The Local Government Act 2002 Amendment Bill has now been enacted after narrowly passing its third reading in the House last week by 61 votes to 59 (with Labour, the Green Party, New Zealand First, the Māori Party, and Mana opposed). The legislation, now referred to as the Local Government Act 2002 Amendment Act 2012 ("Amendment Act"), has created quite a stir in both the private and public sector and is the first significant amendment to the Local Government Act 2002 since its introduction.

The Amendment Act forms part of the first phase of the Government's Better Local Government reform programme. Primarily, it seeks to improve the effectiveness and efficiency of local government. The key driver behind the amendments is the need to reduce local authority debt and spending by focussing local authorities on providing "core" council services in the most cost-effective way for households and businesses. In particular, the Amendment Act:

  • changes the purpose of local government by limiting the scope of local authorities' activities to the provision of "good quality" local infrastructure, local public services, and performance of regulatory functions in a way that is most cost-effective for households and businesses, rather than the broad achievement of the four "well beings" (social, economic, cultural and environmental);
  • provides the Minister for Local Government with new powers to assist and intervene in the affairs of local councils in cases of emergency or where the local authority is unable or consistently fails to meet its statutory purpose (this ranges from powers to assist to powers to intervene);
  • requires local authorities to be more fiscally responsible, including strengthening council governance provisions (particularly relating to employment and remuneration) and mayoral powers, and requiring regulations that set benchmarking standards in relation to income, expenditure and debt levels; and
  • streamlines the reorganisation procedures for local government, giving the Local Government Commission greater flexibility to develop reorganisation proposals including community-led proposals.

From a practical perspective, the enactment of the amendment legislation will likely result in major changes for the local government sector and the community. The significantly redefined purpose statement and financial benchmarking provisions mean that local authorities will need to ensure that "good quality" activities and services are provided in a "cost-effective" manner. While "good quality" is defined (as something that is efficient, effective, and appropriate to present and anticipated future circumstances), "cost-effective" is not.

Local Government New Zealand has said that an unintended consequence of the amendment legislation is that local authorities could be subjected to increased litigation and costs as local authorities, businesses and communities seek guidance from the courts on how this new purpose statement is to be interpreted and achieved, and how it affects other provisions of the Local Government Act 2002 and duties under other legislation (such as the Resource Management Act 1991).

Whether the reforms deliver the Government's intended goals of efficiency and effectiveness remains to be seen.