NZ local councils about to hit the wall financially?

There has been a lot of coverage of state and local governments in the United States being essentially bankrupt and having to cut back on salaries as well as essential services such as police; at the same time it is clear that infrastructure is crumbling, which is one of the reasons for concern about nuclear power plants as Peak Oil and financial collapse sets in.


Whilst here in New Zealand things are evidently functioning better than in the United States and parts of Europe there are indications that already things are not looking that good here.


This morning there was an interview with an analyst that indicated that about on-third of local bodies in New Zealand could hit the wall financially.


I decided on the strength of that to have a brief look at comparative figures.


I am not an economist so don’t have the skills to make sense of the figures but they are indicative of New Zealand’s level of vulnerability in terms both of economic recession and a coming oil crunch.


Perhaps there is someone out there who could develop this further?

National debt

For a start, at the national level we all know that the government is borrowing $30 million (or more) a week, while introducing what would in the Greek context be called ‘austerities’ - cutbacks in the public service, projected further privatisation etc.


The levels of debt, whilst they seem to be slightly down from what they were in 2009 are at a level where they constitute approximately 130 % of GDP.


The latest figures show debt levels of:
corporate debt $213,468 million
government debt $36,158 million
total debt $249,626 million (down from 253.841 million in 2009

(http://www.rbnz.govt.nz/statistics/extfin/e3/data.html)

The following graph shows changes in GDP since 1960. Note the lost rapid decline of GDP in this period was in 2008/9.

It is difficult to make comparisons - but both at the level of total debt and government debt ratios New Zealand is certainly not at the top of the league.


Here is a comparison of countries in terms of government debt: GDP


Japan 225.8
Greece 138
United States 92.7
United Kingdom 76.7
New Zealand 31
Australia 21.9


For interest the Economist has provided a global debt clock.


The US debt clock provides much more detailed information - for instance total debt is much higher than national debt. (includes things such as unpaid commitments)

Local debt

Today’s Nine to Noon included an interview with Larry Mitchell, an independent local body finance and policy analyst”.


He has produced a league table of local bodies and come to the conclusion that roughly one-third of councils in New Zealand are about to hit a fiscal wall and are “financially unsustainable”.


The statistics briefly were as follows;
1. Levels of debt have, on average increases by about 3 times in the last 10-12 years. The average per capita levels of debt have increased from $1500 at the beginning of the period to $3600 in 2010/11. In some councils the levels of per capita debt have reached $10-11,000


2. Debt interest payment levels (that is, without payment of the principal) have reached on average
20-25c / $1


3. Rates have increased nationally at 2 times that of the CPI


4. Council payrolls have increased from 17% to 22% of total