A fresh approach to Three Waters

Iam deeply interested in water and accuracy of numbers. So I decided the high pressure $180 billion Three Waters sales pitch from the Government warrants some fact checking.

Auckland’s pro-rata share of the $180b capital figure is about $54b, based on 540,000 homes out of NZ’s 1,900,000 total.

That’s $100,000 of new capital requirement per existing Auckland home for its drinking water, waste water and storm water. [540,000 x $100,000 = $54b].

What’s there now is said to be worth $11b, but the Government offer is only $2.6b

– $5000 per existing home connection.

You cannot buy a new connection for anywhere near that price – or one at all in Bombay, Kingseat, Muriwai and Waiwera. Auckland Watercare Infrastructure Growth Charges (IGC) to connect water and sewage range from $14,000 to $30,000 per residential or development unit.

So Three Waters is really about the costs and pricing of some 330,000 new high density units ‘‘wanted’’ in Auckland by 2050, and little to do with bad water incidents elsewhere.

Havelock North’s shallow bore-hole contamination was fixed with an immediate and effective local $30m response. The approach involved iwi and promoted a CCO ownership model, but Local Government Minister Nanaia Mahuta said ‘‘nah’’.

If Government is right, and we actually do need a $100,000 IGC fee per new unit to fix the housing and Three Waters problem, the pricing to join up to Auckland’s network needs review. Financial problems will occur if IGC fees go instead into the (excessive) annual salary pool for Auckland Council and Watercare bureaucrats, or worse, elsewhere.

This raises two fundamental problems with implementing the Three Waters grab. First, half of New Zealand’s homes don’t have water meters (that will cost about $300 each, or $300m). Secondly, central Government can tax but not rate.

The Court of Appeal decided this month that locally rated fees (like the hated Airbnb targeted levy that Ateed used to pay itself) must be directly connected to a benefit derived by those rated.

Mismatching IGC levies is tempting because investment is deferred and lumpy, while IGC consent fee income is now. The Three Waters fees and land grab no doubt has its eyes on IGC revenues for its own new proposed 6000-plus central Government-controlled bureaucrats. I calculate they would cost $18b over 30 years.

The Court of Appeal decision must mean local stays local.

A 2019 Local Government NZ paper argues against centralisation. The OECD average centralised spend is apparently 46c in the government dollar, but New Zealand is at a whopping 88c. When responsibilities are kicked downstairs to local government, none of the 88c comes with it. The comprehensive August 2021 Castalia consultants report to the Whangarei District Council explains their numbers.

Castalia urged Whangarei to opt out of the flawed plan calculating that the Three Waters 30-year promise of an $803 average water rate bill will be more like $4055. In my view, no-one up North can afford that, they will lose their houses or their water supply.

Local councils argue that any cost savings from centralised purchasing will be only 7 per cent on a good day. Similar saving promises did not arrive for example when Auckland’s councils were consolidated.

The third fundamental issue, which thwarts the ‘‘economy of scale’’ argument, is that waters blue, brown or murky do not flow across local boundaries. Sewage and storm water and catching the rain are rarely inter-connected between ‘‘catchments’’, hence that name. The Waikato and Whanganui rivers are exceptions.

Auckland Council can solve its water funding problem by asking its citizens to invest in say a long term, 30-year fixed rate, NZX-quoted pension bond. Structure it as a local CCO debt and equity financial instrument with NZX compliance regulation and reporting. Citizens and Government can vote to approve if it doesn’t fit the current debt ceiling rules. If Government really wants to help it can make interest on the bonds tax-free. That would lower the borrowing cost, but it’s not essential.

Grandparents and KiwiSavers could earn a decent 4 or 5 per cent per annum retirement income on their savings and the grandkids will have healthy drinking water.

Three Waters is really about the costs and pricing of some 330,000 new high density units ‘‘wanted’’ in Auckland by 2050, and little to do with bad water incidents elsewhere.