Three Waters Reform Programme Update

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Advancing the evidence base information release

• Today the Department, in partnership with the Steering Committee, released four evidence-based reports, commissioned to inform the case for change for the Three Waters Reform Programme.
• You can find the full package of information on the Three Waters Reform Programme webpage now. This includes a set of key messages and FAQs on this information release.
• This analysis further demonstrates the need for reform and its potential benefits and addresses key questions raised by local government and mana whenua through recent engagements.
• These four reports provide detailed evidence, at a national scale, of the challenges that our communities face under the current three waters arrangements, and the opportunities that arise from providing these services in a different way. They contribute to, rather than provide, the full picture.
• The main report by the Water Industry Commission for Scotland (WICS) uses the RfI data provided by councils between November 2020 and February 2021, and publicly available information, including international benchmarks, to undertake economic analysis of reform options.
• This information release provides national-level analysis including:
• The case for change which focuses on the size of infrastructure investment need into the future, and how reform options could help us meet this in a more affordable way – WICS Phase 2.
• Two independent reviews of the WICS Phase 2 methodology and assumptions to ensure it is fit-for-purpose in a New Zealand context – undertaken by Farrierswier and Beca.
• A broader economic analysis on the potential impacts of reform on the economy and workforce – Deloitte report.
• This national level information release is one part of a series of information packages the Department will provide to support understanding of the potential impacts and opportunities of reform at a national and local level.
• Headline findings in the reports:
• It is important to remember that the reform programme, and these reports, take a long-term view.
• The WICS Phase 2 report finds:
• The magnitude of the infrastructure investment needed across the country is a much larger than we had first thought ($120bn -$185bn over the next 30 years). This requirement presents affordability issues for communities across NZ, particularly smaller, rural communities.
• New Zealand has scope to achieve efficiencies of around 45% through reform over a 30-year period.
• The WICS analysis of aggregation scenarios shows that scenarios ranging from one to four entities provide the greatest opportunities for scale efficiencies and related benefits in terms of improved levels of service and more affordable household bills when compared against the likely outcomes ‘without reform’.
• The independent reviews of the WICS reports:
• Farrierswier find that the overall approach WICS takes to its analysis should give reasonable estimates in terms of direction and order of magnitude.
• Farrierswier also explored the relevant literature to test whether any concerns arise that amalgamation might lead to water entities becoming large enough that diseconomies of scale may emerge. Their view is that the amalgamation scenarios under consideration – with entity sizes that do not exceed 2 million connected citizens – do not appear to include entities of a size that give rise to concerns about diseconomies of scale.
• The Beca report which specifically considers the New Zealand context says that, on balance, the forecasts from WICS modelling may underestimate the estimated investment requirements and timeframes. It suggests that WICS modelling of future investment may be conservative.
  · Deloitte findings on the economic impacts of reform and the implications for industries:
  • The report highlights a wide range of opportunities and challenges for the implementation of the reforms relating to the workforce, supply chain, management of the capital investment programme, innovation and productivity.
  • Every region is expected to be positively impacted by reform in terms of GDP and employment growth. The reform is forecast to impact every corner of the economy and is estimated to increase Gross Domestic Product (GDP) by $14.4 billion to $23 billion in present value terms over the next 30 years when compared to the likely outcomes without reform.
  • Reform is expected to support significant job creation across the economy. Relative to not undertaking reform, the reforms are estimated to result in 5,800 to 9,300 additional FTE jobs between 2022 and 2051.
  • The additional jobs are expected to be spread across a broad range of sectors.
  • Average wages are expected to increase by 0.16% – 0.26% over the period which reflects a projected increase in labour productivity.

Water sector workforce transformation through transition

• A major focus of both central and local government, and mana whenua is on ensuring that reform does not result in a loss of current staff, but in fact creates a platform to develop and retain talent and enhance local expertise.
• Through the joint Central/Local Government Steering Committee, we are working to develop principles for how continuity of the workforce will be maintained, and to provide early certainty for existing Council-employed staff regarding their ongoing role in the sector.
• Further details of this workstream will be communicated over the coming months as part of the wider reform programme.
• As with any change of this scale, there is likely to be changes in the configuration of jobs in the water sector and its supply chain in the short to medium term. We understand that change can be unsettling.
• The Deloitte report notes that over 30 years, significant growth of up to 80% is anticipated in the water sector workforce, presenting significant opportunities for employment growth, specialisation and increased career opportunities. – growing from around 9,000 today to 17,000 over 30 years.

Next Steps

• The four reports released today add to the growing evidence base that has been developing over recent years. They contribute to, rather than provide, the full picture.
• This is the first in a series of information releases to come over the coming months.

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