Key financial challenges for Auckland
Auckland Council faces several financial challenges that require some tough choices for this long-term plan. These include higher inflation, a growing population, rising costs of our assets and continued support for storm recovery.
Inflation
Inflation averaged at 2.4 per cent over the past 10 years and then peaked at 7.3 per cent in June 2022. It remains high and is not expected to return to around two per cent until the 2026/2027 financial year.
A higher level of inflation leads to an increase in the council’s costs such as:
- staff salary costs across the Auckland Council group (including Auckland Council, council-controlled organisations like Auckland Transport, Watercare and Ports of Auckland) to reflect the price of goods and services
- contracted costs for outsourced services such as public transport, utilities, maintenance and waste services
- construction and interest costs.
Growing population
Population growth drives demand for infrastructure and services. Auckland's population has grown from 1.4 million to over 1.7 million over the 10 years to the end of 2022.
Our population is forecast to continue to grow, with a further 200,000 Aucklanders expected by 2034. This creates demand for:
- council activities and services, which are partly funded through the additional rates received from the new properties
- investment in infrastructure for transport, water services, parks and community facilities in both brownfield (previously built on) and greenfield (never built on) areas.
Rising cost of asset ownership
Our capital investment (investment in assets to provide activities or services) in the current 2023/2024 financial year has more than doubled over the last decade.
We borrow to pay for these assets, as it is a fair way to spread the costs over future generations. This increases our interest costs on debt and further exposes us to changes in interest rates.
Depreciation costs
We also need to fund additional costs of operating and maintaining more assets as well as providing for the cost to renew or replace assets as they wear out. We refer to this as funding depreciation.
Because we have not been able to renew all of our assets as quickly as we would like to, deferred work and the impact of inflation have resulted in higher projected renewal costs.
City Rail Link (CRL)
The City Rail Link (CRL) project is currently estimated to cost the council around $220 million of operating costs from the first full year of operations, which is expected to be the 2026/2027 financial year.
Once the CRL is open, our funding requirements will significantly increase compared to previous years.
Storm response and resilience
In early 2023, Auckland experienced the Anniversary Day floods and Cyclone Gabrielle. These devastating events showed the effects of climate change are getting more frequent and more severe in Auckland.
The events have a significant impact on the council’s finances, including:
- storm response costs and improvements to our storm response and resilience
- setting up the Recovery Office to support affected communities
- major repairs and renewal-related capital costs over the next few years.
The direct impact of storm-related costs on our operating budget is around $55 million in the first year of the plan. These costs mean that it is not possible to keep the rates increase to the rate of inflation in that first year without making substantial and immediate cuts to council services.
We have also agreed to a cost-sharing deal with the government to fund more than $2 billion to support flood recovery and resilience efforts, including costs relating to property buyouts.
A key part of the plan to improve flood resilience is the proposed Making Space for Water programme.
Limited funding
The council uses a number of different tools like rates, debt and a Development Contributions policy to fund and finance its activities.
Rates increases to fund council activities are limited by affordability concerns, and the use of debt is limited by the need to keep our borrowing sustainable.
The Development Contributions policy charges developers part of the cost of new assets such as roads, pipes and parks needed in development areas, but this only funds part of the costs.
There is also an opportunity for the council to work with the new government to consider other funding options.
You should know
The information on this page is an edited version of the proposed Long-term Plan 2024-2034.
For more information, see pages 14-16 of the Long-term Plan 2024-2034 Consultation Document [PDF 17MB].
