Local government finances

Local authorities have responsibility for the management of fixed assets with an aggregate value of approximately $84 billion (as at 2008).[45] This is projected to increase by over 35% in the next 10 years. Average capital expenditure by the local government sector is projected to be more than $3 billion per annum over the next 10 years.

The chart that follows shows historical and forecast annual rates charged by local government as a percentage of GDP. The current value of 3% compares with average core Crown tax revenue of around 30% of GDP.[46]

Figure 13: Annual rates charged by local government as a percentage of GDP, national average

Source: Rates - various. GDP - The Treasury

The graph shows rates increasing from a base of 2% to over 3.5% of GDP over the next few years. The cause of this increase is not immediately obvious. Further analysis is required to determine the drivers of this increase. Possible drivers include: cost inflation assumptions; assumptions about future increases in the quality and quantity of service; costs of meeting compliance standards, such as drinking water standards; and costs of maintaining or upgrading infrastructure.

The following chart illustrates the amount of debt carried by local authorities:

Figure 14: Local government debt to assets ratio, national average

Source: DIA, Summary data from LTCCPs 2009

The next chart indicates that councils, in total, are forecasting increased operating surpluses (excluding asset revaluations) over the same period.

Figure 15: Local government aggregate operating surplus

Source: Department of Internal Affairs

Together, these charts suggest that, though the local government sector as a whole is facing increasing pressures over the coming decade, its financial situation is not unsustainable.