Submission to the Local Government Commission on Reorganisation of Wellington Local Government

You will be aware that there is a push for a Wellington supercity. Here is our submission to the Local Government Commission:

3796322_origSubmission to the Local Government Commission on Reorganisation of Local Government in New Zealand

1 March 2015

1. Who we are

We are a political party that was started in 2011. Our goal is to have a just and sustainable economy that mimics nature in its organisation. We want a tax system that taxes what you hold or take not what you do or make. We want a money system where money is created without interest by the people not by commercial banks. We want a welfare system that encourages sharing, honesty and intimacy. We want open government and participatory democracy, including participatory budgeting.

2. We do not favour the proposal in its current form but would recommend an entirely different form of cooperation and sharing. While we are in favour of the organisation of a larger unit, not all power and control should go to the central body. Your model does this. All revenue is collected centrally and it does not appear to be shared fairly. All major decisions appear to be made centrally or by unaccountable Council Controlled Organisations. This is not nature’s model. Although we understand that ‘finance
follows function’ it is the central organisation that does all the deciding in your model and this is unacceptable.

We like both big and small and so we commend working on the organisational model from scratch. We believe that each small community have its own unique nature and be in a state of constant negotiation with the nearest big centre and with the centre. As far as possible it should recycle within its own community. When there is a major financial decision to be made there should be participatory budgeting.

3. Organisation of government should resemble nature. Nature has complexity, continuous recycling of energy and matter. There are managed boundaries. In nature there are systems within systems and wholes within wholes. There are well designed feedback loops for constant readjusting towards equilibrium. There is continuous self-organisation and response to stress or change. In nature there is no conflict between the needs of the larger whole and the needs of individual cells or organs. n nature decision making is spread. Cooperation supplements competition. There is diversity and coordination of parts and an awareness of the whole. Since for any whole part the energy and resources in must equal the energy and resources out, it is critical not to deplete resources from the periphery or it withers and that is not good for the whole. CCO’s must be managed on this principle.

4. This requires the reinstatement of paid community boards and the right of local communities to elect their own community board. Democracy costs money and we should not sacrifice democracy to starve the periphery of representation. There needs to be a balance between efficiency and resilience. Nature manages quite a lot of replication. It saves energy and resources by its superb organisational principles. Although under this model Local Boards (formerly councils) have the choice to have local
committees (previously Community Boards), it must be remembered that Kapiti Coast District Council in 2008 was one vote away from disestablishing Community Boards.

5. As a second best alternative please at least recommend legislation to require local representatives to call public meetings to discuss major budget decisions at local level and give them the money to do this.

6. CCOs must be answerable to elected representatives and the LGC must make it clear how this is to happen. These have largely been responsible for the fact that both Rodney and Waiheke are now working to escape from the Auckland supercity. We need more information on CCOs and their powers.

7. We endorse the submission of the “Land” Rent for Revenue and Justice Association of New Zealand where it recommends that in Local Government reform a larger entity should reinstate a rating system based on land value alone rather than capital value.

We believe in the principle “location, location, location”. Where there is a location that gives access to more services like infrastructure, commerce or nature, it is the land that goes up in value. Because we should pay for what we hold, we should pay for our continuing use of the land.

a. It is a progressive tax. Rating on land value alone means rates are lower for more ratepayers. Hence where a poll has been taken –

a situation that existed for decades – the public has has always chosen land value rating.

b. It discourages sprawl and saves public money. Since sprawl leads to a demand for building infrastructure it is essential financially to have a rating system based on land values. When this happens, landowners will either sell underused sites or use them appropriately. Capital value rating results in cities with holes in as development often “leapfrogs” outwards in search of cheap land.
Wellington should remain compact and we should encourage compact development in each town within the region.

c. There should be public ownership of infrastructure. The larger council should own and coordinate the infrastructure – the natural monopolies of water, main roads, rails, pipes, wires, ports and airports. Where possible the operation should be leased to private operators at market rentals.

d. It discourages speculation because those who do not use valuable land properly are penalised.

e. Land value rating encourages building and improvement of properties, whereas capital value rating discourages it by penalising it.

This is good for business. It is no good arguing that Wellington economy is not flourishing and then putting in a rating system that discourages economic activity.

PPP Infrastructure Finance – A Case of Public Pain for Private Profit..?

The following is an article written by kiwi Joel Benjamin who is in the country for three months. Formerly from Hawkes Bay, he is currently a researcher for Goldsmith University in London and was formerly a campaigner for public finance. oblique-view-img4It's time for a serious public debate on infrastructure future.



This week at the Auckland transport summit 2014, experts from around New Zealand will gather in Auckland to discuss transport infrastructure planning solutions to address Auckland’s growing urban transport problems.



Entirely missing from the debate however, will be an open public discussion of how such infrastructure will be paid for by all New Zealanders, and paid to whom?



Having recently returned to New Zealand after several years in financial campaigning in London, I was interested to see what was being proposed in New Zealand across the infrastructure planning and finance space. The answer is PPP. Upon leaving a planning role with Napier City Council in 2006, I spent 3 years in Melbourne with State transport authority VicRoads, before briefly entering the consultancy game.



Through the experience of working on projects including the Calder Corridor and Geelong bypass in Melbourne and Sydney West Metro underground rail, I have seen the best and worst of what the private and public sector have to say and do on infrastructure development.



Compared with Melbourne, Sydney is a transport infrastructure basket-case, suffering from 20 years of State Government decision making paralysis. While the construction companies hate the constant transport planning u-turns, for the planning and engineering consultants, it’s a fee earning gold mine, with taxpayer funded “team-building” gigs sailing on Sydney harbour all the rage.



Ideologically I am not wedded to either public or private sector approach to infrastructure delivery. I am however extremely concerned about who pays for infrastructure, and that what is designed and built is fit for purpose and meets demonstrable public needs.



In the mid 1990’s Australia and the UK embarked on a infrastructure financing model called the Private Finance Initiative (PFI/PPP) to fund public infrastructure including schools, roads and hospitals “off balance sheet” using more expensive bank finance, instead of Government borrowing.



Whilst PFI has proved a gold mine for private financiers and construction firms, it’s been a disaster for the UK taxpayer.



To pay back £55 billion of PFI/PPP infrastructure will cost UK taxpayers £301 billion over the next 30 years.



Interest charges on PFI bank finance are at least double the cost of Government borrowing. In the NHS, academic Allyson Pollock has stated PFI has frequently meant “one hospital for the price of two.”



Our Prime Minister John Key spent his working life in London within a banking environment where such profits at taxpayers expense were considered not only desirable, but entirely normal.



With the recent creation of the Auckland “super city” and talk of local government mergers in Hawkes Bay where I grew up, I see plenty of warning signs that PFI/PPP super profits are occupying the thinking of politicians here, and taxpayers have every right to be concerned.



It turns out that the modern infrastructure industry is not especially concerned with financing development, its objective is developing finance.



The aim is to get as much private bank debt out the door as humanly possible with unsuspecting taxpayers on the hook to pay for it.



The public utility of any planned infrastructure (if it is even needed) is of secondary concern to authorities, whose job is to maximise private profits. Planned Public-Private (PPP) infrastructure projects including the Ruataniwha Dam in Hawkes Bay, and Transmission Gully in Wellington should be considered and scrutinised in this light. Coincidentally, both PPP projects which are financed by BNZ.



The “vertical integration” or alignment of commercial interest between the infrastructure developers and the bank is so complete that Andrew Pearce, the Chairman of HBRICL who are developing the Ruataniwha Dam project also sits on the BNZ board.



There is no accusation of impropriety involved, but taxpayers should certainly question whose interests are being advanced through development of the Ruataniwha Dam – local rate payers, or BNZ shareholders? to whom Pearce has a “fiduciary duty” to maximise BNZ profits.



PPP projects are typically designed to benefit from economies of scale and suck up thousands of hours of expensive private sector engineering and environmental consultants time.



However spend a few hours reading through a typical economic business case used to justify a PPP project and you’ll quickly discover more clouds of doubt than your average long range mountain forecast.



Economic forecasting is frequently full of grandiose predictions, models and assumptions. Build it and they will come, as opposed to projects servicing demonstrable existing needs.



PPP projects are fantastic business for the private sector, as lending to central government involves zero risk of default. Profits for private sector firms engaging in UK PFI/PPP projects reach 60-70% returns, as compared with 3% returns on standard construction projects.



Tangible benefits for taxpayers however are much more elusive to pin down, with many PPP projects owned, controlled and run via offshore shell companies paying negligible taxes. PFI/ PPP contracts are deemed “commercially sensitive” and are not made available for scrutiny in the public realm.



Despite the criticisms, let’s be clear about one thing. We need good public infrastructure. That much is obvious.



Road and rail networks connect trade and commerce, ports connect us to global markets and modern schools and universities ensure a skilled and innovative workforce.



We must however question an “infrastructure at any costs” philosophy, designed to indebt future generations for decisions made today in the interests of private sector profiteers, not the taxpaying public.



There are other means of funding infrastructure which much be explored before committing future generations of taxpayers to the folly of PPP.



A 2011 UK Treasury Select Committee Report on PFI/ PPP found the cost of bank borrowing to be at least twice as expensive as Government finance.



Questions must be asked why direct Government financing of projects like Transmission Gully, Auckland rail development and Ruataniwha Dam is not on the table alongside PPP. Where is the alternative?



We also have the option of public banks, like the Bank of North Dakota in the USA. The Bank of North Dakota has a mandate to support the local economy, support other local banks and fund rural businesses, infrastructure and irrigation projects of a type identical to Hawkes Bays Ruataniwha Dam.



The difference however, is that interest payments and profits at public banks (being State owned) are reinvested in the state, not siphoned off by private profiteers such as Australian owned BNZ - who finance both Transmission Gully and Ruataniwha Dam PPP projects.



When a public bank like the Bank of North Dakota makes lending decisions, we can be reasonably assured both the infrastructure project itself, and the profits that derive from it are aligned with, and ensure benefits for, local citizens. When private banks like BNZ are involved in infrastructure planning and finance on a strictly for-profit basis, we have no such assurances, and should remain vigilant to the corrupting effects that for-profit private infrastructure finance can, and demonstrably have had on democracy in the UK.

Obvious solution to housing bubble – put a price on the holding of land

Dilapidated, no power, no water. But still worth $1million

Dilapidated, no power, no water. But still worth $1million

The debate on Auckland's out of control housing crisis is missing one critical factor. While some commentators actually realise it is the rising price of land that is the issue, most ignore it. If only there was a price on the holding of land, values wouldn’t rise so fast.

The key is understanding that the Auckland Council was enshrined in legislation mandating that rates are struck on capital value. That financially disincentives building. For most of NZ history council rates were struck on land value only. This may be the reason that Wellington, Napier and Dunedin are relatively compact.

If you strike rates on only land value it
1. Encourages development and building because there is no financial disincentive to improving land.
2. Prevents urban sprawl
3. Prevents leapfrogging where there are holes in the development.
4. Is progressive, favouring the poor. Property ownership is more concentrated than income so rich people end up paying more.
5. Stops land value from rising too fast.
6. Stops rents from rising as rents rise more if the landlord needs to pay extra rates if the house is upgraded.
7. Forces slum landlords to sell or develop.(especially if the price on holding land is high enough)

Section 13 of the Local Government (Auckland Transitional Provisions) Act 2010 requires the general rate to be set on capital values.

In 1998 Pennsylvania changed its laws to allow urban authorities to split their property taxes into land tax rates and building tax rates. The cities that put more tax on land than on building all avoided property bubbles and prevented urban sprawl. Pittsburg survived and thrived after steel.

Unless something is done to reverse the part of the legislation mandating for capital value rating, we will continue to have rising house prices, urban sprawl and inequality.

We also have to get rid of Universal Fixed Annual Charges. The Shand Report of 2007 recommended this as it found them to be regressive. They also recommended getting rid of rating differentials and recommended everyone go on capital value rating. What a shame. Their recommendation to go on capital value rating was wrong, but the other two right recommendations seem to have been completely ignored.

However rating systems, even when imposed on land values do not capture all the capital gain from holding land. It is important that a full rental is placed on land value and the revenue is shared by local and central government. A land based rating system can only go so far to capture the rental and stop it being privately captured.

A Christchurch currency would help solve the budget problems and avoid asset sales or rates rises

chch-cbd-plan-620How can Christchurch City Council solve its financial woes with a $534 million shortfall in its budget. I sit watching the television and think, “I wonder if the people of Christchurch know that money is a human invention?” and “I wonder if they know how money is created and by whom?”

I suppose I am one of a handful of people who, through my life circumstances and choices, have studied money creation and especially local currencies. I spent seven years researching and writing a book on the topic, studying community currencies and national currencies throughout human history. Money is an agreement to accept something for payment. It is a social contract. We accept money because we know that other people trust it. Its value rests on a belief about a belief.

But what gives money its value? We need to choose something that we all have to pay so that we know the next person will trust it. That means taxes, or it could mean rates, insurance or food. The national currency we all use is trusted because everyone knows that in the end the Treasury will accept it for payment of taxes.

So how is Christchurch’s problem solved? None of the options given by the official report sound good to me – reduce the rebuild costs, increase rates, cut spending, borrow more, ask Government to pay more, or sell public assets.

But we can create our own money. It’s just that currently the banks have that privilege and government allows them to create money as interest bearing debt. I won’t go into the many and dire consequences of this destructive practice, but I will say this: Banks create money when they lend it into existence mostly to get the security on some land. They like it that way.

Everyone knows how much they owe their bank on their mortgage and when they see our big four Australian owned banks making huge profits, they know their mortgage payments go off to Australia and beyond.

It doesn’t take long to discover the staff from the restructuring firm who wrote the official KordaMentha report come from traditional university training in finance, accounting, law or business. And you can bet your bottom dollar that not one of them has had more than minimal teaching on how money is created and by whom. They don’t get taught the history of economics. Few (if any) will have studied the existence of complementary currencies or even know they exist. So they aren’t likely, any more than are Auckland City Council’s consultants, to offer a solution which includes any of this knowledge.

My proposal is for a land backed currency created by the Christchurch City Council, spent into existence without interest, dated and acceptable for rates by that date. The currency is created to gradually buy bare land in the inner city. Iwi and hapu should be involved to exclude sensitive land, and where relevant the titles checked by the Maori Land Court. The Government must also legislate to allow trades in this currency to be free of income tax and GST, for Christchurch City Council to be able to accept the local currency for rates, and for the Council to share its land rental revenue with Government. The Government must also legislate to allow the Christchurch Land Dollar to be acceptable for the payment of rates. City Council staff and contractors must be persuaded to accept part of their payment in Christchurch Dollars. This is the first way of many ways the Council will save precious national dollars. Gradual buy up is needed to avoid inflation.

Another thing I noticed was that central Christchurch isn’t thriving and a developer on television was almost begging for tenants to move in. The reason is the land in the centre of the city is only given value by the community. When infrastructure is built, businesses move in, and community facilities buzz with action, people will want to buy there and the price of land rises. This windfall is publicly created and should not be privately captured. Hence the need for full land rentals. Probably the best method is Council ownership of land with fair lease arrangements for both parties. The rental should preferably set by auction, with rents adjusted annually according to a new rental index for the area. Rents rise as the city rises and that solves the rating problem. The more facilities are built the higher the rental revenue. To ensure future Governments do not subvert the process by reducing the rents for electoral purposes as the 1970 Gorton government did in Canberra, the legislation should be enshrined. This suite of safeguards avoids the worst pitfalls of leasehold purchases. Speculators can then not benefit from Christchurch’s pain and loss.

Although this proposed solution will allow Christchurch city to thrive, it is unlikely to be taken seriously. But I can tell you this: In previous economic crises people have solved grave problems by novel methods. We can look at how Germany solved its hyperinflation problem in late November 1923 and learn a valuable lesson. They started a new bank and it issued a new currency and the hyperinflation stopped dead in its tracks. Or we can look to a small Austrian town called Wōrgl in 1932 and see how a local currency solved its unemployment problem and a situation where people weren’t paying their local rates. In a very short time they turned this around. The city built infrastructure, unemployment declined dramatically and people paid their taxes early.

Conventional economic thinking has been the cause of ever deeper holes that we find ourselves trying to dig out of. The only economists to see the GFC coming were largely the ones who recognise the privilege of private banks to create our money supply and the structural problems this system creates. By freeing our monetary system from this broken design, we can start to get the upper hand in dealing with a whole range of pressing matters – not the least of which is getting the city and citizens of Christchurch back on their feet without making them poorer in the bargain.

Cornwall Park Trust leasehold land model flawed

This letter was published but they left out any reference to the New Economics Party unfortunately

Letter to the editor
Sunday Star Times
August 19, 2013

Your article (Aug 18) about owners of leasehold properties in Epsom walking out or selling for a song showed that the leasehold model of the Cornwall Park Trust Board is fundamentally flawed.

These valuable properties in Maungakiekie Avene, Wheturangi Road and Campbell Road are serviced by more than just a park. Each site is valuable, being near local shops, Newmarket and the CBD. It is in the elite grammar zone for schools and has access to council and government provided hospitals, roads, schools, transport, street lighting, sewerage and so on. So instead of paying rates we should have a system where all property owners pays society a land fee or a land rate and the revenue is then shared by central and local government.

Unfortunately those who set up the Cornwall Park Trust Board hadn’t thought about this. They hadn’t worked out it was unfair for a few landowners to provide a park for all of Auckland. Nor could they forecast the current housing bubble where land prices are inflated to the point where the 5% of unimproved land value becomes unaffordable.

The New Economics Party will promote this new model of financing local authorities. This fee would replace rates and would stop the private capture of rising land values when those gains truly belong to the public that provided the services.

Yours sincerely

Deirdre Kent
Spokesperson New Economics Party

Cornwall-Park2

Rating policy of user-pays is regressive

Well I don't know where you live, but in my town we have just had another election meeting. I was an observer with a strong philosophy and didn't this time ask questions about the rating system. But I engaged in a conversation afterwards with a real estate agent friend and it went like this.

Me: Tell me what is the price of land here in Otaki compared with the price of land in Waikanae or Paraparaumu?

Him: Well it's about double. A section here costs just over $100,000 whereas in either of those places it is over $200,000. I will get you the exact figures tomorrow.

Me: Thanks a heap. So if 71% of our rates is in Fixed Annual Charges nowadays, it means that the rates in Otaki are rather similar to the rates on a property in Waikanae or Paraparaumu, but our section prices are only half that value. Isn't that hard on the poorer people of Otaki?

Him: But in a user pays system what services are you not getting from the Council?

Me: Actually you have asked the wrong question. We should be asking if there is another way to fund local authorities which is fairer. It is a question of philosophy about revenue raising. I believe that people should pay according to the value of their land, so that it doesn't penalise you if you want to improve your house and so that you get concentrated development to save expenditure on infrastructure. Empty sections near shops and services should all be used.

section $100k OtakiAnd since then I have been thinking about the parallel situation in central government. I don't know in what year it became ridiculous to say people should pay for their own education, but I would have guessed the arguments progressive politicians would have used is that it is in the whole of society's interest that we have an educated population. So Government revenue needs to pay for education. It would be ridiculous now to return to saying people should pay for their own education. It is in nobody's interest to have an illiterate uneducated population.

The advantages of a rates system based on unimproved land value are many. Not only is it more just, but it encourages the use of valuable land rather than letting it lie idle. Once upon a time the majority of rating systems favoured land based rates, not capital based rates. All referenda which were held favoured land based rates. But in the last few decades we have seen the creeping introduction of first capital value rates (it is now compulsory in Auckland) and then user pays. In Kapiti District Council it is a mix of all three but the dominant one is user-pays.

Otaki house Dunstan large sectionWell, user pays should certainly not be for basic infrastructure. I can see that for conservation reasons it is fair to charge for water after a certain amount of free water has been delivered. But basic infrastucture like water purification is a public good not a personal good. For health reasons alone sewerage and water and street lights are public goods.

You see our town won't really thrive until the railway from Waikanae to Otaki has been double tracked and electrified. Land values will increase and we can pay more in rates. Sure we have a superb Wananga (or Maori university) and some excellent kura here and we know people move to the town so they can go to the Wananga or send their kids to one of the kura. But frankly our little village is full of second hand shops and fast food shops. Prominent are WINZ, Budget Advice and the Food Bank. Our retailers are struggling and shops lie empty, while outlet shops on the main through-highway thrive. Many of our old people move away to retirement villages and our young move to a city or to Australia. Homeowners struggle to pay their house insurance and rates are over $2000 for a very ordinary property. The standard of housing isn't high and there is a large percentage of rental properties. I am told that there is a growing trend for landlords to sell up because rents are so low as to make it unviable.

The effect of land value rating on rural land is interesting. Just outside each town on Kapiti Coast there are lifestyle blocks supporting the odd horse and a few sheep while the owners commute to Wellington jobs. As services from council are fewer, their rates are very low under user pays. Rates on these properties would rise, forcing them to amalgamate to viable farming units with high productivity.

I guess our town is like many others and the arguments in yours are similar.

(I understand now the Education Act in New Zealand was passed in 1877, when education became free, compulsory and secular)

A thriving, vibrant economy is possible after fossil fuels – tax reform, currency reform and welfare reform

http://www.slideshare.net/deirdrekent/sustainable-economics-without-fossil-fuels-21 This slideshare show is now updated and made clearer. It is the first time it has been published on this site and represents a lot of feedback from our members. If others have a method of reforming the tax and money system in a way that is politically possible and in a way that doesn't shock the economy, we would love to know. Meanwhile this is a serious proposal. Feedback is welcomed.