“When equality is given to unequal things, the resultant will be unequal,” Plato once said.

The ancient Greek philosopher would then have certainly condemned our local governance rules.

Life in fast-paced Auckland is as different from rural Grey District as the humming touristic Queenstown-lakes area is from quiet Gore.

Nonetheless, in a highly centralised New Zealand, unbending regulations are equally forced upon all communities regardless of their unequal circumstances.

This political arrangement is counterproductive.

Thus, it is encouraging that the Productivity Commission is inviting submissions to improve local government funding and financing.

In our submission delivered today, The New Zealand Initiative recommended a fresh rethink of local government through the lens of localism.

That is, self-rule should best rest at the lowest possible tier of government.

Rather than looking for preferential treatments for the unequal circumstances among local governments, we instead advocate the freedom – and responsibility – of self-determination at a local level.

Take the housing shortage kerfuffle in New Zealand, for instance.

Our research since the past seven years has consistently shown that the much-vaunted housing crisis is a self-inflicted harm. Poor incentives lead to poor results.

Due to rigid central rules, local governments – and by extension local ratepayers – bear much of the cost on new developments such as high upfront infrastructure charges and financial liability for any flaws in building consent.

On the other hand, most of the fiscal gains from new housing flow directly to central government in the form of increased income and GST collections.

Little wonder local councils are reluctant to issue pro-growth zoning plans.

Similarly, tourism has been an increasing source of funding pressure for some communities, particularly those with a small ratepayer base and a large number of visitors.

Without proper funding arrangements, local infrastructure – from wastewater to congested roads to overcrowded public spaces – fails to deliver fit-for-purpose services.

This situation is bad for the tourism industry but even worse for frustrated residents.

Despite a few tourism-specific revenue streams, much of the related financial burden still rests on ratepayers, while the economic gains (again) largely flow to central government coffers.

Surely alternative arrangements could, and should, be in place to deal with these incentive mismatches.

It is high time local issues are paired with local solutions.