Need to Know: Three Waters Reforms

The Government argues the scale and separate balance sheet will save money, enable borrowing to fund investment, take the financial pressure off councils, build capability and capacity, and make New Zealand’s water usage more sustainable.

A shift to a more centralised water distribution, and the promise of more efficient council spending is good for business – but there are risks.

So, what actually are the three waters?

The short answer is Stormwater, Wastewater, and Drinking water.

Three Waters is the term for water services currently delivered by councils and is the name of the government’s proposed reforms to New Zealand’s water system.

Why is all this happening?

New Zealand’s water infrastructure is under strain - through a combination of population growth, ageing infrastructure and underinvestment.

Councils have a collective $35 billion of water assets, and $7.7 billion of water debt on their books. They also face a projected cost of $125 to $185 billion by 2051 to meet population growth and maintain health standards.

The average cost of water for a household in rural New Zealand was $1,300 in 2019. By 2050, it could be as high as $9,000.

There’s a view that Councils are currently unable to renew, sustain, and build infrastructure, as they hit their borrowing limits or are unable to on-charge costs with untenable rate rises. In addition, there are health concerns from poorly maintained pipes, and the risks to our environment. The 2016 contamination of Havelock North’s water made over 5000 people ill. There’s the concern that without proper maintenance we risk similar events elsewhere.

The reforms also want to better recognise the partnership role of local iwi/Māori and how these relationships might be strengthened.

The lessons from Scotland

The reform proposals have been heavily influenced by Scotland’s successful centralisation of water services in the early 2000s, which saw the cost of water reduced by an average of 45%, cutting a typical household’s bills in half.

Seeking to replicate this success, the New Zealand Government commissioned a report from Scotland's industry regulator, which has outlined the extent of oncoming costs to our water infrastructure.

The report found New Zealand’s water infrastructure to be in similar shape to Scotland’s in 2002 and argued the gap can be closed within 30 years.

What’s the proposed solution?

The government has initially proposed to giving control of water to four new regional water entities.

Business Central members are likely to find their water managed by either:

Entity B, which includes Taranaki and the Manawatu covering 799,608 people; or
Entity C, which includes Nelson, through Wellington, and up to Hawke’s Bay, covering 955,354 people.

By centralising water control, the government’s policy aim is to save costs, combine expertise, and scale-up existing infrastructure and services.

Local councils are currently considering whether they wish to opt into the reform programme and have until 1 October to decide. There’s a financial sweetener if they do, though there’s been criticism that this funding isn’t adequate compensation for the assets they’re losing.

What will the impact be on your business?

Rates will be impacted even with government investment.

Rates in centres like Wellington are already likely to rise steeply as the council upgrades century old pipes and drains. Councils around New Zealand are faced with a choice between hiking rates or taking on high amounts of debt to pay for their water upgrades. This is a long-term concern for Business Central.

High quality water infrastructure is for the collective benefit of society and long-term wellbeing of our communities, as well as keeping our usage in tandem with a sustainable environment.

Water metering is a likely outcome.

Many councils are looking at charging for water usage, regardless of how central government reforms progress.

If you’re paying for water, you’re less likely to leave the tap on or wash your car every few weeks. That can help save costs from inefficient water usage – which would be passed on to business through higher rates. It can also help make our water usage more sustainable – detecting leaks and cutting down waste.

Many businesses pay for their water already – so pricing household’s water could reduce wasteful usage and ease the pressure on businesses. However, done poorly, metering systems risk singling out business, or charge businesses for using their own supply.

The focus here should be making sure everyone pays for their water – rather than just targeting business – and ensuring our water system is efficient and sustainable.

Impact on the regions?

While the impact is still unclear, Business Central has concerns that the reforms will disproportionately impact the regions. Whether through amalgamation or water upgrades – regional areas risk rising costs, and their views must be considered as part of any reform.

Costs are spiralling – with a household in rural areas facing a 13 time increase to their water bills. Initial projections have found the reforms could save nearly half the cost per person throughout the Wellington and Central regions.

What to watch

While the government’s report into the project is credible and well thought through, they acknowledge the difficulty of making thirty-year projections, and that unforeseen circumstances could change the calculations.

Local councils which have heavily invested in water also dispute the fairness of the reforms – arguing the government is not adequately compensating them for the loss of assets. Without local buy-in, the government risks their reforms being slowed down or derailed by disagreement across local authorities.

Infrastructure has to be paid for one way or another, and if centralisation is used to pass costs back on to business – whether through high water charges or higher taxes – we risk long term economic harm to business.

So, while Three Waters is an opportunity, we will be watching closely to make sure the reforms have a positive impact for business.