Intergenerational Equity: Treatment of Infrastructure in New Zealand Local Government Financial Planning

• Author: Beverley Lord,Kevin Barnes
• DOI: http://doi.org/10.1111/faam.12120
• Date: 01 May 2017
• Published date: 01 May 2017

Financial Accountability & Management, 33(2), May 2017, 0267-4424

Intergenerational Equity: Treatment

of Infrastructure in New Zealand

Local Government Financial

Planning

KEVIN BARNES AND BEVERLEY LORD∗

Abstract: This paper examines how local government authorities plan and

financially provide for infrastructure while considering the needs of current and

future communities. In New Zealand the Local Government Act 2002 provides a mandate

for local authority planning through the requirement to publish Long Term Council

Community Plans (LTCCPs). Our content analysis of the LTCCPs, annual plans

and annual reports of five New Zealand local authorities reveals that these local

authorities make conscious decisions about infrastructure that reflect concern for

matters of intergenerational equity. They do so despite problems in relation to

valuation, depreciation, deferred maintenance and financing of infrastructure assets.

Keywords: intergenerational equity, local government, infrastructure assets,

accounting, New Zealand

INTRODUCTION

In the aftermath of the global financial and economic crisis of 2007–2009, many

governments world-wide are contemplating deep spending cuts. At the local

level, governments are facing particular pressures in promoting and maintaining

physical infrastructure. The scale of public sector investment in infrastructure

is substantial, and maintenance of infrastructure can be a material component

of public sector expenditure (Walker et al., 2000). For example, Pallot (1997)

claims that infrastructure assets comprise approximately 70% of New Zealand

local government assets. Infrastructure assets, by their nature, are expected

∗The authors are respectively, Chief Financial Officer, The Lines Company; and Associate

Professor, University of Canterbury, New Zealand.

Address for correspondence: Beverley Lord, Department of Accounting & Information

Systems, University of Canterbury, Private Bag 4800, Christchurch 8140, New Zealand.

e-mail: beverley.lord@canterbury.ac.nz

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to remain in place for a significant period of time, often through multiple

generations, and to provide the base services upon which a community operates

(NZIER, 2004).

Pallot (2001) uses the term ‘intergenerational equity’ in her evaluation of

the introduction of long term planning in the New Zealand Local Government

Amendment Act (No. 3) 1996. The later Act, the Local Government Act 2002 (LGA

2002), is also based firmly on the concept of intergenerational equity, even

though it does not use those two words. The LGA 2002 defines the purpose

of local government as being ‘(a) to enable democratic local decision-making

and action by, and on behalf of, communities; and (b) to promote the social,

economic, environmental, and cultural well-being of communities, in the present

and for the future’ (LGA 2002, s10), ‘taking a sustainable development approach’

(LGA 2002, s3; see also s14).

Accounting information is critical in forming assessments about infrastructure

and intergenerational equity. Accounting provides the basis for decision making

and financial planning. However, there are questions as to whether government

accounting can ‘measure the costs of infrastructure service provision in a

generationally unbiased way’ (McCrae and Aiken, 2000, p.266). We argue that,

as foreseen by Pallot (2001), accounting standards and generally accepted

accounting practices (GAAP) have a propensity to hinder accounting that

considers intergenerational equity.

The New Zealand Government’s inquiry into local government rates deter-

mined the drivers of local authority expenditure to be: the costs of infrastructure

(encompassing construction costs, depreciation and interest), unfunded or

inadequately funded mandates from central government, and increases in

community expectations. The provision of infrastructure, particularly roads, was

considered to be the key driver of expenditure (Rates Inquiry, 2007). McCrae

and Aiken (2000, p. 269) assert that:

the sheer size of the funding requirements, the social impacts and the political

significance associated with infrastructure projects, is sufficient to ensure that inter-

generational funding and tax burden issues are a fundamental issue for financial

disclosure.

The consequences of not addressing issues of intergenerational equity in the

treatment of infrastructure assets is exemplified in a small local authority in

New Zealand, Waitomo District Council. Waitomo’s 2006 Long Term Council

Community Plan (LTCCP) describes the run-down of essential infrastructure:

of immediate concern is the state of the water and sewerage systems where a lack of

prudent upgrading over many years has degraded the systems substantially (3).

Waitomo must upgrade and renew infrastructure:

to with many years of deferred maintenance and replacement . .. keeping rates down

in the past . .. has put today’s ratepayers in a penalty situation and probably those

ratepayers who live in the district over the next ten+years (9).

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