New ways of squeezing lemon

00:00, Jul 23 2014

Finally, some smart New Zealand financial brains are turning their attention to local body rates.

Only one thing is certain about property taxes.

They go up, year after year, usually faster than people's incomes do.

Increasingly, people will tell you, it's unsustainable.

Sorry for the buzzword.

It means we really can't go on like this.


But before getting too carried away with the idea that rising rates are the most terrible ill afflicting us all, let's put a little perspective around it.

Wage and salary earners see about a quarter of our income disappear in taxes before it even lands in the bank, and we are taxed again at 15 per cent the moment we spend it. More, if we're buying petrol, or alcohol, or cigarettes, and so on.

The burden of council rates is a fraction of that, hovering around 3 per cent of most households' incomes.

One of the problems is, though, they have to be paid regardless of whether property owners actually have an income.

Palmerston North mayor Jono Naylor says rates are a less than ideal way for councils to raise money, "and that's one of the biggest challenges for local government".

They are a ham-fisted attempt at identifying people's ability to pay.

For an increasing number of people, the value of your property, in Palmerston North's case, just your land value, is quite at odds with income.

Especially with an ageing population, there are people living in a home that might make them appear, if not asset rich, at least asset "comfortable", but whose income is fixed, and low.

No government politician wants to see people having to sell their house, or take on a mortgage to release some money, because they cannot afford to pay the rates.

In Palmerston North, it has been quite some time since the possibility of moving from land value to capital value-based rating has been seriously explored.

Most other authorities have made the move.

It resolves one of the most obvious disparities.

Why should someone in a modest little house on a large section in a desirable suburb have to pay more rates than someone in a large mansion on a small section in a less popular area?

While a move to capital value rating might help iron out that perceived inequality, Naylor has no great appetite for the idea.

There would be winners and losers, and it would be hard to justify the negative effects against the less noticeable positives.

One of the things councils have done to even out disparities in the rating system is to introduce fixed charges for some particular and general services.

The argument is that where it can be identified everyone is getting the same level of service, they should all pay the same amount for it.

It has an allure of fairness, and evens out the difference between the lowest and highest rates bills.

The counter argument is that fixed charges impact most on people who are least able to afford them.

So there are flaws in the rating system, but Naylor does not see it ever being thrown out completely.

It is relatively easy to administer locally, for one thing, but there is a need for other tools.

So Local Government New Zealand has set up a funding review team, with Auckland councillor Penny Webster as its chairwoman.

LGNZ president Lawrence Yule says, here's that word again, "the sustainability" of local government funding has become an increasingly important issue in the face of demographic and economic change.

In other words, many regions have static or declining populations - either declining in numbers, or declining into old age.

They can't afford to keep on paying ever increasing rates.

Other councils have major growth pressures, needing to pay for expensive infrastructure to support that growth into the future.

The group's challenge is that any new methods of raising cash might not be so popular either.

The thought of a poll tax makes Naylor shudder, remembering the devastatingly unpopular "community charge" introduced by Maggie Thatcher's Conservative government in Britain in 1990. It led to rioting in the streets. The prime minister resigned later in the year, and the tax was thrown out.

Other options include local income or consumption taxes, congestion charges, visitor charges and payroll taxes.

Actually, they all sound pretty unpalatable.

At least they would create a bit more citizen awareness of local government, even if that manifests as opposition.

We all pay rates, one way or another, but there is a bit of a gulf between those ratepayers who pay rates and those who pay through rent, whose connection is less direct.

The group will release a consultation paper later this year, with final recommendations by March next year.

Then all local government would have to do is convince central government to change the law so they can, if not raise more money locally, at least raise it differently.

More power to local government? This is something I would have to see to believe.

Manawatu Standard