The bigger is better fallacy

Insights Newsletter
12 April, 2024

New Zealand has an obsession with size. Maybe the inferiority complex of a small country makes politicians and policymakers assume bigger must be better.

In recent years, we have seen centralisation on steroids. The previous Labour government centralised water, health, polytechnics, and district planning into national or supra-regional entities despite local opposition and evidence that reforms would add costs without delivering promised benefits.

Even before the reforms, New Zealand was one of the most centralised OECD countries. Kiwis ‘enjoy’ larger local authorities and smaller roles for local government in public infrastructure and services than almost all our peers. Meanwhile, the relationship between central and local government is characterised by mutual distrust and suspicion.

Councils haven’t always helped their cause, and poor performance sometimes harms their collective reputation. People complain about rates increases, which this year are looking to be eye watering. Councils have struggled to boost housing supply.

But their heavy reliance on rates means councils do not have incentives to make them encourage housing or economic development. Councils must also implement central government legislation without being funded for it.

Over the past decade, The New Zealand Initiative has researched the place of local government. We have come out in favour of localism—the idea that government functions should be carried out locally unless regional or central government would do so more efficiently and effectively. This is the principle of subsidiarity.

Efficient and effective functions do not require fewer or bigger councils. In 2022, the Infrastructure Commission found council size neither increases nor decreases cost efficiency.

The new government has promised a different approach to its predecessor. It has been talking about localism and city deals for infrastructure. It has scrapped Labour's three waters and resource management legislation. It has commented positively about infrastructure funding and financing. And it would give councils a share of the fruits of growth.

On the other hand, Ministers have discussed support for merging Wellington councils and made national funding proposals for Auckland roads that its mayor criticised.

Localism and city deals mean different things to different people. Deals should not just be about councils extracting more money from central government. Deals should encompass a range of agreed actions to grow local and regional economies. Ultimately, they could enable councils to try different regulatory approaches or devolve some national activities to the local level.

Smaller can be beautiful when it comes to local government. We do not need ever-larger centralised entities. Empowering communities to make decisions and innovate can improve outcomes nationwide.

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