The Coalition Government's water reform policy will be developed by Castalia boss and put in place ahead of the 2025 local body elections

The coalition Government has promised to have its alternative to Labour’s Three Waters reform fully established before the local body elections in October 2025.

Details of the reform are still being worked out, but it will allow local councils to retain control over their water assets provided they are able to meet financial and quality standards.

The Government will regulate water management and seize control of assets if it believes any councils cannot deliver water quality, infrastructure investment and financial sustainability.

In practice, this will force some councils to amalgamate—as in Labour’s Three Waters or Affordable Water Reform—and could result in the ‘asset theft’ some voters were so worried about.

But there are two key differences between the schemes. First, National’s version is optional and customisable, which means councils can decide how best to proceed. 

Secondly, the proposed reform would not include any of the controversial co-governance elements that were in Labour’s design. 

However, Māori representation may still need to be incorporated somehow, as the Waitangi Tribunal has recognised they have “rights and interests” in New Zealand’s water.

What the final outcome looks like will be different for each council or regional group, but for many it may look quite similar to the Three Waters proposal. 

Working group

A technical advisory group, or working group, has been formed to advise the Government and Department of Internal Affairs on the details of the new policy and drafting of its legislation. 

It will be chaired by Andreas Heuser, the managing director at consultants Castalia, who wrote a report on behalf of a group of mayors that opposed the Three Waters Reform.

The report outlined alternative options for water reform which formed the basis of National’s Local Water Done Well policy that it took to the election. 

It said amalgamated council-owned entities would have increased borrowing capacity, provided no single council owned or controlled more than half of the entity. 

If financially constrained councils did go it alone, then household bills would be “higher than necessary” due to an inability to access additional debt finance for investment.

Castalia imagined regional iwi and hapu having input into the boards of regional water companies, alongside the local councils which would collectively own the entities. 

Other members on the advisory group include NZ Infrastructure Commission director Raveen Jaduram, Porirua City Council CEO Wendy Walker, lawyer Mark Reese, and Whangārei District Council CEO Simon Weston.

Legislative process

A Government bill to repeal the Water Entities Bill has passed its second reading and will work its way through the House by the end of next week. 

That piece of legislation will allow councils to keep their assets while devising new management plans. 

In December, a more substantial bill will be introduced to set up the regulation regime, financing tools, and a kind of financially independent council-controlled organisation.

It is important that these organisations are independent enough to achieve ‘balance sheet separation’ — when the entity's debt is considered to be different from the council's debt. 

Generally, debt carried by an organisation that was fully-owned and controlled by a local council would be counted towards that council’s total debt. 

The Three Waters proposal got around this problem by amalgamating multiple councils in such a way that none of them would be considered the ultimate owner of the entity's debt. 

Councils cannot have their cake and eat it too. If they fully-control the water assets they are also fully-responsible for any debt it incurs. 

Simeon Brown, the minister in charge of water reform, told Parliament that the council-controlled organisations would have balance sheet separation — but didn’t say how. 

Kieran McAnulty, who was responsible for the reform when Labour was in Government, said the Department of Internal Affairs had already advised National’s proposal would not work. 

“How is he going to deliver balance sheet separation when the very advice from his own department says he cannot have direct council control ownership and balance sheet separation,” he asked. 

Politicking 

Labour also criticised MP Matt Doocey who said in a 2022 speech that National would repeal Three Waters and invest in local water infrastructure alongside local councils. 

“We will co-invest with each council; not only that, we won’t ram through amalgamations,” he told Parliament during the 2022 debate. 

McAnulty said this type of promise was repeated during the 2023 election campaign.

“They went around the country, they said, ‘Don't support the water reforms because we will do it differently and we will help you pay.’ Well, that is a broken promise,” he said. 

It is likely that improved water services will be funded through water charging, although councils will get to make those decisions under National’s proposal.

Simon Court, an Act Party list MP, said water users would end up paying for the better services, either through local rates or based on their water usage. 

“If you're going to insist that this drinking water and all of these water services don't cost anything, then you've got it dead wrong,” he told Parliament.