Rates crunch will hit pockets

Local government rates are expected to rise eight per cent a year during the next few years as a rates crunch looms.
Bad decisions cost ratepayers $500m a year

A top-level inquiry has advised that rates are becoming increasingly unaffordable for some households and says that, on current figures, "rates will not be sustainable in 10 years' time".

The inquiry, ordered after a threatened ratepayer revolt, says councils need to show more spending restraint and urges a shake-up that it says could trim $500 million or more from rates bills.

But that would mean councils going deeper into debt, and households and other ratepayers would have to dig deeper on user-pays charges, including water meters for their water and wastewater use.

A 2-cents-a-litre increase in petrol taxes, to be distributed to local authorities, would also be required.

Charging rates on school, hospital and other Crown-owned properties would further reduce the rates burden, with taxpayers to pick up the tab.

The inquiry also urges more central government funding, including $100 million a year for water infrastructure projects.

Some of the recommendations are likely to be political hot potatoes, and Local Government Minister Mark Burton would not say yesterday which of them the Government was likely to endorse.

But pressure will come back on the Government to act on soaring rates, with the inquiry's final report highly critical of some councils for showing "insufficient financial restraint".

It has found significant pockets of ratepayers where there is an affordability problem, particularly among low-income households and pensioners.

On current rates, that means between 100,000 and 200,000 households out of 1.5 million, but the problem would get worse in the next 10 years.

Led by former World Bank and International Monetary Fund official David Shand, the inquiry says some councils are paying inadequate attention to the equity and affordability of their plans and many have adopted funding policies that are leading to higher than necessary rates.

But it steers clear of singling out projects that are questionable.

It points to the healthy state of the books among local authorities, however, and suggests they borrow more to spread the cost of capital works between generations.

Mr Shand said councils had low levels of debt and acknowledged that many saw that as a virtue.

But continuing on that path meant rates would stay high.

The inquiry paints a bleak picture for households, with rates tipped to rise by an average 48 per cent in the next decade.

In the Wellington region, household rates are likely to increase by 30 per cent.

Mr Shand said the overall rates burden should be lessened, or at least stabilised, if the inquiry's recommendations were adopted, but he acknowledged there was a potential for some households to pay more under changes in the way businesses are rated.

The inquiry is recommending that councils lose the power to set differential rates and uniform annual general charges - tools that councils have used to shift more of the rates burden off households and on to business.

The recommendation was welcomed yesterday by the Wellington Regional Chamber of Commerce, which said businesses were paying more "irrespective of the benefit received".

In Wellington, businesses paid 50 per cent of the total rates bill, chief executive Charles Finny said.

But the inquiry says councils should have the power to levy "targeted" rates instead, something which might mitigate the impact.

- © Fairfax NZ News