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Change of government in New Zealand set to swing water reform in new direction

On 14 October, New Zealand voted in a new central government, with the National Party claiming a landslide victory over Labour. And, with national water reform at a critical juncture, one leading economist says the shift heralds a new direction for water policy.

In the past six years, the incumbent Labour government introduced significant water reform plans – including the National Policy Statement on Freshwater Management (2020) and the Three Waters Reform Program, which intended to transfer water services from councils to centralised entities.
The new government is now planning to take a different approach to tackling water quality challenges, one that focuses instead on adjusting water quality and economic regulation frameworks.
GHD Chief Economist David Norman said that, while the change in government means a change in direction for water reform, the need to move forward with a solution is something everyone can agree on.
“There is a broad recognition that the state of water in New Zealand is not acceptable. I'm confident that this view is held across political lines,” he said.
“There have been a few high-profile cases in recent years of water quality not being up to scratch. We have wastewater treatment plants across the country that are operating outside their approved levels of service in terms of discharges.
“Our stormwater networks are often overwhelmed. We've had drinking water quality issues in a few of our smaller towns. We also have a lot of agriculture affecting water quality in our lakes and rivers.
“There's very little debate on the need to do much better, in terms of water quality. It all boils down to how you deliver changes, and what the best way to do that is.”

Growing resistance

The National Policy Statement on Freshwater Management introduced by the past government set out a hierarchy of objectives to achieve for water, Norman said.
“It elevated the concept of water being intrinsically valuable, which has cultural elements tied into it, moving through to the health and well being of people. They then launched the Three Waters Reform Program,” he said.
The plan was to divide New Zealand’s water services into four centralised water entities (later revised to 10), with the assets taken off local government, and introduce a code of governance that gave Māori a larger say in how those authorities were run, Norman said.

“At the moment, water is controlled by local governments. We have about 70 councils across New Zealand. All the stormwater, wastewater and freshwater, as well as water quality in water bodies, is monitored and controlled at the regional level,” he said.
“Most people realise that 70 water authorities for 5 million people is not the most efficient way to do this. But there was quite a lot of resistance from many local governments and communities, because of some of what was being planned.”
Norman said a large proportion of councils were strongly opposed to the forced reforms, which became a point of contention for the opposition during the election.
“Consequently, the opposition promised councils it would repeal the water reform changes introduced, including reversing the decision to centralise water assets and management. And so that is the position of the incoming government,” he said.
“However, it’s important to note that all is not lost in terms of water quality improvement. The National Party has been very clear that they intend to keep two elements of the reform, both of which I believe to be crucial for New Zealand going forward.”

New regulation

Norman said the new government wants to keep the central water quality regulator already in place, and establish an economic regulator, and that both elements will be essential to moving the dial on water reform.
“As an economist, I would argue these two things are essential. I can't believe we've gotten to 2023 without them,” he said.
“The central water quality regulator sets the standards required. Secondly, an economic regulator could drive price competitiveness and make sure we’re delivering value for money for customers.
“The new government intends to keep these two elements. The big question is: will it work better than what we have now? Will those agencies have the teeth required to create change? Will it happen fast enough?”
Norman said the devil’s in the details, particularly in terms of how new regulations are established: “It’s a big challenge. We need to get this right”.
“Questions remain over how targets will be set, whether they will be set at appropriate levels, whether they will consider the net benefit of the improved water quality versus cost, or other tradeoffs that will have to be made to actually improve water quality,” he said.

“All of this has yet to be seen.”

Cost crisis

Despite the bi-partisan recognition that water quality improvements are needed urgently, Norman said there’s still the issue of cost, which stands as a serious hurdle for most water service providers across the country.
“The costings that came out, when the Labour government first announced the water reform program, were $120-180 billion over the next 40 years, but it's going to be much more than that. That was a conservative estimate,” he said.

“This poses a significant challenge in terms of keeping council rates affordable. But it’s a huge cost. It’s eye watering. I work with many local councils who are beginning to come to grips with the financial implications of these water reforms.
“The lights are beginning to come on. And the scene that comes into view is a devastating one financially for councils.”
In order to meet the financial challenge, Norman said the new government is considering how accessing third-party funding might work.
“The new government is quite keen on access to third-party private funding. This approach could work quite well in the water space in New Zealand,” he said.
“If there is going to be access to third-party funding to get over the hump of the improvements that are needed, it’s going to take some creative thinking, from either central government or third-party involvement.”