Local Government New Zealand (LGNZ) is launching a review of local government funding, to find a sustainable model for the future as demographic and economic factors continue to change rapidly.

New Zealand councils have a high reliance on property taxes, which is unusual by international standards. The common international approach is for local government systems to have a multiple taxing power, important for both resilience and fairness reasons.

LGNZ President Lawrence Yule confirmed today at the LGNZ April Quarterly Media Briefing that the sustainability of local government funding has become an increasingly important policy issue in the face of rapid demographic and economic change. He advised the LGNZ Local Government Funding Review will identify new funding options and alternatives that can complement councils’ current funding tools.

Mr Yule says many regions are facing the complex challenge of populations which are static or declining and ageing, resulting in lower household incomes and reduced ability to cope with property tax increases and under-utilised infrastructure, with smaller and poorer populations over which to spread the cost of maintenance and renewal.

Other councils are facing major growth pressures to fund large-scale infrastructure investments to meet the needs of future generations and sustain economic growth, with limited funding tools at their disposal. The required growth in funding requirements will place severe pressure on a pure property tax model.

Mr Yule says property taxes may soon no longer be appropriate or sustainable as the sole taxation form for many councils.“Complementary alternatives are required. Our focus is on developing a strategy and model that is sustainable for New Zealand communities in the long term,” Mr Yule says.

“Examples of funding tools that may be reviewed for appropriateness in a New Zealand context include local income taxes, local consumption taxes, congestion charges, visitor charges and payroll taxes.”

A cross-sector working party will be formed for the LGNZ Local Government Funding Review during April 2014.