Can a new government solve NZ’s local council crisis? Why a royal commission could help
- Written by: Weekend Times
There is a famous truism that “all politics is local” – meaning citizens and voters care most about the things that affect their daily lives.
Many of those
things are bound up in the work of local councils: libraries, parks, community centres, roads, garbage removal, water drainage, sewerage, urban landscapes and clean environments.
And yet, despite local government in New Zealand having experienced continued jurisdictional, institutional and financial upheaval over the past several years, the sector still faces enormous underlying challenges.
Those include increased operating costs since COVID, centrally directed changes to planning processes, rates caps and inadequate funding streams, and changes in natural resource management law.
On top of this, there is great uncertainty over the disestablishment of regional councils, on-again-off-again amalgamation plans from central government, and the role of te Tiriti o Waitangi/Treaty of Waitangi in local governance.
Given the urgent need for better policy solutions and innovation, it may be time for a royal commission of inquiry to provide a new blueprint for local government – similar to the process that established the Auckland Council in 2010.
Chops and changes
The disruption affecting the sector has been well documented. For example, the previous Labour government’s Three Waters plan to centralise management of water supply and sanitation was dramatically modified during its initial implementation.
It was then repealed entirely by the incoming National government which introduced its own Local Water Done Well legislation.
Similarly, the outgoing National-led coalition’s Head Start amalgamation plan, which replaced the earlier proposed Combined Territories Board model, was implemented with strict requirements but little apparent consideration of its complexity.
Head Start required councils to propose their own reorganisation in a three-month window from May to August 2026. Failure to reach a local agreement would then place amalgamation in the hands of the central government.
After considerable hard work by various councils to meet the August deadline – costing approximately NZ$9 million dollars – 18 proposals were put forward. The process was then put on hold by the government.
More generally, for the past decade, the problem has been framed as one of too much government in general. Central governments have sought to amalgamate local governments and services, eliminate regional governments, and privatise local entities that provide local services such as water.
Yet the problems in the sector run much deeper than reorganisation will solve.
Local governments have faced cost increases that hugely affect their ability to provide services and infrastructure. It is estimated council rates have risen 34.4% over the current three-year electoral term, against general inflation of 13.7%.
Local Government New Zealand recently estimated an extra $11 billion is needed over the next seven years to meet unexpected cost increases. The recent 4% cap on rates increases will not help, but will further exacerbate decades of underinvestment and lack of maintenance.
Rising costs and limited revenues
It’s also clear the local funding model, which combines rates, user fees and central government grants, is not fit for purpose.
Councils have more environmental, planning and housing responsibilities. This requires more expensive and time-consuming technical and bureaucratic expertise.
Efforts by the central government to cut through these perceived obstacles with fast-track approval legislation have created funding problems of their own.
For example, Auckland Council has put the cost of unanticipated fast-tracked development of 50,000 to 60,000 new dwellings at approximately $3 billion (on top of what it has already budgeted for new development).
But councils lack revenue alternatives to rates, which is unfair to ratepayers and creates inequalities across regions.
That’s why there was such disappointment when the government recently ruled out a visitor bed tax for Auckland and Queenstown which would have been targeted to offset the direct cost of tourism to those councils.
This inability to raise other revenue also limits the use of debt capital to invest in and repair infrastructure. That creates intergenerational inequities as costs are pushed out into the future.
Finally, central government does not share enough revenue with local councils proportional to the amount of infrastructure they control and services they provide.
Water services alone will cost at least $120 billion, and up to $185 billion, over the next 30 years, according to Treasury estimates.
Meanwhile, central government contributions have averaged around 10% of local government operating income since 2000, not enough to meet increasing legal and infrastructure costs.
Future-proofing local government
Other OECD countries transfer significantly higher proportions of central taxes to local governments. For example, Australian federal and state funding provides approximately 35% of local government revenues in the form of grants and subsidies.
In New Zealand, as Southland District Mayor Rob Scott observed recently, of the combined national revenue raised by all taxes and rates, only 7% goes to local councils.
As well as these funding traps, local government also faces political uncertainty and sometimes acrimony over its obligations to Māori and te Tiriti o Waitangi under the Local Government Act 2002.
The outgoing government has removed or rewritten references to the Treaty across 18 statutes, and sought to reverse local council moves to add Māori wards. Changes to the Resource Management Act have seen some iwi-led partnerships with councils wound down.
Local decision making often sees heated debate, and this is crucial to democratic governance. But these kinds of fundamental changes at a central level call for innovation and compromise to navigate at the local level.
A stable and effective local government structure is every bit as important to the everyday lives of New Zealand citizens as the outcome of next month’s general election – arguably more so.
A royal commission would be a useful first step in ensuring councils have the right jurisdiction and appropriate funding for managing their statutory obligations beyond the next election cycle.
From the cost of living and a health system under extreme pressure to how best to tackle climate change, the coming election involves some big choices.
This article is part of The Conversation’s Election 2026 series: expert analysis of the major policy debates and the big challenges New Zealand’s next government will face.
Guy C. Charlton does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.
