VIEWS FROM OUTSIDE THE APIARY
The Government’s ‘Three Waters’ reform of water, sewerage and stormwater arrangements is ambitious, complicated and controversial. The National Party has already said that, if it leads the next Government, it will repeal at least parts of the reform. So, which side has the strongest argument?
By Ian Fletcher
The proposal is ambitious: local-authority owned water and waste water assets would be transferred to four new entities. They are said to be big enough and would be sufficiently well-managed to be able to manage the $120-$180 billion of investment the sector is said to need over the next 30 years. I think that number is probably an underestimate, if population growth continues and if our tendency towards chronic optimism in costing big projects also continues.
It's complicated. I’ve previous described the governance structure as ‘baroque’. I stand by that: to provide for professional management, a local voice, and Māori co-governance, the result is baffling and opaque.
The local government NZ website explains:
“Independent, competency-based boards would govern each entity. This is how these boards would be chosen. Councils and mana whenua would appoint a Regional Representative Group. This group would appoint an Independent Selection Panel, which would appoint the Entity Board. But each entity would also have to engage with its communities on key documents that set its direction. The entity would actively report on how consumer and community feedback was incorporated into decision-making.”
Got that? A new composite local body would appoint a selection panel, that would appoint the board, that would, in some rather loose way, be accountable to communities. This something-for-everyone approach is a weakness. It may just not work.
And controversial: this is the one national issue I get local people here in the Wairarapa wanting to talk about. Rightly or wrongly, they see it as a loss to the local community, and they certainly don’t identify with either the problem or the solution. National has seized on that, and I’m sure they will make political hay come election time.
So, how to judge?
First, the government is right that a lot of investment is needed. Existing water services are old, need replacing, and a growing population just needs more. The cost estimates are probably light. Professional management of big projects is a good idea too. But we mustn’t get spooked by the big numbers – over time, it’s maybe $5-7 billion a year, in an economy currently running at around $250 billion per year. A sizable cost, but by no means unmanageable. And if 30 years becomes 35, it’ll get easier. There’s a lot of looseness in the numbers.
How to pay for it?
It’ll always be a mix of debt, taxes and user charges. The mixture is a political choice. Taxes are efficient, but unpopular. Debt helps spread lumpy costs. Charges are politically sensitive – the sensitivity is around big increases, of course. The Crown has the best credit, so the optimum for new or replacement assets is borrowing on the Crown’s ticket, and slightly higher taxes. If the Government tries to paint these new entities as somehow off-balance-sheet to flatter its accounts, we will pay more. In fact, New Zealand’s public debt is commendably low, and Crown borrowing for this sort of investment should be uncontroversial. And we need higher taxes anyway, as I’ve previously argued!
Which brings us to the question of local accountability, and the separate question of whether these assets should be in local authority control, or in specialised water entities. This is where National is pointing to the claimed loss of local assets, and control. Of course, the assets (pipes, pumps, sewers) aren’t going anywhere, they would just move from local authority control to another public entity. The government argues that local authorities are too fragmented and lack the expertise bigger specialised organisations would have, and also that local government has a narrow, inefficient tax base through rates, and so arguably worse credit.
The Government has a point, but in fact water operations may be different to water investment and construction. The French model (local authorities build and own the assets, but franchise operations to specialised operators) shows an alternative. Will it matter? History suggests that these apparently big shifts in public arrangements settle down quickly – “The dogs bark; the caravan moves on…”. This must be the Government’s hope.
But the complex co-governance arrangements might lead to enduring controversy. Much will depend on the skill (political and social as well as managerial) of the new entity Boards. If National wins the election, reversing all this might be difficult – some local authorities might be glad to have got rid of lots of leaky pipes onto the Crown’s balance sheet, however indirectly.
This argument only makes sense because New Zealand has a strong central government and weak local/regional governments. The proposed new water entities would be expressions of the centre’s power. Strong regional or provincial government with a decent tax base would provide a real alternative for this, and many other service delivery challenges. That option seemed to have ended in 1875 (when the provinces as political entities were abolished). It’s a debate an imaginative opposition leader might want to revisit. Wellington can’t do everything; getting others to shoulder some of the burden might be a smart move.
Ian Fletcher is a former chief executive of the UK Patents Office, free trade negotiator with the European Commission, biosecurity expert for the Queensland government and head of New Zealand’s security agency. These days he is a commercial flower grower in the Wairarapa and consultant to the apiculture industry with NZ Beekeeping Inc.