Many journalists and central government politicians (mainly the ones who sleep in blue or yellow pajamas) have recently promulgated the view that local government rates in Auckland are “out of control”. In the video below, Paul Henry gives you a flavour for the fervour emanating from these corners.
Henry’s video segment contains a lot of heated rhetoric, but precious little data. Like Henry, I am also a rate-payer. And I was genuinely interested in what the data says about historical trends in rates in Auckland. In this post I consider Henry’s central claim, i.e. that rates are “sky-rocketing”, and try and hone in on some interesting questions relating to local government rates, and in particular what people mean when they talk about trends in local government expenditure. I finish by discussing my preferred measure of local government expenditure, and also provide some comments on some interesting issues that Paul Henry does not discuss – but which underpin many of the issues he is interested in.
Now, from Henry’s segment it’s not immediately clear to me how he defines “rates”, so let’s approach the topic using a couple of indicators.
In the figure below I have plotted total rates (indexed to 1996 levels) collected per annum for the period from 1996-2014. This figure illustrates trends in Auckland versus other local governments in New Zealand (NB: Data on local government expenditure and consumer prices is sourced from Statistics NZ). Note that because the local government definition of “Auckland” changed in 2010, I’ve followed the convention of defining “Auckland” prior to this point as the seven TAs plus the regional bodies (ARC and ARTA).
A couple of things emerge from figure C1. First, we find that the total amount of rates collected in Auckland has declined in real terms since 2011, i.e. about the time that Auckland Council was formed. The total amount of rates collected in 2014, which is the last year for which data is available, was approximately the same as that collected in 2009. Second, the flat-lining in total rates collected since 2011 is in stark contrast to trends for the 15 years prior to this point, in which time rates increased in real terms by approximately 75%. Third, during the last five years local governments elsewhere in New Zealand have increased their rates by about 10%, while rates in Auckland have declined.
Conclusion #1: The amount of rates collected by Auckland Council in 2014 was 5% lower than when the super-city was first formed, i.e. total rates have reduced in absolute terms since Auckland Council was formed.
The previous figure considered total rates collected. However, in this period the population has generally been increasing, both in Auckland, in particular, and New Zealand, in general. To control for this fact, in figure C2 I have plotted rates collected per capita per annum.
Factoring population growth into our analysis accentuates the trends identified in figure C1 . First, we see that in 1996 rates per capita in Auckland were at a level that was very comparable to the rest of NZ. Since 1996, rates per capita have increased more slowly in Auckland than elsewhere in New Zealand. We find Auckland’s per capita rates peaked in 2010, since which time they have declined by approximately 8%, or ~2% p.a. In contrast, during the last five years other councils in New Zealand have increased rates per capita by approximately 9%. To put it another way, had rates in Auckland risen at a similar rate to the rest of the country since Auckland Council was formed, then they’d be approximately $200 per capita per year higher than what they actually are.
Hmmm. The “super city” appears to be at least as effective as local government in the rest of New Zealand. It’s not looking very good for Mr Henry?!?
Conclusion #2: Rates per capita in Auckland peaked in 2010, and have since fallen by 8% to now be 20% below the New Zealand average. Both local and central government expenditure is lower in Auckland than the New Zealand average.
Not only have we found no evidence to support Henry’s central claim, but we have actually found evidence to the contrary: Rates in Auckland have declined in both absolute and per capita terms, such that rates in Auckland are now 20% below the New Zealand average. Why did this freely available and highly relevant data did not feature in Paul Henry’s 10 minute segment? It’s notable that in this same segment, Paul Henry claims that rates under Auckland Council are “sky rocketing” and goes on to accuse Len Brown of being a “liar” for not keeping rates increases in line with inflation. Claims that are made without presenting any data, and which contradict the data that I have been able to find.
From what I can tell, Henry’s claims about rates are incorrect (NB: Some might use the phrase “shitistics” to describe Henry’s analysis).
More generally, the data suggests Auckland Council has maintained rates at or below historical levels. And in amidst all of Henry’s operatic soap-boxing about rates rises, he seems to have overlooked some interesting questions that are worth discussing. The first is that the increases in rates that are levied on residential activities (which I think is actually what he means when he refers to “rates increases”) has come about because of a strategic decision by Auckland Council to reduce rates levied on businesses. The rationale for what effectively amounts to a ‘rates switch’ is discussed here on Auckland Council’s website. This important issue does not feature in Henry’s segment.
Put simply, it’s important to remember that the rates collected by Auckland Council is sourced from both business and residential activities. Moreover, Auckland Council has previously made a strategic decision to shift the burden of rates away from businesses and instead onto residents (NB: Arguably residents end up paying for the rates levied on business activities anyway, through either 1) higher costs for the goods and services that they consume and 2) reduced employment and/or lower incomes).
Nevertheless, it is important that conversations about residential rates in Auckland are considered within the broader context of reductions in business rates. Now Henry may think businesses should pay higher rates, and I’m interested in having that debate. But it doesn’t change the fact that rates (by both aggregate and per capita measures) have fallen since Auckland Council was formed. Which brings me to my final point …
Conclusion #3: While total rates and rates per capita have decreased by 5% and 8% respectively since Auckland Council was formed, the rates paid by residential activities have increased so as to fund even larger reduction in the rates paid by business activities.
I’ll say from the outset that this policy direction is one that I support at least on a high level, for reasons that hope to discuss in more detail in future posts. In my opinion, such a move is not just desirable because it is likely to promote “business and employment growth”, but also for creating a level playing field for land use investment decisions, as well as more direct democratic accountability. However, I’m interested in other views on the topic …
I’m also interested in a wider discussion on how we measure relative levels of government expenditure.
Personally, I’m a fan of per capita per annum metrics. This applies to both local and central government, where the latter has been previously analysed by Brian Fallow at the Herald. In a country with a growing and ageing population, such as New Zealand, maintaining total government expenditure at or below inflation effectively amounts to spending cuts for the average person. In my view, the default position would be for government spending per capita to remain constant over time, with deviations from this level then being justified by whoever is in government at the time. I note that even this more mild type of fiscal constraint would likely result in government expenditure as a proportion of economic activity reducing over time, as real per capita GDP increased in response to productivity growth.
Finally, this discussion of rates in Auckland is all the more interesting given Peter’s recent post on central government expenditure, which showed that – compared to other regions in New Zealand – Auckland receives slightly less central government expenditure per capita than what you’d expect based on its proportion of the population and GDP. I’m personally comfortable with this transfer because the Auckland population is, on average, wealthier, healthier, younger, and more productive than New Zealand as a whole. However, given the relative lack of expenditure by central government you might expect Auckland Council would need to spend more than average. But the reality is quite the opposite: Total government expenditure per capita is significantly lower in Auckland than the NZ average.
To sum up: In response to the question of whether Auckland Council is “out of control”, this computer says “no”. And in the eloquent words of hospital receptionist Carol Beer, I hope people like Paul Henry would rate this information as “ff’ing helpful“. Perhaps next time Henry feels like doing a hatchet job on Auckland Council, he might first spend at least five minutes doing some elementary research. Like, you know, finding at least one reliable piece of data that doesn’t contradict his claims.