Hon RODNEY HIDE (Minister of Local Government) Link to this
I move, That the Local Government Borrowing Bill and the Local Government (Auckland Council) Amendment Bill (No 2) be now read a third time. The purpose of the Local Government Borrowing Bill is to assist local authorities to borrow funds at lower interest rates than they can currently achieve. The bill will achieve this by facilitating the establishment and the operation of the New Zealand Local Government Funding Agency. Local Government New Zealand has estimated that the funding authority will save local government in the order of $25 million each year. The operation of the agency will also strengthen New Zealand’s capital markets by providing a new high-quality investment option. The scheme is a win for local government and a win for investors.
Unsurprisingly, the bill has a high level of support across the local government sector. I have been advised that around 50 local authorities have indicated that they will participate in this scheme. The bill has also enjoyed a high level of support in the House. No significant amendments have been proposed; technical amendments recommended by the Local Government and Environment Committee to clarify two clauses of the bill have been agreed to.
The Local Government (Auckland Council) Amendment Bill (No 2) authorises the Auckland Council to borrow in foreign currencies. To achieve and maintain a high credit rating the funding agency will not be able to lend disproportionately to one council. Therefore, because of the Auckland Council’s size and its significant borrowing requirements, it will need to continue some borrowing outside the agency. The bill addresses that issue. It effectively gives the Auckland Council the same access to foreign currency markets as other councils will be able to achieve indirectly through the funding agency. Like the funding agency, the Auckland Council will carry out its foreign currency borrowing on a fully hedged basis, avoiding any risk associated with currency movement. It is encouraging to see central and local government working together to achieve cost savings of this magnitude, and savings that will ultimately benefit ratepayers.
I take this opportunity to thank Local Government New Zealand and the funding agency steering group for all their hard work on this scheme. I particularly thank the president, Lawrence Yule, for his work and also the chief executive, Eugene Bowen. I understand that the funding agency will be up and running either late this year or early next year, so the benefits of the legislation to ratepayers will quickly become evident. Thank you.
PHIL TWYFORD (Labour) Link to this
Labour supports this legislation; we have done so throughout its entire passage through the House. I reiterate our congratulations to the Minister of Local Government, which were expressed during the Committee stage, on the work that has been done in shepherding this legislation through its development and through its stages in the House. It is worthwhile legislation. It is good legislation and will save taxpayers money. That is always a good thing.
The legislation offers a collective approach that will essentially allow local authorities to operate as a cooperative for the purpose of a coordinated and efficient approach to borrowing the money they need to invest in infrastructure around this country, whether it is in buildings, swimming pools, or water treatment and supply—you name it. The infrastructure demands on local government are huge in many parts of the country. Many local authorities are struggling to meet those challenges, and if the Local Government Funding Agency, which will be established under the Local Government Borrowing Bill, saves some money and makes it easier for those councils to do that, then that is a good thing.
What does this bill do? It establishes the new agency, the Local Government Funding Agency, and it amends a whole series of other bits of legislation in order to reduce compliance costs, but also it gives confidence to the lenders who will be putting money into this bond bank. That is of critical importance. We have discussed in the various debates in this House, but also at the Local Government and Environment Committee, the figure of $25 million, which was originally put about as the possible annual saving to local authorities. That figure may be a little optimistic, given that the original calculation was based on the cost of capital a couple of years ago, but I think we can be confident that a significant sum of money will be saved as a result of this bill going through. We are very happy to see it go through before the end of the parliamentary term.
There is an added benefit, which I think we all support, and it is that this bill will make some small but useful contribution to the deepening of our capital markets. The idea originally surfaced, I think, from the Capital Market Development Taskforce. Since then it has been picked up and discussed in various places by political parties, and has attracted near-universal support. It will offer to the mythical mum and dad investors the chance to buy local government infrastructure bonds, which will not be guaranteed by the Government but will be backed by the highest-possible credit rating, which our advisers were confident would be attained by the new agency. By golly, mum and dad investors need things they can be confident of investing in. This bill gives them the chance to invest in the long-term future of their communities, so that is a great thing.
On the Labour side of the House we are particularly keen on this bill, because it is an alternative to the track of privatisation and of establishing public-private partnerships that the National Party and the ACT Party are so keen on. Labour wants to see this country build up its assets, not sell them off, and that is why we are implacably opposed to the policy that this Government is taking into the election, which is to flog off 49 percent of our most profitable, best-performing, and most-valuable State-owned enterprises. We are opposed to that policy, as are the majority of the people of New Zealand.
At the local government level the issue about assets and privatisation is very much alive. We saw that in the creation of the Auckland super-city, when the National Government, supported by ACT, took away the right of Aucklanders to have a say through a referendum on any future proposal to privatise the Ports of Auckland. We saw in the Government’s amendment to the local government legislation last year that it opened the door to 35-year contracts in the municipal water sector, which would allow private sector operators to own and operate water infrastructure for periods of up to 35 years. We had this debate many times in the House, and we are still of the view that those 35-year contracts amount to a de facto privatisation. Every time New Zealanders are asked, a huge majority say that they do not want their water privatised.
The issue has died down a little bit in the last year or so, but people are beginning to ask whether, if the National Party is re-elected to a second term, the city of Christchurch will be compelled to sell its significant community-owned assets to fund the reconstruction of Christchurch. The National Government has yet to provide a convincing answer to that question.
The way that this Government is going, with the infrastructure needs that are facing Auckland, I wonder whether the Auckland Council will get the hard word from Steven Joyce and Bill English, and will be told that if it wants to fund the city rail link—if it wants to fund a world-class transport system—it will have to sell off its airport shares or its ports. I can tell from the expressions on the faces of many people in this House and around New Zealand that they are completely opposed to that proposal.
Labour wants to build up our assets, not sell them off, particularly in respect of natural monopolies, which are so often the things that ACT and National want to put on the auction block. Those parties want to sell off our energy companies, which together are effectively natural monopolies. They want to sell the ports, when they are effectively natural monopolies. We know that when we privatise natural monopolies, we basically hand over a licence to print money, and a licence for rent-seeking behaviour. They will almost inevitably end up in the hands of foreign owners, and we are against that. If this bill does one thing, if it can provide local authorities with a cheaper, readier source of investment capital for investing in infrastructure, I think all New Zealanders will applaud that.
There is in this legislation special provision for Auckland, and that acknowledges and recognises the imbalance in size between the Auckland Council and all other local authorities in New Zealand. If the Local Government Funding Agency had to accommodate all of the capital needs of Auckland, then there would be gross imbalance. We were advised at the select committee—and I think everybody was happy with the advice—that the Auckland Council has the capacity, that it has a treasury unit that is capable of managing that risk, and that all its international borrowing would be fully hedged.
The whole issue of local government debt is, I think, really interesting, and it has been brought up a number of times as this legislation has gone through the House. Before I finish, I acknowledge the work of the Office of the Auditor-General in analysing the state of local government debt. A significant debt is held by local authorities around New Zealand, and we are looking at a 55 percent increase over the next decade, from $3.9 billion to $10.8 billion. That is significant, but the Auditor-General made it very clear that he did not consider that level of local authority debt to be a problem. He did not consider it to be outside the normal parameters of fiscal prudence. I think that is noteworthy in light of the kinds of justifications that were being bandied around in this Parliament about a debt crisis in local government. We do not have one. Debt is a fair and efficient way to spread the cost of infrastructure across the generations of New Zealanders who will benefit from it.
NICKY WAGNER (National) Link to this
I am delighted to support the Local Government Borrowing Bill and the Local Government (Auckland Council) Amendment Bill. It is great legislation, and it will save ratepayers money. It was one of the good ideas that came out of the Prime Minister’s economic summit, and now we are putting it into legislation, so that is very positive too.
New Zealanders are very aware of the need for capital investment in local infrastructure in the oncoming years. It is expected that local government will need to borrow an excess of $10 billion in the next 5 years. Ratepayers want the services that are delivered from this capital, but they do not want to pay for rates increases. So I support this legislation because it is all about local councils coordinating their borrowing needs to obtain economies of scale so that they can borrow more cost-effectively.
This legislation will create the New Zealand Local Government Funding Agency, which will be able to issue debt on behalf of all participating local authorities, and will have the same regulatory environment as those participating local authorities. Councils, by collaborating, will be able to get the benefits of the economy of scale and the resulting lower interest rates. Councils are very reliable borrowers, and they have a very low credit risk, so by coordinating their borrowing demands they will get better deals. In fact, the savings have been estimated at about $25 million a year. It is absolutely true that every ratepayer would rather see their council spend money on infrastructure or their priority projects than just on servicing debt. They are very keen to keep rates down, and this may help towards that.
It has also been noted by some members opposite that it will have benefits for the capital market in New Zealand as well. At the moment it is a very fragmented market, but this will make it more efficient for both issuers and investors, and it will develop a deeper and more liquid market in standardised local authority bonds, and that will provide opportunities for both wholesale and retail investors.
This legislation has the ability to cut costs for local authorities and ratepayers. It is all about doing business smarter, and it is a real positive, so I commend this bill to the House.
Hon RUTH DYSON (Labour—Port Hills) Link to this
Like my colleague Phil Twyford, I am pleased that Labour is able to support this legislation in its third and final reading. I have some anxiety after hearing the member Nicky Wagner, who has just resumed her seat. She is from Canterbury. Despite hearing the concerns expressed by Phil Twyford in his contribution earlier on this legislation about the fact that the Canterbury Earthquake Recovery Authority legislation gave Minister Gerry Brownlee a suite of wartime powers, such as the power to instruct the Christchurch City Council to sell assets, and the frame that has been developed by the Government around the potential of sale of assets—constantly blaming Canterbury for the shortfall in funding, for the crisis with the reinsurers, and for the fact that other parts of our country might have to give up something because of the Christchurch earthquakes—and despite the Canterbury Earthquake Recovery Authority legislation, the member who just resumed her seat said not a word in defence of Canterbury keeping ownership of our strategic assets.
That is of real concern to me, because around this legislation we have a clear choice: do we follow the opportunity for some efficiency, some savings, and some money that can be saved by ratepayers and local authorities and put into our communities, or do we follow the path that clearly John Key and the National Government are on—and I say that with the greatest respect to Rodney Hide, who has always been absolutely consistent in this area—and the view that they would prefer, which is one of a total slash-and-burn, and getting out of every single ownership model that they can? I am troubled that the member said not a word in defence of our ownership in Canterbury of our strategic assets, but I suppose we will wait and see what happens as time progresses in that regard.
Although there are a variety of reasons why we support this legislation, the primary reason is that it is hugely preferable to the option of privatisation. If we say: “Let us look at ways that our local authorities can make more money, can save more money, and operate more efficiently.”, everyone is in support of doing that, and then we get a range of options. One of them clearly is the privatisation option, where we just have to hock off something. That is a really short-term model. It saves money in the short term, but in the longer term we lose a huge amount. We lose the benefit of strategic ownership, and obviously we lose the income stream from whatever the asset is.
In New Zealand currently, if we look at our power companies, we see we have a large income as a result of the generation and the distribution of power throughout our country. It is income that is derived from New Zealand citizens. It is collected by the Government. It is then distributed back through other channels. Whether it is through education and health, superannuation, or our social security system, it is distributed back into our country. All New Zealanders own those assets and all New Zealanders benefit, even though of course we resent paying higher power prices. Why would we want to sell off that strategic asset so that some owner other than the New Zealand public gets that income? We still have to pay the price and, as we have seen in other privatised parts of the system, we actually pay a much higher price when the owner is anyone other than central government.
Another one of the models that the Government could have considered is the public-private partnership, and, again, this legislation is in preference to that. This is about mobilising the savings of New Zealand investments. It is about local authorities having the opportunity to save a significant amount of money. It is a very efficient proposal.
The local government bond bill was floated from an idea originally suggested at the Job Summit 2 years ago. It is very interesting that this is one of the few ideas that has been picked up from the Job Summit, given the fanfare around the fact that the Prime Minister was having the Job Summit. Very little has come out of that, but this legislation has come out of it, right towards the end of this parliamentary term. This has taken so long to come from a really good idea, supported broadly across the parties in this House, yet it has taken all this length of time to come to fruition.
The concept of the local government bond bank was also proposed by the Capital Market Development Taskforce. That task force was set up when Labour led the Government in 2008. It reported to the National-led Government at the end of 2009. At the time the Government said that it supported that recommendation, but all it has done since is to set aside $5 million—a tiny amount of money in the overall scheme of things—in the Budget last year.
The funding agency is a win-win situation, both for local authorities and also for New Zealanders and the public, particularly for New Zealanders who are looking for safe and new opportunities for investment and for saving. We will know, as investors, that that investment is good for our communities. That is always a reassuring thing. People are quite particular about the ethical regime under which their investments occur now. People look more at the downstream effect of their investments. Not only do New Zealanders know that they are investing for the good of their community—and they have some personal benefit from that as well—but also they are ensuring that through this efficiency they are taking one more option of privatisation off the National Government agenda. I think that will be a very good thing, particularly given the fact that a number of the assets that are in the ownership of local authorities are monopolies. The only thing worse than a State monopoly that runs inefficiently is a private monopoly that runs inefficiently. We do not need either of those models, and local authorities have done New Zealand proud in the way that they have demonstrated their ability to own and have management regimes that ensure the strategic assets of local government and central government are able to be managed very efficiently.
The other point that I will mention, which goes back to the situation in Canterbury, is that it is still to our frustration, anger, and deep regret that the Government has not seen fit to restore our right to democracy in terms of our election of a regional council. Every other citizen in New Zealand has the right to vote for his or her regional council. In Canterbury that right was taken away from us with no justification and no reason. That measure was rammed through Parliament in a totally inappropriate way, and it caused some of the biggest anguish that I have ever heard in Canterbury from National Party supporters, and even members, against their own Government. That residual anger remains. People resent having their democratic right taken away from them. I was really hopeful that the Government might see fit to restore that democracy before the upcoming election. We have only a small number of sitting days left before the House rises for the recess for the election, and then we start again after 26 November. I urge the Minister of Local Government, Rodney Hide, to put on some pressure, if he has any influence at all. I am not sure of his status with regard to influencing his other ministerial colleagues these days, but if he has any ability to influence his other ministerial colleagues, I would ask him to use it and restore our democracy in Canterbury.
It is quite an unusual situation when Labour, National, and ACT all support legislation, as, I know, do the other parties around this House. But I think it is not only a very good indication of the way that this legislation has gone through consideration by the external groups—as I mentioned, by the task force in particular—but also it is a bit of a tribute to the Local Government and Environment Committee, as it gave this legislation rigorous consideration. It made sure that the potential or unexpected consequences of the legislation were considered. I will conclude by paying tribute to all the members of that select committee, and also to the officials, who have worked so hard to ensure that this legislation will get such widespread support.
SUE KEDGLEY (Green) Link to this
The Green Party too is pleased to support the Local Government Borrowing Bill and the Local Government (Auckland Council) Amendment Bill (No 2). We are pleased that the legislation is going to get through in this term of Government—in fact, it will be passed today. The Local Government Borrowing Bill will enable local government to set up the Local Government Funding Agency and to become a large-scale borrower on behalf of local councils. We think it does make sense. Borrowing, as others have mentioned, has been very fragmented, and by councils combining in this entity we will, hopefully, be able to get much cheaper borrowing. That will, of course, depend on getting a good credit rating, but, assuming we do, borrowing will be cheaper. Treasury has projected that there could be savings of anywhere up to $25 million over time.
The Green Party supports the bill for the same reasons that Labour has mentioned. We would far prefer that councils raised capital for investment by borrowing, rather than by privatising, by public-private partnerships, or by other things such as 25-year public-private partnerships to own water infrastructure, for example. We are also pleased that the Local Government Funding Agency is a voluntary entity, so councils will not be forced to join up. I think the Minister of Local Government mentioned that about 35 councils are already signing up. So for all of those reasons, we support it.
But I have mentioned that we have some misgivings about it, so just let me share in this House what those misgivings are. No one has yet mentioned the fact that all councils who sign up to the Local Government Funding Agency will be required to guarantee each other’s debts; councils will be jointly liable. So if ever a council were to default, all of the councils would be liable and all of them would have to pay for that debt. This may be unlikely, but nevertheless it is a possibility, particularly when we have scenarios such as the one in Christchurch, that a council could, in time, default. I suspect that most ratepayers of the councils that have signed up will be unaware of this joint liability, and that in 10 years’ time, they could wake up and find that their council has incurred significant debt that ratepayers were not aware of at the time.
My second concern is that because the Local Government Funding Agency will enable councils to borrow more cheaply, there will be a temptation to borrow more. Treasury has already forecast that council borrowing is likely to increase to $10 billion in the next 5 years. I believe that, with this new agency, we could see local government debt rise steeply, because of the temptation to just borrow, rather than put up rates. It is fine to share the debt for some infrastructure over generations, particularly, for example, in public transport where councils are required, under our bizarre law, to pay for 50 percent of any public transport infrastructure—but if roads are being built, councils do not have to pay anything at all. The Government will fund fully State highways and roads, but only 50 percent of public transport infrastructure. So in an area like Auckland, which has huge, vast needs for investment in public transport, as we have become acutely aware in the last few days, then if we are to see a significant investment in public transport, the council—the ratepayers—will have to invest massively. Obviously, councils will want to borrow and they will be able to use the Local Government Funding Agency. That example is a very reasonable one of using this agency for cheaper borrowing, but I worry that there will be a temptation just to incur more and more borrowing because it puts off the day of having to put up rates, which is always politically unpopular.
But having said that those are our misgivings, I repeat that it is far preferable that councils have this ability to borrow, and to borrow more cheaply through this agency, than to have to sell off their assets. Labour members have been referring to the fact that they believe there is still an agenda to sell off assets. We know there is an agenda to sell off national assets such as power companies, but also we expect that in the next term of Government there will be a further push to sell off assets in local government. I just refer to my own experience of a council selling off local government assets. When I first got on the Wellington City Council, there was a great push by members—such as Kerry Prendergast and council members Mark Blumsky and others—to sell off a very, very satisfactory and efficient local energy company called Capital Power. The argument was that we needed to sell off Capital Power because it would be much more efficient, the new private investor would invest better in our local energy infrastructure, and, furthermore, our energy bills would decrease. But, despite a vigorous campaign against the sale of Capital Power, it was sold.
It is a sort of sad story of what happens. Immediately, the company was transferred to one foreign owner—TransAlta. Then TransAlta sold it on to another entity, who sold it on. It has now changed hands about four times, and presently our lines company in Wellington is in the ownership of, I think, the richest man in China. It is really a Chinese company that owns our lines, so all of the money goes offshore. Far from our energy bills decreasing, as we were promised, they have just skyrocketed over the last decade. Money has poured out and there has been a lack of investment in our infrastructure. So exactly what we predicted would happen has happened, and it has been a disaster.
Christchurch, by contrast, hung on to its very excellent power company. It is a very efficient power company and it has invested in infrastructure. Christchurch has not seen the huge increases in power bills we have experienced in Wellington as a result of having sold off our energy company. There is a very important lesson there, and that is why we are so opposed to selling off local council assets and infrastructure. That is also why Wellingtonians will never believe the promises that are made about the advantages of selling off local council infrastructure, because we have seen how disastrous it has been for us. The Green Party will be supporting this legislation, with misgivings.
We also have some misgivings about the fact that the Auckland Council will be able to borrow in foreign currency, as set out in the Local Government (Auckland Council) Amendment Bill (No 2). Other members have said they think the Auckland Council is capable of managing the risk of borrowing in overseas currencies. We are not quite so sure. People say: “Oh, not to worry; they’ll be able to hedge.”, etc. We have all heard that before. Let us remember that one of the triggers of the Asian financial crisis in 1998 was that organisations and entities in Asia had borrowed offshore, in overseas exchange, to finance their domestic activities. When the overseas exchange rates fell, the Asian organisations and entities were left insolvent and that precipitated the crisis. So we are still worried about giving this permission for the Auckland Council to borrow in foreign currencies. We are not as sanguine as other members in this House are.
Having said all of that, we still think that making borrowing cheaper makes sense. We support the Local Government Funding Agency, and we hope that councils will never be in a position whereby one council defaults and all of the other councils are required to pick up the debt. That is a possibility and all local councils going into this agency need to be aware of that. Thank you very much.
TE URUROA FLAVELL (Māori Party—Waiariki) Link to this
Tēnā koe, Mr Assistant Speaker Roy. Thank you for the opportunity to speak on this legislation, the Local Government Borrowing Bill and the Local Government (Auckland Council) Amendment Bill (No 2). I do not intend to take too much time other than to make one or two salient points. As other members have said, the purpose of the legislation is to make borrowing cheaper for local councils. To cut to the chase, the legislation will do that in two ways.
The first way is by establishing the New Zealand Local Government Funding Agency, an umbrella organisation, if you like, for the purpose of borrowing money for local councils. As Sue Kedgley mentioned, the whole notion of bringing together councils is a good idea, but there are some risks. Multiple councils using their debt collectively will hopefully lower the costs of borrowing. In essence, a collective approach to investment makes good sense. I was interested that the Federation of Māori Authorities particularly supported this concept of a local government borrowing authority. It believes that it will reduce overall costs to councils by borrowing collectively through the new borrowing authority, so that is good.
The second way that the legislation will make borrowing cheaper for local councils is by exempting the Auckland Council from the section of the Local Government Act 2002 that stipulates that local government can borrow only in New Zealand currency. Again, that was alluded to by Sue Kedgley. This section has acted as a deterrent to overseas borrowing. As I understand it, the reason for this exemption is the size of Auckland City and the inability of the domestic market to loan enough money at a reasonable price—that is, there is no competition in the domestic market for lending, because of the size of the council.
It probably could not be a better day to talk about and think about the Auckland Council’s massive demand for resources. Earlier today the House heard the debate on Auckland City’s accountability and performance committee, and, in particular, on the release of its report addressing the aftermath of Friday evening’s chaos at the opening of the Rugby World Cup, specifically the crowd chaos and transport failures. Clearly, although the council failed to deliver on travel expectations—ferries were closed down and trains were stalled—it did not really plan for the appropriate numbers. It prepared for 50,000 people, I think it was, but 200,000 people turned up, and so on and so on. I think it is important that we cannot leave our councils in situations where planning and performance are clearly insufficient to meet the needs of the people.
There is one issue that I want to place in front of the House, and it should be no surprise. It is about the whole question of local authorities taking on board a commitment to increase Māori representation. The concept of dedicated Māori representation at the local government level is similar to the approach used by Environment Bay of Plenty and its three Māori constituencies. Māori constituencies at a local level will enable greater enhanced opportunities for local authority candidates to engage with Māori. This is important because we all know that traditionally Māori have had low voter turn-outs at local body elections. By way of some background, research conducted by two people, Christine Cheyne and Veronica Tāwhai, demonstrates that Māori feel a greater sense of connection with local government if they are able to recognise their elected representatives based on their community activities and interaction at a grassroots level. We say that dedicated Māori representation has the potential to improve voter enrolment and therefore democratic accountability and engagement.
In standing briefly to support this legislation I say that we are hoping for a marked improvement in local government patterns of spending that will result in better services. The one key thing that I hope I leave as a key point in this particular debate is the need for more effective representation for Māori at that level. Kia ora tātou.
LOUISE UPSTON (National—Taupō) Link to this
It is great to have the opportunity to speak in the third and final reading of the Local Government Borrowing Bill and the Local Government (Auckland Council) Amendment Bill (No 2). In effect, this legislation represents a cooperative approach to raising finance in the local government sector.
I disagree with one of the comments made by a previous speaker. I do not actually believe that by reducing the cost of borrowing we will necessarily see a significant increase in borrowing. I will explain why I disagree. It really comes on the back of other reforms this Government has made under the leadership of the Minister of Local Government, Rodney Hide. He has done some fantastic work that has been very widely accepted by the local government sector. He has put in place reforms with our earlier legislative changes that provide better visibility, better transparency, and better accountability for ratepayers so that they are able to better see exactly what their councils are doing—the levels of borrowing; what the borrowing is for—and have better, more meaningful reports that are easier to understand.
I do not believe that necessarily making the borrowing cheaper and making it easier for councils to take on debt for large capital projects will increase the level of debt that councils will take on over and above what is already expected. That is the reality of this. There is a projection of large capital projects over the next decade or two, so for local councils to be able to save $25 million in interest costs is quite significant.
The Minister of Local Government has done a fantastic job in this 3-year period. This legislation is yet another example, which we are pleased to get over the line. It is well supported by the House, which is I think an important point to make. We are seeing councils working together. They are working together and they are focusing on the efficiencies they can gain by working together and by sharing services.
Every one of us in this room understands the pressures that our constituents and ratepayers face. They will be very pleased to see this legislation passed, because its impact will reduce the burden of their rates in the years ahead. Thank you.
Hon NANAIA MAHUTA (Labour—Hauraki-Waikato) Link to this
I too am pleased to take a call in this third reading of the Local Government Borrowing Bill and the Local Government (Auckland Council) Amendment Bill (No 2). I will recapitulate a number of comments that have already been raised in the House.
I support the general intent of the legislation, which is to enable councils to borrow at a lesser rate than they currently do. In my mind this will do a number of things. It will enable councils to borrow at lower interest margins than they are currently borrowing at. It will also assure councils that have significant projects ahead of them that they can plan forward and have access to this type of borrowing mechanism. They will therefore have certainty of access to funds to enable their plans to be implemented.
In listening very carefully to the contributions made across the House, the significant types of infrastructure projects we are talking about are all the ones that are covered in the 10-year plans that various councils have been consulting on throughout our communities, so one should not expect that access to this type of borrowing will enable pet projects to get off the starting blocks. In fact, one might consider that this is where the council-community outcomes in the 10-year plans that are being consulted on with communities actually have a higher obligation to engage with communities, so that they are very comfortable about the projections of significant infrastructure requirements that are being looked at and that are needed, but also that need to be funded.
I raise one small concern. We know that this Government has pulled away from funding the sewerage and waste water subsidy scheme and the drinking-water subsidy scheme. My one concern is that in small communities and rural communities of fewer than a hundred or so people, will it be a significant type of project that would gain access to this type of funding? I draw the attention of the House to those smaller but very necessary types of schemes that were funded by the Ministry of Health. This Government pulled away that funding, but they are very needy schemes in terms of their worthiness of being supported and funded. I am not absolutely confident that they will rate high on the radar of significant infrastructure projects.
We are talking about small communities of 100 households here, 100 households there, and the like. I would like to think that those rural communities in very many of our electorates would gain some priority for funding their significant sewerage infrastructure upgrades, but it is a lot of money for a small number of households. I have had direct experience with a number of councils that have said “Look, it is just too costly for us to fund that by ourselves, and to put the onus of that cost either directly on the council itself or to apportion some of that cost to that small number of rural residents.” I think it is still something that is worth considering. If not directly as a benefactor from this type of initiative, it is worth considering those important infrastructure needs that need to be funded in some way or another.
There have been contributions by my colleagues before me who have highlighted that we are supportive of a local government bond bank. We know that Kiwi mums and dads can actually contribute to investing in infrastructure requirements throughout their community, have a stake in the ground, if you like, about what is happening there and about their ability to contribute, and also benefit from their contribution through a bond-type scheme. We see this as a far better way and course to follow than public-private partnerships, which will limit, I think, the types of people who can be involved in such investments.
I also want to draw to the attention of the House that it was good to see that the Federation of Māori Authorities made a supportive submission on this legislation. It interfaced with local councils throughout the country on a number of issues, and it is also in its best interests, I think, to see a better borrowing mechanism for councils, because we know that there are a lot of unutilised lands that are currently in front of the federation that it is looking to get greater utilisation from, but which have serious infrastructure deficits in terms of basic things like roading, water, sewerage, and other infrastructure requirements. I can see the rationale for why the federation put such a supportive statement to the Local Government and Environment Committee on this legislation, and where it sees the greater benefits in terms of optimising currently underutilised pockets of Māori land in their area, and optimising existing pockets of land that are currently being partially used but which could be optimised through having better infrastructure services in their area.
I do not want to take too long on this legislation, because much of the support that has been spoken about by colleagues before me really clearly put Labour’s position, which is that we support it. We listened carefully to the submissions, and I raised a number of small concerns, but in evaluating, I guess, the effectiveness of this legislation in time to come, the proof will be in the pudding, and that will be specifically whether small infrastructure schemes, often rural schemes, will be funded to the degree of their need, and whether they will see any benefit from this legislation. I certainly hope they do. As I said previously, there are a number of worthy, small, rural communities in my electorate that have serious infrastructure needs in terms of sewerage and waste water, and infrastructure schemes are not currently being funded because councils cannot afford to do it and because they cannot afford to apportion that responsibility totally on the resident population that requires these services.
With that said, I look forward to watching how this tracks out for councils over time. I also look forward to seeing how councils work together strategically, thinking smarter about their infrastructure requirements and their capacity to borrow and service some quite big needs over the next 10 years. Kia ora.
Dr CAM CALDER (National) Link to this
It is a pleasure to take a small call on the Local Government Borrowing Bill and the Local Government (Auckland Council) Amendment Bill (No 2). I acknowledge the work done by the Hon Rodney Hide in this area.
There can be few of us in the House today who, on receiving our rates bill, have not shuddered as the rates bill seems to climb inexorably ever higher. Good local government is something we often take for granted, but it is essential for the well-being of our communities, our economy, and our environment. The challenges facing local government contribute to the drive to ever higher council rates. Such rates rises are ultimately unsustainable, and that is why this Government is committed to helping local councils to operate in a more cost-effective manner. This legislation allows for more cost-effective borrowing by local authorities. Through a cooperative approach to raising finance, it is estimated that the New Zealand Local Government Funding Agency could save local councils approximately $25 million a year. This is good legislation, it enjoys support, as we have heard from across the House, and I commend it to the House.
DAVID SHEARER (Labour—Mt Albert) Link to this
I would also like to support the legislation, as my colleagues have, and to pay a tribute to Rodney Hide. I imagine that this will be the last legislation that Mr Hide will put through this House. It is not a bad way to go, with the Labour Party sailing along behind him. I consider that he will probably put that on his CV for whatever he will be doing—that he passed legislation with Labour Party support.
I applaud this legislation, because, as people have said before, it shows some foresight, and for local bodies raising cash, it is certainly a much preferred alternative to privatisation and the selling-off of our assets. Certainly, one of the issues that we were concerned about when the Auckland City bill was going through last year was that much of the infrastructure of Auckland City might be sold off. This legislation keeps the assets basically in New Zealand hands, and, certainly, when we look at the opinion polls we have seen on the privatisation process until now, we see that probably two-thirds or more—between 65 and 70 percent—of New Zealanders do not want their assets to be sold off. They want to keep them in New Zealand hands. I think that certainly one of the defining issues at the coming election will be how we resolve our debt issue, which has marched on to about $18 billion now—whether we bring in a capital gains tax or sell off the majority of our key assets.
This legislation also goes beyond that. It deepens our capital markets, which was a recommendation of the Capital Market Development Taskforce. It is good that some of those recommendations have been picked up. Not a lot of the recommendations of that task force have been picked up, but this is one of them, and it is good that that is actually happening.
This legislation engages ordinary New Zealanders—I do not like the term “ordinary New Zealanders”—New Zealanders who may not otherwise be attracted to investing in a stock market. This provides a very safe vehicle for those people, because it looks like one of the bonds that they will have the opportunity to invest in would probably be rated triple A in terms of the high level of its security. That is largely because the rating base by which it is supported is pretty much as good as a Government itself, being local government.
All in all, this legislation provides a real choice for New Zealand investors to invest in something that will contribute to their communities and will help their children. Whether it be parks, sewerage, waterways, or whatever, these are the sorts of things that all of us will benefit from in time. Because many people are more interested in investing in ethical-type investments, this is the type of investment that will satisfy people in that regard, as well. It provides that alternative to the appalling investments that we saw go down the tubes with our finance companies. This is a real opportunity for New Zealanders to invest in their communities and to do that safely and securely, knowing that their money will come back and that they will get a reasonable rate of return.
It gives local bodies access to capital. About 85 different bodies, I understand, could potentially line up to use this facility. They will have their own sense of control. It will mean that savings for the local bodies—particularly if they have a triple A rating and the funding agency can do away with much of the administration costs—are estimated to be in the order of 40 basis points or, as one of the law firms estimated, possibly in the order of $25 million. Obviously, local bodies—that is, us—are there because of our rates and what we pay into them, so that is a big saving for us, as well.
Quite a lot of borrowing is estimated down the track. There are estimates of $10 billion, and even up to $20 billion, over the next 10 years, but certainly local bodies and local government will need access to capital in order to fund the various pieces of infrastructure that they will need. Up to now local bodies were going to banks to be able to do this, or they sold assets. This legislation will enable them to go to their own ratepayers and to ask them whether they want to invest.
I am particularly pleased, given the size of the Auckland Council, that the Auckland Council will be part of the scheme, as well. With 1.4 million people in Auckland—about a third of the population of New Zealand—having the Auckland Council in the mix is to be welcomed.
In the rare times I have agreed with Louise Upston about the cost of borrowing and whether that would provoke more borrowing, I agree with her that I think that is right. I do not believe that lowering the cost of borrowing will encourage councils to go off and raise more money through the bond market, but what it will do through the funding agency is to be able to keep a track of some of the local body funding that is out there and that is ongoing.
Of course there is a degree of risk if there is to be any sort of borrowing. Sue Kedgley raised a couple of those issues. But I do not really think in the context of what we are trying to do here that the oversight to some degree of the funding agency, in terms of how much each local body will be taking out, and the separation of the funding agency debt, alongside some of the other debt, is necessarily a valid concern.
What this legislation will do for many of these agencies—and I think the Auckland Council, in particular, is relevant at the moment—is to enable the Auckland Council and other councils to raise funds for their own infrastructure. Auckland definitely needs that sort of funding, because as we have seen over the last few days the lack of investment in our public transport, in particular, has meant that our public transport has really let us down. Although we do not plan for one-off events like we have seen at the Rugby World Cup, nevertheless over the last 5 years we have seen the use of trains and the patronage of trains in Auckland double. We know that in a couple of years, when the line is electrified and we finally get the electric trains to run on it, there will be a massive spike in the patronage on those lines, because that is exactly what happened in other places in the world. It is what happened in Perth. By the way, we have Perth’s diesel engines that were about to be put on the scrap heap. We managed to buy those and keep them running for another 20 years. That gives us an understanding of why we need to be investing in our own infrastructure. Aucklanders, I believe, understand that, and they understand the need to be able to make that investment.
I hark back in the case of Auckland to the regional transport levy, which was imposed under the Labour Government. No taxes and no levies are ever welcomed by anybody, but the regional transport levy was welcomed, to a large extent, in Auckland, because Aucklanders recognised that this money was going to help them move around Auckland—and it did. It did and they accepted the levy. It was well and truly accepted. What happened? It was taken away by Mr Joyce. He consolidated it into the consolidated account, so now Auckland, which gets less tax money back for the amount that it pays—
Mr DEPUTY SPEAKER