The saying that if your only tool is a hammer, then every problem looks like a nail seems particularly apt when describing central government’s approach to local government reform.

Staring some pretty daunting challenges in the face, like the wave of infrastructure that needs to be refreshed off an ageing ratepayer base over the next 30 years, central government’s preferred solution so far has been to amalgamate councils into bigger structures.

In theory, this stacks up (especially if you have an MBA). Bigger governance units should have larger taxation bases and a greater ability to borrow. Plus, larger jurisdictions should be able to achieve greater economies of scale and reach decisions faster than a cluster of smaller councils.

It certainly sounds nice. But that strategy received a major blow last month when a motion to merge the Central Hawke’s Bay, Hastings and Wairoa district councils with Napier City was convincingly voted down by a two-to-one majority.

The plan was the third such proposal to die an early death, following the withdrawal of similar proposals in Wellington and Northland amid deep circumspection about the supposed benefits of merging. (It could technically be considered a fourth defeat, as it is doubtful the Auckland super city would have been formed in the way it has if the proposal been put to a vote.)

For those opposed to amalgamations, it may seem as though Hawke’s Bay was the final blow. But signals emerging from the Beehive suggest it may be too early to start celebrating just yet. The clearest of these was the appointment of Sir Wira Gardiner and Leigh Anton to the Local Government Commission, an entity set up in the 1940s to pursue local authority amalgamations.

‘Can’t have it both ways’

If there was any doubt about the focus of the beefed-up commission, Local Government Minister Paula Bennett made it clear in August when she addressed LGNZ’s annual conference, saying: “I imagine there are some who think that because the commission has decided to take large reorganisation off the table for greater Wellington and Northland, and because I have clearly stated I will not legislate for large amalgamation, that you can all continue as you have.

“Well, you can’t. It is not in the best interests of the people of New Zealand. We simply have to look at growth across a region, and your current structure does not strategically or cohesively support that.”

Although the message behind the minister’s speech is laudable, namely to encourage greater economic growth, the problem is that the vehicle chosen to deliver it is not fit for purpose.

Canada’s long experience with amalgamation, which picked up pace from the 1990s onward as the country sought to adopt new governance structures to cope with pressures such as globalisation, urbanisation and an ageing population, is proof of this.

Much was promised from the municipal mergers in Toronto, Prince Edward Island, Ontario and Quebec among many others. But subsequent research found consolidation produced few economies of scale, while costs generally rose due to harmonisation of services and increased wages.

Furthermore, the hoped for service efficiencies and greater responsiveness to local needs also failed to materialise because municipal mergers had eliminated inter-jurisdictional competition.

Costs exceeded benefits

In places like Toronto, it was found the costs of the amalgamation process exceeded the merger benefits. For example, 2700 jobs were expected to be eliminated through the merger.

But when the final reckoning was tallied, the city ended up adding an additional 3600 positions. That certainly resonates with the Auckland experience, where the council’s salary bill has increased substantially since the merger, and officials recently refused to rule out further increases.

Worse still, a report published by the Fraser Institute on de-amalgamations in Canada showed that unpicking municipal mergers is fraught with difficulty. In Montreal, 15 municipalities on the island opted out of a super-city arrangement as part of a referendum on the Quebec amalgamations.

However, since much of the city’s infrastructure and services are shared, complicated governance structures were needed to cope with the peculiarity of the governance arrangements. Authors Lydia Miljan and Zachary Spicer argue that Montréal is now a city where “decisionmaking authority, servicing, and financing responsibility is fragmented …[and] by not reversing amalgamation completely [the government] created a needlessly complicated system of local governance.”

What the Canadian examples show is that you do not get what is said on the tin when someone tries to sell you amalgamation, and once you buy into a merger it is difficult to reverse the transaction.

That is not to say central government should be content with the current structure of local government. That there is further scope for cooperation between local authorities is not in question, especially where there are regional economies of scale.

Need for partnership

What is questionable is whether amalgamation is the tool with deliver this. Mrs Bennett, in her speech, suggested the commission will look at alternative structures but undermined this later when she expressed a hope that some councils “may even choose to amalgamate.”

Central government needs to partner with local government if it wants to deliver reforms, be it by encouraging greater use of share infrastructure or the formation of public private partnerships. This is particularly important if government wants to convince voters that these proposals are a good idea.

Furthermore, central government should recognise there are already successful shared services models in operation, and it should look to duplicate these rather than starting from fresh.

Tauranga’s Smart Growth strategy (not to be confused with the urban planning ideology of the same name) is an example of several councils working together with central government and the private sector to deliver growth-related infrastructure.

Lastly, central government should demonstrate its good faith by reforming statues that unnecessarily add to the cost and bureaucracy of local authority operations. Scratching the surface, these include Resource Management Act reform, scaling back unfunded mandates and generally having a bit of trust in local people to make local decisions that are best for them.

This will require a leap of faith for policymakers. After all, New Zealand has a 170-year history of central government telling local government what to do. But if Mrs Bennett wants enduring reforms that benefit the national economy, she would be better served by carrying local government with her, rather than hammering the sector into shapes that no one seems to want, and looking ineffective besides.