Can a new government solve NZ’s local council crisis? Why a royal commission could help

A royal commission of inquiry into New Zealand's local council crisis could provide a fresh perspective on the sector's challenges, similar to how it established the Auckland Council in 2010. The sector has faced numerous changes, including the centralisation of water management, amalgamation plans, and alterations to planning processes. These disruptions have been well-documented, with councils struggling to keep up with increased operating costs due to COVID, rates caps, and inadequate funding sources.

The local funding model, which combines rates, user fees, and central government grants, is no longer adequate. Councils face rising costs, estimated to require an additional $11 billion over the next seven years to meet unexpected expenses. Furthermore, central government's attempts to streamline the development process have created funding challenges, with councils lacking alternative revenue sources and being unable to raise debt capital for infrastructure investments.

Central government's contribution to local governments is also insufficient, with water services alone projected to cost at least $120 billion over the next 30 years. Only 7% of total national revenue goes to local councils, far less than other OECD countries, such as Australia, which provide approximately 35% of local government revenues in the form of grants and subsidies.

Additionally, local government faces political uncertainty and challenges related to its obligations under te Tiriti o Waitangi. The previous government removed or rewritten references to the Treaty in 18 statutes and sought to reverse local council efforts to include Māori wards. These political factors contribute to the ongoing difficulties faced by local councils.