Submission on the Local Government (Pecuniary Interests Register) Amendment Bill

17 November 2021

Ian McKelvie MP
Chairperson
Governance and Administration Committee
Parliament Buildings
Wellington 6011

Tēnā koe Mr McKelvie

Submission on the Local Government (Pecuniary Interests Register) Amendment Bill

I thank the Governance and Administration Committee (the Committee) for the opportunity to submit on the Local Government (Pecuniary Interests Register) Amendment Bill (the Bill).

This submission notes my support for the intent of the Bill. It also sets out my concern with an inconsistency between the Bill and the current provisions in the Local Authorities (Members’ Interests) Act 1968 (LAMIA). My Office has specific responsibilities for local authority members’ pecuniary interests under LAMIA. I am concerned that differences between the requirements in the Bill and LAMIA may cause further confusion for elected members and the public in what is an already potentially confusing area.

I also note that this Bill presents an opportunity for consideration to be given to a review of the wider legal framework for managing pecuniary interests in the local government sector.

Support for the Bill’s intent

My Office supports the Bill’s intent to improve transparency in local government decision-making. Providing a mechanism for greater transparency of elected members’ pecuniary interests helps to improve communities’ trust and confidence in the decisions those members make.

Implementing a requirement for local authorities to establish and maintain a register of their elected members’ pecuniary interests will also better align the transparency requirements for members of local authorities with those for members of Parliament and the Executive Council. Although they will not be the same requirements, requiring both central and local government to set up and maintain these registers will aid transparency in public sector decision-making.

Inconsistency between the provisions in the Bill and LAMIA

The provisions in LAMIA prevent elected members who have a pecuniary interest that is not “in common with the public” from discussing or voting on issues involving that interest. My Office can provide exemptions from, or declarations about, this rule. They also exclude people from being an elected member of a local authority if they, or a company they have an interest in, has contracts with the local authority of more than $25,000 each year, unless my Office approves those contracts.

Our specific role in administering LAMIA includes:

• deciding applications for exemptions from, or declarations about, the discussing and voting rule;
• deciding applications to approve contracts worth more than $25,000 in a financial year;
• providing guidance to elected council members and officers on how the requirements apply in particular situations; and
• investigating and prosecuting alleged offences.

Potential risk with the definition of “pecuniary interest” in the Bill

We have identified a specific concern with the Bill inserting a definition of “pecuniary interest” into the Local Government Act 2002. Clause 5 of the Bill will insert a definition of “pecuniary interest” into the interpretation section of the Local Government Act 2002 that refers to the new section 42C(1) inserted by the Bill.

Currently, LAMIA does not include a definition of “pecuniary interest”. When we apply the provisions in LAMIA, we establish the definition of “pecuniary interest” by referring to the common law (“a reasonable expectation of financial loss or gain”). When we consider a member’s interest in a company, we refer to section 6(2) of LAMIA, which sets out certain situations in which a member with an interest in a company is deemed to share any pecuniary interest that the company may have.

In my view, these separate and differing definitions of “pecuniary interest” could cause confusion. They will put different expectations on members when:

• disclosing their pecuniary and other specified interests in a local authority’s register under the provisions in the Bill; and
• considering whether they can participate in discussions about, or vote on, a question before the local authority that they have a pecuniary interest in under the provisions in LAMIA.

The risk is that members may not be aware of the implications of the differing expectations. They may consider that the pecuniary interests they are required to disclose in their local authority’s register are the only type of interest that could cause concern under LAMIA. They may also consider that disclosing their interests in the register satisfies all their obligations.

Including different thresholds for interests in a company in the Bill and LAMIA will also result in additional confusion for local authority members.

It is also possible that members, local authority officers, and members of the public may consider that disclosing an interest in the register automatically excludes members from discussing or voting on matters about those interests. They may not realise that the separate provisions in LAMIA govern discussing and voting on these matters.

As noted, we support the intent of the Bill and we can see that it is possible for the amendments proposed in the Bill to operate alongside the provisions in LAMIA. However, we have concerns with the practicalities of having provisions relating to local authorities’ members’ interests contained in two separate pieces of legislation operating side-by-side, and the confusion this may cause. To address this, we suggest the inclusion of an explicit provision setting out that the interests register provisions in the Local Government Act 2002 have no impact on the requirements for local authority members under LAMIA.

Need to consider the wider legal framework for managing members’ interests

As noted, I consider that this Bill presents an opportunity for deliberation of the wider legal framework for managing local authorities’ members’ interests.

We have commented extensively to the Department of Internal Affairs on the need to reform LAMIA, most substantively in 2012 in response to a review of LAMIA led by the Department (and through further correspondence in 2018). For the Committee’s information, a copy of the document submitted as part of that 2012 review is attached.

We consider this need for reform is further highlighted by our point above around the additional confusion that the introduction of a register for local authorities’ members’ interests will add.

Our main concerns are that LAMIA is difficult to understand, is difficult to enforce, and in our view no longer aligns with the needs of the sector. In summary:

• There are numerous technical difficulties with LAMIA, and, in our view, it no longer aligns with the needs or decision-making practices of the local government sector.
• In the current system, financial conflicts of interest are dealt with under a statutory framework and non-financial conflicts of interest are dealt with under common law. We consider that this is confusing for elected members and the public alike. It would be preferable for statute to govern both. It would also be preferable for statutory rules to more clearly identify the types of interest that should prevent an elected member from participating in local authority decision-making and those types of interest that should not.
• In providing for third party oversight of conflicts of interests by my Office, LAMIA is out of step with other public sector legislation. Arguably, this is also inconsistent with local authorities being autonomous bodies with full legal capacity to manage their affairs.

I would support any opportunity for clarifying and modernising the legal framework governing financial and non-financial interests of local authority members.

Concluding comments

I welcome the public consultation on the Local Government (Pecuniary Interests Register) Amendment Bill and thank you for the opportunity to submit. I do not wish to appear before the Committee to speak to this submission, however, I am available should the Committee consider it useful to hear from me as part of its consideration.

As the Office does with other submissions on proposed legislation, we will publish this submission on our website.

Nāku noa, nā

John Ryan
Controller and Auditor-General