Monday, June 4, 2012

Economic Growth Projects Disasters for NZ Communities

The financial cost of the Christchurch earthquake has been huge and carefully valued, a disaster for many but an opportunity for economists and politicians alike who regard it as New Zealand’s best hope of achieving economic growth targets.

Last week the economics division at National Bank of New Zealand said, "four solid quarterly increases in economic activity have propelled Canterbury to the top of the year-on-year economic growth rankings", ahead of Auckland. The New Zealand Government’s recent budget relies heavily on economic activity in Christchurch to deliver GDP increases it believes are necessary to bring New Zealand’s economy into the black. As if all New Zealand needs is another disaster to keep on track.

Questions need to be asked about economic growth assumptions and about GDP – New Zealand’s commonly used measure of progress and success - because the same strategy is being applied by Councils in towns and cities with disastrous effects.

Kaipara District Council has achieved notoriety because of its proposal to almost double the rates of Mangawhai ratepayers to pay back the huge loan it raised to pay for a controversial sewage scheme.

Ratepayers were forced to abandon well maintained onsite wastewater systems which were generally working soundly, and then connect to the new wastewater network for a modest fee.

The original scheme raised a few eyebrows and might have succeeded. But, under pressure from developers and without consulting ratepayers further, the Council decided to double the land area serviced by the scheme, doubling the cost of the project. Now, because the predicted growth and development did not happen, the sewage scheme debt equates to an additional $20,000/residential ratepayer.

The Kaipara District Council 2009 - 2019 Long Term Council Community Plan gives some insights into how this happened: ‘The Kaipara District Council believes its key role in assisting the local economy to sustain and grow itself is to ensure the appropriate infrastructure is in place…’

While KDC’s investment in a sewage scheme might encourage growth in and around Mangawhai sometime in the future, it is questionable whether it is appropriate to levy the costs of that strategy now on existing ratepayers, by charging them an additional $2000/year - for the next ten years - on top of existing rates.

The investigative report now being condicted by the Office of the Auditor General will make interesting reading. Late last week, the Minister of Local Government- David Carter, announced it will appoint a Review Team to work with Kaipara District Council. This is very late in the day given Council must adopt its new plan and set the rates before the end of this month.

Still. Better late then never, though it will be too late to influence the potentially disastrous economic growth related decisions of Auckland Council.

Auckland Council’s Auckland Plan includes a diverse range of initiatives aimed at delivering a real GDP increase for Auckland of 5% /annum. This rate of growth is described in the Mayoral Forward to the Auckland Plan as “bold”. The services provided by the Council are said to: “support economic development of the region and contribute to the national economy”. The stated objective is to shift Auckland’s economic performance rating from 69th to 61st in OECD city rankings.

Last week Auckland Council media statements drew public attention to the fact that residential rates will increase by a gentle 3.6%, but quietly ignored its Ten Year Plan financial position statements which make for rather unhappy reading.

These show that council debt will balloon from $4.5 billion to $12.5 billion in ten years reaching almost $20,000/residential ratepayer. As bad as Mangawhai which is the worst in New Zealand. That debt will incur interest charges of more than $750 million each year – more than a quarter of the rates revenue for the Auckland region.

Auckland Council plans indicate that a number of big ticket projects would be funded from new loans. The City Centre Rail Loop project cost to ratepayers ranges from $1 billion to $3 billion over the next ten years, depending on whether the Government contributes its half of the cost, and how the project is staged. Auckland has needed this part of the rail network completed for decades. More than can be said about Watercare’s $800 million mega-sewage project that is to be bored under Auckland.

Even without these projects Auckland Council debt would still be $9 billion.

In its budget this year Central Government gave notice of its intention to reduce spending, though it is still borrowing heavily and government debt to GDP ratio is fast approaching 50%. Big ticket motorway projects apparently needed for growth are still provided for.

No such notice came from Auckland Council, despite signs that the growth much of its spending is for, is as illusory as it was in Mangawhai.

New Zealand’s population growth rate has dropped to the magic figure of 0.6% per annum due to emigration to Australia and other factors outside our control. Much of the population growth that Auckland is experiencing is due to internal migration. For example families are shifting to Auckland from Christchurch and other urban centres.

These shifts will cause Auckland’s economy to grow slowly, but they will cause other urban economies to shrink, leaving New Zealand’s overall economic position little changed.

Rather than chasing the tail of economic growth at all costs and incur enormous debt, the time has come to build economic resilience into New Zealand, to spend only what we earn, and to ensure urban living remains affordable for those who live here.

No comments:

Monday, June 4, 2012

Economic Growth Projects Disasters for NZ Communities

The financial cost of the Christchurch earthquake has been huge and carefully valued, a disaster for many but an opportunity for economists and politicians alike who regard it as New Zealand’s best hope of achieving economic growth targets.

Last week the economics division at National Bank of New Zealand said, "four solid quarterly increases in economic activity have propelled Canterbury to the top of the year-on-year economic growth rankings", ahead of Auckland. The New Zealand Government’s recent budget relies heavily on economic activity in Christchurch to deliver GDP increases it believes are necessary to bring New Zealand’s economy into the black. As if all New Zealand needs is another disaster to keep on track.

Questions need to be asked about economic growth assumptions and about GDP – New Zealand’s commonly used measure of progress and success - because the same strategy is being applied by Councils in towns and cities with disastrous effects.

Kaipara District Council has achieved notoriety because of its proposal to almost double the rates of Mangawhai ratepayers to pay back the huge loan it raised to pay for a controversial sewage scheme.

Ratepayers were forced to abandon well maintained onsite wastewater systems which were generally working soundly, and then connect to the new wastewater network for a modest fee.

The original scheme raised a few eyebrows and might have succeeded. But, under pressure from developers and without consulting ratepayers further, the Council decided to double the land area serviced by the scheme, doubling the cost of the project. Now, because the predicted growth and development did not happen, the sewage scheme debt equates to an additional $20,000/residential ratepayer.

The Kaipara District Council 2009 - 2019 Long Term Council Community Plan gives some insights into how this happened: ‘The Kaipara District Council believes its key role in assisting the local economy to sustain and grow itself is to ensure the appropriate infrastructure is in place…’

While KDC’s investment in a sewage scheme might encourage growth in and around Mangawhai sometime in the future, it is questionable whether it is appropriate to levy the costs of that strategy now on existing ratepayers, by charging them an additional $2000/year - for the next ten years - on top of existing rates.

The investigative report now being condicted by the Office of the Auditor General will make interesting reading. Late last week, the Minister of Local Government- David Carter, announced it will appoint a Review Team to work with Kaipara District Council. This is very late in the day given Council must adopt its new plan and set the rates before the end of this month.

Still. Better late then never, though it will be too late to influence the potentially disastrous economic growth related decisions of Auckland Council.

Auckland Council’s Auckland Plan includes a diverse range of initiatives aimed at delivering a real GDP increase for Auckland of 5% /annum. This rate of growth is described in the Mayoral Forward to the Auckland Plan as “bold”. The services provided by the Council are said to: “support economic development of the region and contribute to the national economy”. The stated objective is to shift Auckland’s economic performance rating from 69th to 61st in OECD city rankings.

Last week Auckland Council media statements drew public attention to the fact that residential rates will increase by a gentle 3.6%, but quietly ignored its Ten Year Plan financial position statements which make for rather unhappy reading.

These show that council debt will balloon from $4.5 billion to $12.5 billion in ten years reaching almost $20,000/residential ratepayer. As bad as Mangawhai which is the worst in New Zealand. That debt will incur interest charges of more than $750 million each year – more than a quarter of the rates revenue for the Auckland region.

Auckland Council plans indicate that a number of big ticket projects would be funded from new loans. The City Centre Rail Loop project cost to ratepayers ranges from $1 billion to $3 billion over the next ten years, depending on whether the Government contributes its half of the cost, and how the project is staged. Auckland has needed this part of the rail network completed for decades. More than can be said about Watercare’s $800 million mega-sewage project that is to be bored under Auckland.

Even without these projects Auckland Council debt would still be $9 billion.

In its budget this year Central Government gave notice of its intention to reduce spending, though it is still borrowing heavily and government debt to GDP ratio is fast approaching 50%. Big ticket motorway projects apparently needed for growth are still provided for.

No such notice came from Auckland Council, despite signs that the growth much of its spending is for, is as illusory as it was in Mangawhai.

New Zealand’s population growth rate has dropped to the magic figure of 0.6% per annum due to emigration to Australia and other factors outside our control. Much of the population growth that Auckland is experiencing is due to internal migration. For example families are shifting to Auckland from Christchurch and other urban centres.

These shifts will cause Auckland’s economy to grow slowly, but they will cause other urban economies to shrink, leaving New Zealand’s overall economic position little changed.

Rather than chasing the tail of economic growth at all costs and incur enormous debt, the time has come to build economic resilience into New Zealand, to spend only what we earn, and to ensure urban living remains affordable for those who live here.

No comments: