Friday, 23 October 2015

Are the rates out of control?

Last week's write-up of the latest CPI by Stats NZ included this graph. It showed how the prices of various components of central and local government charges have been behaving since 2006.


The colours aren't that easy to tell apart, but the top line is local authority rates, which appear to be on an inexorable rise, through good times and bad. The line that drops sharply at the end is 'other private transport services', where you see the big impact of recently lower ACC levies on the cost of licensing your car.

That remorseless rise in the rates bill got me thinking, so I've done a little bit of research, and here is how the rates, average weekly total earnings, and overall inflation have behaved over the same period, all rebased to 1000 in mid 2006, and all seasonally adjusted. Over the whole period, prices in general rose by 20%, weekly earnings rose by 35%, and the rates - well, the rates rose by 60%.


Maybe we shouldn't be worried. The rates, after all, are subject to some sort of political discipline, and presumably the voting citizenry either don't mind what's happened, or even asked for it, if they felt (for example) that councils finally needed to get on with building adequate local infrastructure.

But I can't help feeling that there's an argument that the electoral discipline doesn't look very binding. At a national level, it's true that politicians can generally no longer get away with bribing the electorate with its own money - there's a great deal more transparency about the costs of lolly scrambles - but is the same scrutiny as effective at local authority level? And even assuming that all is politically hunky dory, did councils really deliver a 33% real (above inflation) increase in services to us all over that period? Doesn't feel like it. And I don't see any efficiency dividend from Auckland amalgamation in the rates graph*.

I don't have the answers, but I do have a question: are rates rises out of control?

*Addendum Oct 28 - Subsequent (separate) comments have pointed out that Auckland has had one of the lowest increases in rates since 2006, and that total rates collected in Auckland have fallen since 2009, so there may be an efficiency dividend after all.

11 comments:

  1. Donal, couple of questions out of interest. Does your rates data split into the different local authorities? Would be interesting to compare which districts are growing particularly rapidly, and why. And secondly I can't help but feel that electoral discipline would be more effective if there were a greater distinction between expenditure on new infrastructure, replacement infrastructure, and service operation. My hunch is that development contributions tend to be too low, and that there's a resulting cross-subsidy from existing homes to new ones.

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  2. Thanks for the comments. On the first, I don't think there is a regional breakdown of the 'central and local authority charges' component of the CPI. I wouldn't bet the house that I'm right, because Infoshare isn't the easiest thing to navigate around, but I've looked and I don't think there is. On the second, that's a good point, and I totally agree. To be honest, I haven't minded too much about my rates in AKL, because I've taken it on trust that the rises have been going to fix or build an infrastructure that's nowhere near adequate for AKL's growth, but I've never verified it. And it's a bit outside my area of expertise (such as it is) - I can do macro stats (hence the fossicking about in the entrails CPI) but I don't really know what sorts of breakdowns of local authority spending are available

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    1. Stats NZ publish sources of income in their Local Authority Statistics series. I extracted rates income, divided by population estimates, and calculated an index for each TLA on the basis of rates per capita since 2006. It is visible here: http://i.imgur.com/SAect8O.png

      Interestingly, Auckland actually has had the fourth-lowest increase in rates per capita since 2006! Waitomo is the worst offender! Will explore the same metric for total revenue later on.

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  3. Well done you! And it tallies with the 60% increase I mentioned, as the (eyeballed) average of your series looks somewhere around the 160 mark, too. I would have bet money that Auckland would have been in the top half, not near the bottom, but there you go, if all else fails look at the facts. You ought to publicise these numbers somewhere

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    1. Thanks Donal, I very well might. Want to apply a little more analytical rigour before publishing anything.

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  4. I wonder what the trend looks like over a longer time period. My impression is that local governments swing between a "we are fiscally responsible and so we will let the pot holes grow and the sewage go untreated" to "eekk - we can't have that much sewage in the potholes so we had better spend some money". A few years alone won't tell you the full story if my impression is correct.

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  5. Thanks, and that's absolutely right. The reason I stopped at 2006 was that that's where the Stats CPI numbers start to break out central and local government charges. The comments (above) from SteveDawgNZ identify another source of local authority data which might provide an answer

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  6. Hi Donal, Steve - this post (and the link to the LAS data) motivated a couple of us to take a further look at the issue. Total rates collected in Auckland have fallen since 2010 - a marked deviation from the ongoing trend in the rest of the country. Perhaps the amalgamation actually succeeded in delivering efficiencies?

    See: http://transportblog.co.nz/2015/10/26/is-the-auckland-super-city-out-of-control-computer-says-no/

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    1. Hi Peter. Just came across the TransportBlog post today - solid gold from you guys as usual. Appreciate you taking the time to fully explore the issue!

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  7. Thanks for the comment, and for the link (and for the record I wasn't aware that some one else had been using "out of control' as well!). Happy to accept that the Auckland record looks good (I assume that the ARC/ARTA inclusion doesn't affect the result?) and that there may well have been efficiencies - having been on the receiving end of a previous amalgamation (Hutt County => Porirua in the '80s) that didn't seem to generate any, it would be good to know that amalgamation does work. I'm still left baffled by the wider phenomenon - and if indeed rates in AKL have been falling, then rates elsewhere in the country must have risen even faster again than my graph showed. Maybe it is, as one commenter said, that infrastructure gets neglected, and when it has to be replaced it's almost by definition going to be a lumpy $$$ spend, and if you're a smaller local authority, that's going to translate into lumpy % rates increases. But as I say, I'm no expert on LA stats - what caught my eye was what was going on in within the national CPI - so I've have to leave it to the LA micro folks to advance my understanding from here!

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  8. Taking a longer-term view, I recall the report of the Royal Commission on Akld governance found that total local authority rates had stayed pretty close to 3% of GDP over the long haul. Perhaps true, but it doesn't alter my sense that the Wgtn City Council wastes an awful lot of money doing things that simply don't need doing.

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