PM Jacinda Ardern making her Three Waters speech to the Local Government NZ conference yesterday

The Government has finally changed its pitch on There Waters and begun to focus on the economics of the proposals.

Up until now, the Prime Minister has tended to argue the reforms would make water safer to drink.

But yesterday, speaking to the Local Government NZ conference, she emphasised the economic case saying some ratepayers could end up paying $9000 a year unless something was done.

That was the reason the reforms which propose four standalone water entities across the whole country were presented in the first place.

And in swinging the debate back to economics she is now finally taking on the largely rural and provincial Three Waters protest movement head on.

In 2021, the Water Industry Commission for Scotland, brought in by the Government as consultants, concluded that New Zealand would need between around  $2.8 billion to $4 billion a year just to replace existing pipes, pumps, treatment facilities and reservoirs.

A significant proportion of our water infrastructure was built after World War II and is coming towards the end of its expected life. It is likely that much of the water-related infrastructure owned by local authorities will need to be repaired or replaced between 2040 and 2060.

In June 2016, the Auditor General estimated replacement value for the infrastructure that delivers three waters services would be $54.7 billion.

But in June this year, the Department of Internal Affairs increased that estimate to between $120 billion and $185 billion to be required over the next 30-plus years.

The Prime Minister, yesterday, speaking after her local government speech, elected to highlight the upper end of that estimate.

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“The estimates have been as high as $185 billion worth of investment required to make sure that in the future we’re meeting the needs of our population, that we’re able to continue to grow housing, that we can deal with the challenges of severe weather events,” she said.

Even at the lowest end of the range of estimates, in local government terms, the price is huge.

StatisticsNZ says net local government borrowing to June 2020 was only $17.8 billion. 

In 2016 the Auditor General warned that for most local authorities, renewals of water infrastructure assets were less than 100% of depreciation.

“Such results are likely to indicate that the quality of the assets is deteriorating. If nothing changes, the cost of improving the quality of the assets might fall on future generations,” the then Auditor General Greg Schollum said.

His successor, John Ryan, repeated the warning last year, reporting that renewals of water supply facilities were 74 per cent of depreciation; wastewater, 64 per cent of depreciation and stormwater, 39 per cent of depreciation.

The Water Industry Commission for Scotland has estimated three waters costs across a wide range of models.

As an indication of how the size of the population changes things, it has been estimated that if Auckland were left to stand alone, it would cost $1910 per household by 2051 without any reforms for water services but $760 post reforms.

At the other end of the scale, the South Island West Coast’s current water cost is $453; without reforms, that would rise to $11530 by 2051, but with reforms, drop back to $7890.

However, if the West Coast was combined with most of the rest of the South Island (the current proposal), then the 2051 figure would drop to $1610.

The Government’s fundamental argument is that the merged entities allow economies of scale to bring in efficiencies which would bring down the price per household.

Once again, though, the prime Minister yesterday took her figures from the top end of the estimates.

“The alternative to what we’re proposing is to do nothing, in which case ratepayers could be faced with bills of up to $9,000 per household,” she said.

“The status quo is not an option, and I think that the vast majority of local Government absolutely accepts it.

“Then it becomes a debate about what you do about it.”

The Government faces organised opposition to its Three Waters plans.

The Taxpayers’ Union, which is now joined with the farmer protest group, Groundswell, has been campaigning in the New Zealand provinces claiming that Three Waters is nationalisation of assets.

Groundswell mounted a protest outside the Local Government New Zealand conference in Palmerston North yesterday, and just as it claims the farmer organisations, Dairy NZ and Beef and LambNZ are illegitimate, it is now claiming that Councils should pull out of Local Government New Zealand because of its failure to oppose Three Waters.

Taxpayers’ Union representatives were stopped from entering the conference.

The Taxpayers’ Union’s own polling, conducted by the National Party pollster, David Farrar, shows that there is a strong rural-urban divide in current ratings.

Support for centre-right parties was 65 per cent in rural areas, whereas it declined to between 31 and 49 per cent across the rest of the country.

Around 31 predominantly rural but also Christchurch City, Whangarei, Napier, and Timaru Councils have banded together to oppose the reforms.

At the heart of their opposition is a concern that their Ciouncils’ balance sheets will shrink and the Council themselves will diminish once their water assets are handed over to the four proposed entities.

“Mayors and councillors are the elected local voice of our communities – communities that are very clearly saying that they want to retain control of their assets.” the “Communities 4 Local Democracy,” say on their website.

In her speech to the Local Government conference, Ardern conceded that the loss of control was an issue.

“I know that at the heart of councils’ concerns has been the issue of ownership and voice,” she said.

She argued that some changes announced in April had addressed those concerns.

What has not been acknowledged by the opponents is that the Government itself wants nothing to do with the proposed four new water entities.

“We’re also clear that central government should not have an ownership or funding role for the entities,’ she said.

“These entities can achieve the scale and specialisation required to operate on their own.”

She did not explain that one reason for the Government’s hands-off positioning is that if the entities are seen to be under political control that could impact both their and their constituent Councils’ credit ratings and, therefore, their cost of borrowing.

In August last year, Standard and Poors, Primary Credit analyst, Anthony Walker, wrote to the Department of Internal Affairs.

“In our view, under the scenarios presented, the impact on a local council’s credit rating is likely to be increasingly negative where there is a greater level of local council influence and control over water service entities,” he said.

It is these arguments that the Government Ministers have not presented to the broader public and, because of their absence, have allowed the protest movement to grow in rural and provincial New Zealand.