Last weekend we heard from Auckland Council about their dire situation regarding rates. The Herald reported 23 May 2020 that they had “put together a $65 million hardship package for people struggling to pay rates as a result of the Covid-19 pandemic. They were also looking at reducing some services temporarily and selling or leasing more non-core assets.”
Mayor Phil Goff “has firmed up a Herald report this week that council stands to lose $500m in the next financial year, saying the council expects to have $550m less cash and it is conducting a review of jobs with redundancies likely.”
Frankly this is not on. As citizens we rely on councils for potable water, reliable sewage, community halls, swimming pools, and without wastewater systems we would have floods every time there was a downpour. After the 2001 earthquake Christchurch citizens told us how important it was to have water. It was more basic than having electricity.
In January Hutt City Councillors held initial discussions about what’s been recognised as a national challenge facing local government – funding the renewal of water infrastructure, with some estimating the investment required across the country to top $17.2 billion over the next decade.
Water supply and effective wastewater and stormwater systems ensure urban environments function properly. In addition, the ‘three waters’ deliver public health, economic and quality of life benefits for communities.
So we solve one health crisis and are threatened with another.
For years Councils have been telling central government that they can’t continue to require higher standards for the purity of water and other services without the matching funds to do this. The burden of climate adaptation mostly with councils as they struggle to get their wastewater systems up to scratch to deal with more frequent and severe floods, and they are faced with having to retreat from the coast after coastal erosion has made sea walls impossible to keep rebuilding. The Fox River landfill disaster in southern Westland was the first of many. Almost 20 historic landfill sites in the Tasman district are at risk of being exposed by storm surges and sea level rise. Auckland has 89 of the 112 landfills nationwide at risk from just half a metre of sea level rise, and dealing with them may come down to excavating and completely moving them.
Then to add to Councils woes, today the Minister for Building and Construction Minister for Building and Construction announced that Government is scrapping the need for consents on low-risk building work, such as sheds, sleep-outs and carports.
This will allow the construction sector to kickstart important work on larger projects, providing more employment opportunities and assisting New Zealand’s post-COVID recovery. Right, that is less money for already struggling councils.
In summary Councils have too little money for too much responsibility and that includes keeping residents safe from big weather events and from health hazards of declining water standards, rising sea levels, waste pollution.
We are now in a situation where, no matter how much we want to support local businesses, in reality after a first burst of enthusiasm, we are more reluctant to part with our dollars. There is no penalty for doing so. That is the problem. We have a currency that is trying to be a currency for saving and a currency for spending, and in deflationary times these clash.
Councils need another superpower
Now we come to the suggestion. Unprecedented times means we consider what was previously unthinkable. Local Councils have legislative power to levy rates on homeowners, but they do not have the power to issue money. As Yuong Ha told broadcaster John Campbell last Tuesday, the Reserve Bank has this power to create money . “It’s our superpower”, he said. “Just as the Government’s superpower is to levy taxes and change them.”
So if we gave Councils the power to issue money, what would that look like? It could be in the form of a rates voucher, good for the payment of rates to that Council. The former leader of the Social Credit Party Bruce Beetham when he was Mayor of Hamilton in 1976 proposed financing municipal projects with “rates vouchers”, but the council, dominated by his opponents, passed a 20 percent rates increase instead. And the council’s lawyer had also advised it was illegal.
It is time to make these vouchers legal. I believe they should be designed to circulate fast within the council’s area. They should decay like ordinary goods decay. Manufacturer Silvio Gesell in the late 19th century long depression, caught out with unusable warehouse goods in Argentina, while those with money hoarded it or increased their money due to interest, wrote, “Only money that goes out of date like a newspaper, rots like potatoes, rusts like iron, evaporates like ether, is capable of standing the test as an instrument for the exchange of potatoes, newspapers, iron and ether.”
The Miracle of Wōrgl
After decades of attracting loyal followers during the 1930’s depression, Silvio Gesell’s theory was put into practice, but only briefly. It was in the small town of Wōrgl, Austria 1932 that the Mayor put aside 20,000 schillings and used them as backing for notes called Work Certificates. They paid their employees partly in Work Certificates. Each note had 12 spaces on the back and a stamp had to be stuck on every month to validate the note. To avoid paying for the stamp people spent the Work Certificates quickly. Locals paid their taxes early to avoid the penalty. The city paved roads, built a bridge, a reservoir and a ski jump. Unemployment declined dramatically in the area – in contrast to the ongoing depression in the rest of the country. The currency was so successful that people came from miles around to witness the Miracle of Wōrgl. But within 15 months after pressure from commercial banks the government made it illegal and Wōrgl went back to unemployment.
Of course nowadays we don’t need actual notes. Paying in local vouchers can be done electronically and this would probably require the eftpos terminals to accept two different currencies, one local which decayed and one national. I’m sure this challenge can be met. And in these extraordinary times Government must contemplate changing the laws to make this possible. Otherwise any venture would be short lived. We must learn from history.
Inflation safeguards needed
Of course built into the legislation must be a provision to control for inflation. Fortunately there are two methods of controlling inflation. One is to limit the number of vouchers spent on labour. Wōrgl found that after a very short while they had to withdraw a third of their notes because they were circulating so fast they were causing prices to rise. The second is to adjust the rate of decay. This rate is not just minus 1-2 percent a year. They started off with a -12% rate, which was obviously too strong. So there will have to be local currency control committees everywhere for this job, perhaps elected.
This would save councils, ratepayers, businesses, and customers precious national dollars. It would provide councils additional funding for necessary local projects, and be especially useful for paying labour. When our very health is at risk Government can’t go on watching Councils suffer. Nobody wants libraries or pools to close or have limited hours. Nobody wants decaying infrastructure or neglected parks and playgrounds.
Public discussion so far has largely focussed on the huge Quantitative Easing programme of the Reserve Bank to buy Government bonds to lower interest rates.
The purpose is to increase the money supply and lower interest rates to stimulate the economy. But the velocity of circulation has been a neglected factor in kickstarting the economy. This can be achieved by designing and introducing this a new decaying currency working alongside the national currency. The local currency has a circulation incentive. The vouchers itch in your mobile phone, asking to be spent The design changes the consumer’s mindset. It is a spending currency. The national currency can be a saving currency.
This new money would stimulate the community economy like nothing else. Local businesses would have to be persuaded beforehand so that they promise to receive this as payment and then they could pay their employees partly in local vouchers. Councils would have their rates paid and the threat of crumbling infrastructure would disappear.