Brian Easton: Watering Down Three Waters?

How far has the government’s Three Waters policy retreated?

There are plenty of anecdotes which illustrate that the current management of fresh water, wastewater and storm water is failing. But they don’t explain the problem.

The Auditor-General observed in 2019/20, that the amount councils (excluding earthquake-recovering Christchurch) spent renewing pipes and other plant was 74 per cent of depreciation for water supply, 64 per cent for waste water and just 39 per cent for storm water. Councils struggling with funding shortages are failing to maintain their invisible piping; the anecdotal failures are a consequence. Shifting responsibility to separate visible agencies is a remedy. This government deserves credit for at last having faced up to the problem. It gets less credit for its solution.

The government’s first proposed solution was so unpopular and, in my judgement, so flawed that it has announced a retreat. How much better is the new one?

Branding

The prime minister’s announcement that the revised government proposal was to be called the ‘affordable water reform’ has fallen like a dead balloon. Everyone still calls it ‘three waters’, a shorter and more accurate description. Curiously, the underlying concern driving the changes – sustainability – is not a part of the brand. Too often this government has seen branding as a substitute for policy substance. Sausages are not bought for the sizzle.

Numbers of Water Entities

There are now to be ten local water entities. Basically they cover the existing regional council areas, with unitary council areas and some of the smallest areas by population merged into larger entities. That makes more sense than the previous four gangling ones; the worst of them, which ran from East Cape to Golden Bay, is to be split into four.

The first proposal was part of the government’s push towards centralisation. This one is a grumbling acknowledgment that centralisation does not always work. (Health, media and polytech mergers are also failing.) The new proposal’s grumbling retreat may one day be seen as the point at which provincial New Zealand began to assert itself.

It is said that the more decentralised structure will be more expensive because it has reduced economies of scale. But were the government to have hired consultants who were less committed to centralisation, they might well have argued that the new structure is cheaper because it cuts out a tier of administration and will be more responsive to local issues and efficiencies. In other words, we don’t know, except we do know any financial projections are unreliable.

It is likely that larger entities can borrow offshore more cheaply. That is the case for a single national entity, not four or ten of them. If so, the financial logic is a central borrowing agency which onlends the funds to the water entities. (Yes, it is centralisation but that can be necessary. The provincial system broke down in 1876 because of its difficulties with international borrowing.)

Governance

The new proposal seems to imply a greater role for local government. (How the folk of Tasman were to be involved in the governance of East Cape defeats understanding, unless there was going to be no local input.)

The PM has also announced that the new water entities will be governed by a ‘skills-based board’. That would be a welcome development from the current practice of appointing a mixture of generic managers and self-important political know-nothings.

Even so, the representation is to be way out of line with population numbers. Perhaps the sponsoring Ministry of Local Government could be renamed the ‘Ministry against Local Government’.

Co-governance

The PM has stated that ‘co-governance as it’s traditionally understood was taken off the table – we have something different’. (‘Traditionally’? The notion has been around for a handful of years; politicians’ memories are so short.)

What is intended is unclear. The whole area is a muddle, with a lack of clarity distinguishing ‘co-governance’, ‘co-management’ and ‘self-government’. (Iwi may be less enthusiastic for ‘co-governance’ when they realise that it may undermine ‘self-governance’.) I leave you to ponder on how co-governance relates to skills-based government.

The Minister of Maori Affairs has announced that there would be no statement on the meaning of co-governance until 2024. The government cannot think that by leaving co-governance until after the election it has killed popular discussion. To the contrary, the most likely outcome is that people will vote upon their worse fears.

Is It Affordable?

The ‘affordable’ in the new branding is a weasel word. Sustainabilty is not cheap, especially when there has been years of unsustainability. The government has published projections which promise

... the new plan will save each household between $2,770 and $5,400 a year by 2054, on average, within each region. Some areas are set to benefit more, like Northland where households could save as much as $14,820. The anticipated cost of getting the new plan up and running was up to $185 billion over the next 30 years. ‘Local councils cannot afford this on their own, and households in some areas could see rates rise up to $9,730 per year by 2054 if we do nothing.’

I do not propose here to untangle the muddle, but make three points.

First, the promise is hiding that water charges are going to rise under the new regime, as they must once the infrastructure rundown ceases and a regime of maintenance and replacement is introduced. (The catchup is substantial.)

Second, any promises to reduce local body rates in total mean that water charges are being imposed (or increased). The water must still be paid for.

Third, almost half of this year’s voters will be dead in 2054. They are unlikely to be moved by the long-term promise of cost savings; the other half will probably treat the promise as meaningless anyway.

Funding the Investment

The water entities are expected to spend up to $185b over the next 30 years – that is about $6b a year – to upgrade and extend the water infrastructure. Most of the funds will come from borrowing. The interest incurred is the main reason for the rising water charges.

In a bill before Parliament, the government proposes that the borrowing be secured on local body rates, that is if something goes financially wrong, ratepayers will pay; without some such security the loans will not be forthcoming. That is the practical reason why the water entities should be accountable to local authorities. The notion of no taxation without representation is a central part of our political arrangements. (Which, not incidentally, makes the previous co-governance proposal peculiar unless the iwi appointing to the governing boards were to be responsible for half the debt.)

It appears that the ‘cheaper-to-run’ urban centres are expected to cross-subsidise the expensive rural ones. That appears to be one of the reasons for the muddled representation proposals. Almost certainly, there needs to be central government equity funding to support areas of low population density.

Reflection

Explaining how the government has got itself into such a muddle requires another column. It will tell us much about deep structural failures in the government.

Brian Easton is an economist and historian from New Zealand. He was the economics columnist for the New Zealand Listener magazine for 37 years. This article was first published HERE