Auckland Council is facing major financial challenges, requiring some tough choices. We need to overcome a forecast budget shortfall that has grown to $295 million for the 2023/2024 financial year.

Budget pressures

A widening shortfall between council revenue and spending has been driven in part by successive councils growing the range of assets and services provided for Aucklanders. This has included investing to address the city's growth and to counter a legacy of underinvestment in infrastructure.

This has meant a rise in the costs of investing in, maintaining and operating those assets and services. Additional funding pressure has come from the need to put aside money to fund future asset replacement. We call this depreciation.

This situation has been worsened by ongoing broad economic factors such as rising inflation, higher interest rates, supply chain difficulties and a labour market squeeze as well as the COVID-19 pandemic impacts of the past couple of years.

While council has addressed some of this through cost savings, it has become harder to do this without taking a systemic look at the services we provide to the community, including how services are delivered and the council's role in delivering them.

The storm events could make overcoming the budget shortfall even harder.

This is your opportunity to have a say and help us develop our annual budget that will cover the third year of the current 10-year Budget 2021-2031.

Interest rate and inflation challenge

Over the past year, economic conditions have been more challenging than ever.

The change in New Zealand’s inflation rate (as measured by the consumer price index - CPI) has been extraordinary, with the CPI rising from less than 2 per cent to more than 7 per cent in a year.

It is also forecast to stay higher for longer.

Graphic of flatbed truck carrying containers and shapes with text Interest rates.

The Reserve Bank uses interest rates as its main means of reducing inflation. Last year, the central bank increased the Official Cash Rate (OCR) on seven separate occasions to control inflation.

In addition, interest rates are forecast to stay higher for longer. This is illustrated in changes in the Reserve Bank inflation forecasts and its monetary policy statement (MPS).

We have a $295 million budget challenge that we must solve

The changes in inflation and interest rate projections are the key drivers in pushing up the council’s overall operating budget gap to a forecast of $295 million for the 2023/2024 financial year.

Graphic of bulldozer pushing containers with text $295m budget challenge

The main areas of impact for the council are in contracts linked to inflation increases (for public transport, roading and facilities maintenance), interest costs and workforce costs.

The council is required by law to balance its budget and we are proposing a mix of options to achieve that.

Why a mix of options?

Given the size of the budget challenge, the council needs a mix of different levers or options to manage it.

That said, our options are limited, especially given that we need to make a meaningful difference to our 2023/2024 operating budgets and this financial year will begin on 1 July 2023.

It is also important that our budget choices are credible and sustainable and avoid unreasonable shocks for Aucklanders both now and in the future.

For example, relying solely on increased borrowing to cover annual budget shortfalls each year would be unsustainable and build a much bigger problem for the future.

Over the longer-term, we can consider a broader range of options, including reviewing capital investment and finding new ways to collaborate with central government and other external partners.

This approach can involve a systemic look at the services we provide to the community, how they are delivered and council’s role in delivering the services.

Graphic of cogs with text, 'The cogs must work together for the best outcome'

For now, the options we believe are available to us are:

  • reducing our operating spending across Auckland Council and our Council Controlled Organisations
  • increasing general rates (with some adjustments to the rates differential strategy between residential and business rates) and using reserves to lower some of our targeted rates temporarily
  • selling all or some of our shareholding in Auckland International Airport to reduce our debt costs
  • modest use of debt but still staying well within policy limits to ensure we protect the council from further financial uncertainty.

It is important to balance the need for long-term solutions against the need for fixes that can be put in place immediately.

Temporary solutions might create larger budget challenges for future years, whereas solutions that provide ongoing benefits, such as revenue growth or permanent cost reductions, best support long-term financial sustainability.

You should know

This information is an edited version of the Annual Budget 2023/2024.

See pages 12 - 18 of the Annual Budget 2023/2024 (PDF 12.8MB) for more information.