Can a city’s debt really be compared to a household’s?


    The city of sails is threadbare, skint, hard up, broke. If she was a boat she’d be taking on water. There’s a fiscal storm and a bally great hole in the money engine. Quick! Throw everything overboard! We’re sinking! 

    Local news headlines are getting increasingly frantic. “Auckland budget: Sweeping cuts proposed due to $295m shortfall” (1News); “Auckland Council budget hole grows to nearly $300 million” (Stuff); “Wayne’s first fix – a budget emergency” (Newsroom). 

    Words like “emergency”, “urgent” and “fiscal storm” are coming at us like hail, leaving us with the panicked sense that there is no time to debate sweeping proposed cuts to council services – like sports grants, tourism support, stormwater improvements, arts infrastructure, early childhood education, homeless support, public transport funding, museums, libraries, festivals, the zoo, cycle ways, pedestrian infrastructure, and the Citizens Advice Bureau, among other things.

    But what if this framing is all wrong? What if the good ship Auckland isn’t really sinking?

    Economics writer Bernard Hickey is pushing back against the council’s ‘budget hole’ narrative, and he has been joined by an independent group of community leaders calling themselves ‘Better Budget for Tāmaki Makaurau Auckland.’ They have reviewed the council’s budget with “a fine-tooth comb”, and conclude, shockingly, that “the fiscal crisis is overstated, that decisions are being made too quickly for cuts of this scale, and there are more options on the table than the council has proposed.” 

    They list these options in an alternative budget, launched a week ago. You can find it here:

    In an interview with Bernard Hickey on his The Spinoff podcast, India Logan-Riley, a spokeswoman for the group, said: “Its hard to get our head around just how big these cuts are… the council is gutting the soul of the city.” 

    The council, she says, is shrinking public services and transferring these costs onto community groups and families. And this is driven by ideology, not financial necessity.  

    In his business blog, The Kākā, Hickey compares the council’s “sinking ship” assessment in November with an upbeat prognosis from credit rating agency Standard & Poor’s just weeks before. The comparison makes for fascinating reading.

    The council: “Left unaddressed, a $295 million budget hole would require rates rises of over 13 per cent, followed by further substantial increases in future years…”

    S&P: “Auckland Council’s after-capital deficits are narrowing over our forecasts as the New Zealand local government’s revenue growth outpaces expenditure… The council’s strong economic and liquidity profiles, experienced management, and New Zealand institutional rating underpin our rating. We are affirming our ‘AA’ long-term and ‘A-1+’ short-term issuer credit ratings on Auckland. The outlook is stable.” 

    “The S&P expert is saying,” Hickey writes, “that Auckland is not only in a good position with a gold-standard AA credit rating, but its position is solid enough to put a stable outlook on the rating.”

    The council, he says, is making enthusiastic use of a plausible-sounding fallacy, a favourite of politicians from Chris Hipkins to Margaret Thatcher; the old chestnut that a government or council bank account can be treated like that of a single person or household. Thatcher’s quote, “Any woman who understands the problems of running a home will be nearer to understanding the problems of running a country,” is a good example. Even though it sounds sensible, it’s complete rot. Council and government finances are nothing like those of households; councils can borrow much more cheaply than households can, for a start. Austerity-pushing politicians love using the ‘Government-Household analogy’ (yes – it has its own Wikipedia page) to argue that government should avoid debt like the plague. Auckland council is framing the budget debate this way, and Hickey isn’t buying it.

    The council, he points out, has very low debt compared to its assets and income, and several hundred million dollars worth of what he calls “borrowing headroom” they can use and still keep their gold-plated credit rating. As the sky is not falling and the ship is not sinking, only a small chunk of this would be necessary.

    And while curbing council spending is possible, cutting support for community gardens, the Citizens Advice Bureau and children and the homeless will, with pinpoint accuracy, hurt the most vulnerable people in our city. 

    The Better Budget group suggests unfreezing the Water Quality and Natural Environment Targeted Rates – a climate friendly move which would bring in some $50.9 million. Axeing the city’s largest provider of legal advice, the Auckland Citizens Advice Bureau, would save just $2 million.

    And perhaps before closing 44 community gardens, Auckland Council could work out how to extract a contribution from stingy big noters like Kennedy Point Marina Development Limited.

    Perhaps the real crisis is the council’s budget itself – one which threatens not only the poor, not only the arts, not only libraries, not only children’s programmes, not only the local environment and wildlife, not only disaster planning, not only our way of life in a myriad of irreversible ways, but also revenue streams like tourism; and assets like airport shares – hocked off for a single pay day. •Jenny Nicholls

    * Feedback on the Mayor and Council’s proposed budget closes on Tuesday next week, 28 March.

    *  For an alternative to the council narrative check out 

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