The Government has clearly been spooked by the populist anti-Three Waters protest and has caved in on some critical elements of the original proposal.
The result is likely to be an outcome that delivers smaller rates reductions to ratepayers and could create uneasiness within Maoridom which could easily lead to the courts.
At the same time, a series of enigmatic answers to reporters’ questions from Prime Minister Chris Hipkins and Local Government Minister Kieran McAnulty suggested that there had been a frustration around the Cabinet table with how Three Waters was being sold to the public by the former Prime Minister, Jacinda Ardern and the former Local Government Minister, Nanaia Mahuta.
Their focus was on safety; that Three Waters would provide clean and safe drinking water.
Hipkins has abandoned that; now he is talking about rates and how they impact on hosueholds.
He has gone back to the overriding reason for the proposals.
They had always been been predicated on New Zealand’s ageing water infrastructure and the bill to replace it.
It is the replacement bill, estimated to be $185 billion over the next 30 years that is now front and centre of the way the Government is selling the proposals.
That bill must be paid by Councils who can either increase rates to pay for the replacement pipes and pumps, or borrow.
But local government borrowing is governed by law, and many Councils have no room left to borrow any more, so they faced the prospect instead of trying to finance multi-million dollar three waters infrastructure through rates increases.
In background material supplied to media yesterday, McAnulty’s office has estimated some of those annual increases could stretch into the thousands.
So now the focus is on precisely that issue hence the new name for Three Waters, Affordable Water Reforms.
By separating out the water organisations from the Councils, they would no longer be subject to local government borrowing restrictions.
But the question is why wasn’t this talked about more in the first place; why didn’t all the messaging from the Prime Minister and Mahuta emphasise that Three Waters was a proposal designed to restrain rates increases.
“Rates have always been a factor, and cost savings has always been a factor, but I’m not sure that message got through,” McAnulty said.
“I think it’s definitely getting through now.”
But the announcement yesterday will actually reduce the savings to ratepayers from the original four-entity proposal.
Simply, it is a political trade-off with every Mayor in the country now getting a chance to be on one of the entity boards.
But by increasing the number of entities to make that possible, there will be a loss of efficiencies.
“It’s not as good as what it would have been under four, but now they’ve got direct local input, and that’s the trade-off,” said McAnulty
“That’s the trade-off we’ve been trying to apply the whole way through.
“We could have gone into one entity and had massive savings but recognised it wasn’t going to work.
“Then we landed on four. We realised that wasn’t going to work. Now we’ve landed on ten. “
The trade-off involves a high price.
Research by the Water Industry Commission for Scotland published in May 2021 indicated that the top rates payments per household in 2051 for a four-entity structure might be $1800, whereas, for eight entities, that figure could rise to $3120.
The Commission did not provide figures for ten entities, but McAnulty’s office yesterday provided figures showing rates could go as high as $4430 per household by 2054 for both Taranaki and Southland.
However, McAnulty’s figures claim that to do nothing by maintaining the status quo could see per-household rates in those areas rise as high as $19670 for Stratford in Taranaki and $22080 for Clutha in Otago.
The launch of the Affordable Water Reforms was somewhat inexplicably in a car park in Greytown in South Wairarapa, next door to some new water processing equipment in a Container.
The South Wairarapa Mayor, Martin Connelly, was there and was optimistic that the proposals would lead to a $1000 per household reduction in rates in his district.
“If we are no longer providing a service which adds $1,000 to everybody’s rate, which is roughly what’s happening here, why would we want to be charging $1,000?” he said.
There are financial dangers, though, in dividing the country into too many water entities.
Hannah Crosby, the Director of Specialised Finance and Corporate Finance International at the ANZ, told last year’s InfrastructureNZ conference that one of the key drivers of the reforms was the intention to get balance sheet separation between the water entities and the councils and thus be able to leverage finance off the water rates being paid by consumers.
“When you look at the amount that they have to raise, these entities are going to be big, big capital markets issuers,” she said.
“So I think one of the key things to be thinking about is how they’re going to structure that debt program because obviously one of the other key drivers of the reforms is to try and keep things as cheap as possible and get the most efficient funding. “
Crosby suggested that they might consider collaborating when they approached the debt markets.
“I really think there’s an opportunity for these four companies to potentially look at something where they work together and then look at issuing debt,” she said.
“And then I think you end up with a debt program that’s got critical mass because although these entities are all going to be highly rated, some of these big offshore funds will only invest in debt where there is enough secondary market liquidity and that probably will give a much better outcome.”
McAnulty said he was open to that and open to entities merging with each other.
“I also accept that some regions may want to amalgamate with other entities,” he said.
“So what we’re proposing today is if one regional representative group gets 75% support for a merger and that’s matched with the other one, then it just happens.
“We don’t want to get in the way of it.
“We just want to set a nice, straightforward process.
“If they don’t want to merge, they don’t have to, but I suspect they’ll start to recognise the benefits of scale, and they’ll have those conversations, but it has to be reasonably led.”
If there was one unanswered question yesterday, it was just what Maori representation on the Regional Representative Groups (RRGs) would mean.
The Prime Minister was anxious to dispel the idea that the Maori representation, which would be an equal number to the local authority representatives, would constitute co-governance.
Hipkins argued that the existing proposal was not co-governance anyway.
“Some time ago, there was an early discussion around whether a full co-governance model should be adopted here, and ultimately the government decided not to do that,” he said.
“We have something different.
“So we have regional representatives groups which provide a partnership opportunity.”
He emphasised that the entity boards (which will be appointed by the RRGs) would be the governance body presiding over the three waters assets and systems.
And once again, there was a subtle criticism of the way the reforms had been explained by Ardern and Mahuta.
“I think this was an area where we could have communicated much better around what we were doing when we actually made that shift away from talking about co-governance to talking about the representative model,” he said.
“We probably didn’t explain that fully enough so that people understood what we were doing.
“We’ve now changed. We’ve got more representative groups. We have a much stronger voice for local Government.”
Hipkins runs the risk of downplaying the influence Maori will have within the RRGs of, also diminishing the role that will be played by the local government representatives on the boards who will be sitting at the same table.
Ultimately, the Government has to be careful over the Maori representation.
Since the 2012 Waitangi Tribunal ruling that Maori have rights under the Treaty akin to proprietorship over water and the recognition of that finding by the Supreme Court, the way has always been open to Maori to go back to the courts to force the exercising of those rights.
Their origin is in Article Two of the Treaty, which is considered to give Maori Rangatiratanga over water.
Hipkins was quick to respond to a question about his by saying that the proposal complied with a balance between Article One (which gives the Crown sovereignty) and Article Two.
Nevertheless, it is widely understood by many Maori politicians that if the Maori governance role over Three Waters is diminished, then the Courts could be approached to force the Government to make decisions on water allocation to Maori.
McAnulty said he had met with iwi leaders to talk about the changes, and they were very positive.
“They understood the need for reform,” he said.
“They wanted to understand what our intentions were around representation.
“They wanted to understand what it would mean for iwi input, particularly in the South Island.
“But on the whole, they were resolute in the fact that reform had to happen, that it was particularly rural communities that would face the brunt of it if they didn’t and of course, many rural communities have a high Maori population.”
The reception to the proposals has been predictable, with National, Communities4Democracy and the Taxpayers’ Union bagging them.
But the Government has changed the ground on which the Three Waters political battle is being fought; it is now going to be all about rates, as it probably should have been from Day One.