New Zealand is highly centralized, and local government structures are lean and generally uniform. Local government raises only about 5% of total government tax revenues. However, local autonomy in setting tax rates and bases is greater than in any other OECD country. The main source of local tax revenues is the so-called rates, which are taxes on the holding of real estate. Local governments have currently full discretion to set rates, subject to a general balanced budget requirement. Other revenue sources include user charges and fees. There are no block grants from central to local government, but the central government contributes funding to specific local government functions, in particular transportation as well as road construction and maintenance. The minister of local government from the ACT New Zealand Party, and a coalition member of the National-led government, has wanted to impose greater controls on local governments and to reform the local government act, which provides general competencies to local bodies to do achieve the economic, social, environmental, and cultural outcomes of their communities. The outcomes of the reform proposals are at the select committee stage and their precise form has yet to be decided. It does seem likely that the more aspirational view of local government, in facilitating strategic planning in governance on behalf of communities may be reduced and result in a return to viewing local governments largely in their service delivery role. The changes are likely to impose further monitoring and a benchmarking exercise on the sector. What is interesting to observe is that local governments behave quite conservatively and particularly so with respect to borrowing. While borrowing rates have tended to rise, sometimes above the rate of inflation, the key driver for this has been the need to upgrade infrastructure rather than the result of local government taking on new functions or being irresponsible in their spending behaviors.
Rodney Hide, Reforms to help keep rate rises under control (http://beehive.govt.nz/release/ref orms+help+keep+rate+rises+under+con trol, accessed June 5, 2010).
M. Reid, J. McNeill and C Scott, Local Government, Strategy and Communities, Wellington, Institute of Policy Studies, 2006.