preferences and aspirations of their local communities. This requires that local government has the necessary autonomy, responsibility and accountability in delivering these services.
This means that local ratepayers should largely pay for local-government services, and that those services must be effective, efficient and affordable.

This draft report sets out the Commission’s assessment of the cost pressures faced by local authorities. It presents draft recommendations for new funding tools, where current funding and financing arrangements are insufficient to meet key pressures. It also proposes several improvements to the way councils manage cost pressures, make decisions, and deliver and fund their services.


There is scope for councils to make better use of existing tools:

Many councils could make better use of the funding tools they already have available to them, and better organisational performance and decision making would also help to relieve funding pressures. Council decision making and broader performance also need to be more transparent. Changes are needed to strengthen governance and increase the transparency of council performance. All councils should have an assurance committee that is independently chaired; and the legislative requirements for councils’ Long-Term Plans should be clarified and streamlined. In addition, the current performance reporting framework for local government is not fit-for purpose. It requires fundamental review, aimed at significantly simplifying and improving the required financial and non-financial disclosures.

The best way to use the current funding tools:

The Commission favours the “benefit principle” as the primary basis for deciding who should pay for local government services. That is, those who benefit from (or cause the need for) a service should pay for its costs. Councils may also use “ability to pay” as a consideration, taking into account central government’s primary role in income distribution. Where local services also benefit national interests, central government should contribute funding. User charges or targeted rates should be used wherever it is possible and efficient to do so.


New funding tools are needed to address key pressures:

The Commission has identified four key areas where the existing funding model is insufficient to address cost pressures, and new tools are required:

  • supplying enough infrastructure to support rapid urban growth;
  • adapting to climate change;
  • coping with the growth of tourism; and
  • the accumulation of responsibilities placed on local government by central government

Funding support for tourism hotspots:

The large and rapid increase in tourism is placing considerable pressure on several types of “mixed-use” infrastructure in popular tourist destinations, such as local roads, parking, public toilets, water and wastewater. Tourists are not paying the full cost of the demands they are placing on this infrastructure.
The Government should legislate to enable councils in tourist centres to implement an accommodation levy. Councils in tourist centres should also make greater use of user pays for mixed-use facilities. For small councils that cannot reasonably use either accommodation levies or user pays, the Government should provide funding from the international visitor levy.

Need to reset the relationship with central government:

Another cause of funding pressures on local government is the continued accumulation of tasks and responsibilities passed from central government, without adequate funding means. The Commission sees significant value, and has previously recommended, that central and local government work together to develop a “Partners in Regulation” protocol. This would involve the co-design and joint implementation of appropriately-funded regulatory regimes, and would promote a more constructive relationship between central and local government.