A “City Deal” could see Wellington given wide-ranging powers by central Government in a first-of-its-kind arrangement for New Zealand. Shane Cowlishaw reports.

Wellington’s council is lobbying the Government for a unique deal that could see the Crown return GST revenue and grant it stronger powers to acquire development land.

“City Deals” are in wide use in the United Kingdom and are arrangements between Government and local councils that focus on boosting economic growth in regions that show potential.

No such deal has ever been done in New Zealand, but the Wellington City Council (WCC) would like to see that change.

Details of the council’s plans were revealed in an April briefing from the Ministry of Business, Innovation and Employment (MBIE) to Economic Development Minister Simon Bridges, released under the Official Information Act.

WCC first approached the chief executives of several Government departments in August 2016 with the idea, which contained three policy tools.

These included an earn-back mechanism, where the Crown returned a share of its revenue to the council in return for investment in initiatives with growth potential.

Other ideas were special economic zones that could be exempted from national regulation and land assembly changes that would give the council more power to acquire land not owned by them.

“While hold-out problems are real and there can be cases for use of it for public purpose, it’s harder to see the compelling public purpose served by expropriating people from their houses in order to put up shopping malls and the like.”

The group of Government CEOs told WCC that there was a strong focus on regional economic development and a willingness to explore a regional growth programme with the city.

But in February this year, the council came back with an updated proposal that had been developed following the Wellington Regional CEO Forum.

MBIE described the proposal as “very high level” but noted that WCC wanted to negotiate a City Deal now, followed by a regional deal in a two-stage approach that recognised the economic importance of Wellington City.

The second half of the briefing was redacted.

The council’s chief executive, Kevin Lavery, is from the UK and was the boss of Cornwall City Council before arriving in New Zealand’s capital.

With the Government currently in caretaker mode and its future makeup unknown, Lavery told Newsroom it was not a good time to discuss the proposal.

“We’re at early stages and have had some exploratory discussions, obviously we need to see who forms the next Government and who the next Economic Development Minister will be.”

What is a city deal, and what could Wellington’s look like?

While the council was not prepared to discuss the proposal, it is understood the Greater Manchester City Deal is the poster child for its pitch.

Manchester was one of the first eight UK cities to negotiate a deal with central Government. Introduced in 2012, the deal included the creation of an infrastructure fund that allowed the city to earn back a portion of tax revenue and also led to the establishment of an apprenticeship and skills hub and a housing investment fund.

Since the initial eight-city UK deals a further 20 have been finalised alongside an agreement with Glasgow.

WCC is understood to believe that a New Zealand deal would be relatively straight-forward compared to the UK because of less red tape, as long as there was the political will.

Giving WCC more freedom and flexibility was the goal, with possibilities including the creation of an urban development authority to acquire land, investment in transport and housing, special economic zones where resource consents were not needed, and a range of options around earn-back deals including the return of GST on rates.

Auckland Mayor Phil Goff has also floated the idea of a rebate on rates GST, telling TVNZ’s Q+A earlier this month that it would be an easy solution to helping fund the city’s infrastructure needs.

Linda Meade, a corporate finance partner at Deloitte, said at face value it was a logical decision for Government to invest in areas that would drive economic growth.

“It’s not particularly rocket science at its essence, it’s the same type of idea you might have if you were in business, for example, to say ‘we want to partner up with someone, we’ll invest and in return, you’ll give us something back’.”

In New Zealand there was very little revenue flow between central and local government, apart from the National Land Transport Fund, and this combined with a history of minimal communication could make it a tough prospect to get a City Deal up and running, Meade said.

But it was worth considering as Wellington was the country’s second-largest urban economic area after Auckland, she said.

“They should be interested in it because you can’t be putting all your eggs into the basket of Auckland, or if you are you shouldn’t be, but the challenge is it’s something new, something different that hasn’t been tested before.

“I think that’s the challenge for something like this, there’s not really the structures in place for local government and central government to work together, they just don’t do it.”

In a statement, MBIE deputy chief executive of labour, science and enterprise Paul Stocks confirmed WCC’s approach but said no detailed proposal had been received.

The Government is based in Wellington, but would it be prepared to grant the city bold new powers? Photo: Lynn Grieveson

No other cities or regions had approached the Government with a similar proposal and there had been no discussions about what potential earn-back measures could be involved, Stocks said.

“While the Wellington City Council have raised the idea of earn-back mechanisms, they have not been discussed in any detail. If a city deal were to eventuate we would do a full analysis of the benefits of any proposed earn-back mechanisms.”

Bridges’ said he could not comment while the Government was in caretaker mode, but remained open to discussions on how the city deal proposal might work.

NZ Initiative says City Deal worthy of exploration

At least one of the ideas in WCC’s proposal has already been suggested by economic think-tank the New Zealand Initiative.

Its 2015 report In the Zone addressed the idea of special economic zones and suggested Wellington could be a perfect place to test out changes to the Overseas Investment Act allowing for easier foreign investment, away from the “iconic pastoral landscapes” that drew opposition.

Dr Eric Crampton, chief economist at the NZ Initative, said it was great to see WCC take up the idea and the Manchester deal was a promising model to grant powers to councils that could use it well.

“New Zealand is one of the world’s most centralised countries. Often, local councils are the ones that know best for their local communities, but broad devolution would bring risks where some councils might not be ready for it.”

A problem with special economic zones overseas was that they had been used by central Government to dish out favours like tax concessions to particular regions, he said.

In principle, the same treatment should be available to any other council but this would rule out things like tax-free zones because they were impossible to roll out everywhere.

Crampton was less enthusiastic about stronger compulsory acquisition powers, which had led to well-documented abuses in America where councils had accumulated land parcels to hand over to developers.

“While hold-out problems are real and there can be cases for use of it for public purpose, it’s harder to see the compelling public purpose served by expropriating people from their houses in order to put up shopping malls and the like.”

Leave a comment