Last week the Local Government Act 2002 Amendment Bill narrowly passed its third reading in the House by 61 votes to 59. The legislation, now referred to as the Local Government Act 2002 Amendment Act 2012, is the first significant amendment to the Act since its introduction in 2002. It has encountered strong opposition from Labour, the Green Party, New Zealand First, the Māori Party and Mana.

The Act forms part of the first phase of the Government's Better Local Government reform programme, which seeks to improve the effectiveness and efficiency of local government. The Government is on a mission to shake up local governance in New Zealand to reduce local authority debt and spending. The Act seeks to do this by ensuring that local authorities provide "core" council services in the most cost-effective way for households and businesses.

The Act will shake things up in four main ways:

  • It limits the scope of local authorities' activities to the simply providing "good quality" local infrastructure, public services, and performing regulatory functions in a cost-effective manner. This is instead of the current model of local authorities who attempt to do anything to achieve the more ambiguous four well-beings;
  • The Minister for Local Government now has new powers to assist and intervene in the affairs of local councils in times of emergency or where the local authority is unable, or consistently fails, to meet its statutory purpose;
  • It requires local authorities to be more fiscally responsible by strengthening council governance provisions (particularly in relation to employment and remuneration) and mayoral powers. It also requires local authorities to give effect to regulations that set standards in relation to income, expenditure and debt levels; and
  • It will streamline the reorganisation procedures for local government to follow in the footsteps of Auckland's amalgamation.

While the changes might not seem all that radical, from a practical perspective there will be some significant changes for both the local government sector and the community. The redefined purpose statement, which includes the principles of "good quality" and "cost-effectiveness", and the inclusion of requirements on local authorities to undertake financial benchmarking mean that local authorities will need to ensure their activities and services are undertaken in a cost-effective and prudent manner. Councils will be more accountable for spending rates in accordance with this defined purpose and it is hoped by the Government that controversial/out-of-control spending (such as the problems currently faced by ratepayers in the Kaipara District) will be kept in check.

Local Government New Zealand, in its submission to the Select Committee, submitted that one unintended consequence that could arise from the Bill is an increase in litigation against local authorities. Businesses and communities may seek guidance from the courts on how the new purpose statement is to be interpreted and achieved, and how it affects other provisions of the Act and duties under other legislation (such as the Resource Management Act 1991). We wait to see who might be the first to take up such a cause.