Auckland has made painstaking progress toward becoming a functioning modern city. Now its councillors may put that in jeopardy for a proposal that will save ratepayers an average of 47 cents a week. Hayden Donnell reports.
In the depths of the Covid-19 lockdown, Auckland’s councillors started coming under pressure from a familiar antagonist. It was early April. The city’s economy was on life support. Businesses were hemorrhaging jobs. Anti-rates campaigners lifted the stone lids from their ancient sarcophaguses and started shambling into action. Jo Holmes, spokeswoman for the Auckland Ratepayers Alliance, put out a statement saying Auckland’s economic system was unrecognisable from when mayor Phil Goff was elected on a platform promising 3.5% annual rates rises. “The mayor needs to scrap his old spending priorities and urgently rejig council finances so he can assure Aucklanders of a rates freeze,” she said.
Holmes’ ideas have often been brushed off in recent years. The Ratepayers Alliance is an offshoot of the Taxpayers Union, which has been criticised for taking the government’s wage subsidy and making extensive use of a human-sized pig costume. During one round of media interviews in 2018, Holmes appeared not to know how rates actually work. This time things were different. Her argument won support, not just from the usual crowd of spendthrifts, but from usually unsympathetic councillors. When the council’s governing body met to discuss how they would overhaul their finances in light of the pandemic, Goff suggested a compromise to fend off the possibility of a rates freeze. He proposed that council consult on a 2.5% rates rise alongside its planned 3.5% increase.
At first glance, that compromise sounds sensible. Aucklanders are still reeling from a one-in-100-year pandemic. Some have lost their jobs. Raising rates seems politically unpalatable with an economic depression looming.
On second glance, it may be the worst idea a council body has had since nearly ruining Christmas. Though it doesn’t sound like much, a 2.5% rates rise would be shockingly self-destructive. It would necessitate deep, wounding cuts to council services and climate-friendly transport projects, most of which would disproportionately affect lower-income people. In return it would save ratepayers, all of whom own property and may already be among the city’s wealthiest residents, an average of 47 cents per week.
Auckland Council’s emergency budget was forced upon it by the Covid-19 pandemic. It was always going to be depressing. The council lost $525 million in revenue during the crisis, with everything from zoo ticket sales to airport dividends crashing. North Shore councillor Richard Hills says the council would’ve had to raise rates by 30% to keep every plan from its pre-Covid budget. Even with the previously planned 3.5% rates increase, deep cuts will be needed. Jobs will be lost, and worthy projects will be deferred or cancelled.
But those cuts become gaping wounds under the proposed 2.5% rates increase. The figures are depressing. According to the council, a 3.5% rates increase would mean paying $1.82 more per week on average for ratepayers. A 2.5% increase works out to $1.35 more per week.
That meagre per-person saving has an outsize impact on the budget. Under a 2.5% rates increase, public transport fares – already raised in January – will likely rise yet again. Fare concessions for groups including the elderly and children will likely be removed. Libraries may close. Walking and cycling projects will be “extensively” deferred, and climate action will be delayed. Those changes either won’t happen, or won’t be as severe, under a 3.5% rates increase.
The impacts of a lower rates rise are so extensive, partly because of the way local government’s finances are structured in New Zealand. Auckland Council’s debt is capped by legislation at 2.7 times its revenue, meaning every dollar of lost income results in a corresponding reduction in its borrowing power. Unless rates are put up later to make up for the lost revenue, that reduction compounds year upon year. In other words, 2.5% rise won’t only mean $17m in revenue and $45m in capital are gone this year; around $200 million in revenue and $450 million capital will be lost over the council’s entire 10 year budget.
Though implementing a rates cut might look good in the short-term, Hills warns the downstream impacts won’t be as popular. “I think to save 47 cents [a week] and see the city grind to a massive halt could be seen as irresponsible by a lot of people,” he says. “A lot of us will have to look deep in our hearts and minds and ask ourselves ‘is saving 47 cents per week for the average household worth the deep cuts to local board budgets?’. People are going to notice when maintenance doesn’t happen. I don’t want to close our libraries.”
The Green Party’s local government spokesperson Chlöe Swarbrick is more direct. “What is presently being proposed by Auckland council is absolutely disastrous to communities and for the climate,” she says. “And it’s regressive. It’s going to hurt our least well-off the most.”
The council’s proposed financial self-immolation is more confounding given the country’s quicker-than-expected descent to alert level one. Some parts of the economy are almost back to normal. Many of the people who felt financial strain during lockdown are now back at work. Those still in trouble could potentially benefit from existing rates relief programmes.
Despite that, it’s understood a vote would be tight if it were held today. Goff is still non-committal on the idea of a 2.5% increase. “The economic downturn will mean that Aucklanders generally will have lower incomes and we need to be mindful of that when setting the rate,” he says. “My preference is for 3.5% but I will be listening carefully to what Aucklanders tell us in the submissions process.”
Central government could help soften the impact of the Covid-19 crisis on the council’s books. Goff, Hills and others have repeatedly called on the government to stop charging GST on rates, which the mayor has called a “tax on a tax”. The proceeds from that move alone could almost pull Auckland Council out of its fiscal hole, Hills says. “It’s frustrating because they could fix this issue overnight.”
Though that’s unlikely in the immediate future, help could come in the form of government funding for some of the “shovel-ready” infrastructure projects currently on the council’s books. Finance minister Grant Robertson told business leaders on May 21 that the government would make a decision on which projects to fund within weeks. Despite that assurance, the council has received “radio silence” on the potential funding recently, Hills says. “I’m pretty depressed that we don’t know. I’m concerned that there’s some kind of anti-Auckland thing going on.”
Goff says he’s written to the government asking for a prompt decision on what projects will be funded so it can be factored into the council’s budget. In the meantime, the council is looking at passing a rates rise which would be disastrous for the climate and the future shape of the city, while the government sits on its $20 billion in unspent money from Budget 2020.
For years, Auckland has been moving inch by painstaking inch toward becoming a modern city built around walking, cycling, and public transport. Now even that glacial progress is at risk. Councillors have the ability to avoid some of that damage by choosing not to adopt their own poorly conceived proposal. If they won’t do that, Robertson may have to save New Zealand’s biggest city from itself. A decision on the budget is set for July 16. He has until then to make up his mind.