Local bodies consider targeted taxes

Targeted local government taxes on people living in, working in, or even visiting a region could be on the way.

Basing rates on property values alone may soon no longer be sustainable as the sole taxation form for many councils, says Local Government New Zealand (LGNZ).

Instead, it would investigate other forms of taxation such as local consumption and local income taxes as "complementary alternatives".

It could lead to residents, workers, visitors and motorists within a council boundary contributing to that council's coffers through targeted taxes.

LGNZ president Lawrence Yule said it was important for complementary alternatives to be found.

"Our focus is on developing a strategy and model that is sustainable for New Zealand communities in the long term.

"Examples of funding tools that may be reviewed for appropriateness in a New Zealand context include local income taxes, local consumption taxes, congestion charges, visitor charges and payroll taxes," he said.

The only tax explicitly ruled out was a poll tax, which is based on how many people live at an address. The introduction of that tax in Britain in 1990 led to mass demonstrations and contributed to the downfall of prime minister Margaret Thatcher.

The LGNZ Local Government Funding Review comes as an ageing population contributes to an increased number of asset rich/cash poor ratepayers who struggle to pay their rates.

Some councils also face major growth pressures to fund large-scale infrastructure investments to meet the needs of future generations and sustain economic growth, with limited funding tools at their disposal. Yule said this would place severe pressure on a pure property tax model.

Three major infrastructure areas were identified by LGNZ where councils would be under financial pressure - building and maintaining roads; drink, waste and storm water (3 Waters); and earthquake strengthening.

The review would cover the estimated cost to local government in these three areas.

LGNZ said the Building (Earthquake-prone Buildings Amendment) Act is now being reviewed. It was advocating a move away from a one-size-fits-all approach towards a flexible solution, with an emphasis on high-earthquake-risk areas.

An example given was a recent report which showed a damaging earthquake in Auckland was unlikely, yet the city faced a massive earthquake-strengthening bill.

LGNZ also called for central government to review funding levels for local roads to ensure they was set at the right level.

At present, local government is bearing the risk and cost of nearly 90 per cent of the road network length, investing $1.23 billion in new roading infrastructure, maintenance, renewal and operations in 2012/13, Yule said.

"The national funding for local roads has been under fiscal pressure for some time and risks are now developing that investment in local road infrastructure may suffer."

The NZ Transport Agency is considering local government submissions on proposed changes to allocation of the Funding Assistance Rates, which determine how central government's transport funding will be distributed.

The review would also cover environmental issues.



Potential taxes for councils

Local income taxes – an extra tax on income

Local consumption taxes – an extra tax on goods and services

Congestion charges – a charge for a vehicle using congested roads at certain times

Visitor charges – taxing visitors, typically through accommodation bills

Payroll taxes – extra tax collected by an employer when paying an employee