Editorial: How should our councils be funded?

Last updated 11:57 11/04/2014

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Taxes remain one of life's certainties, but the ways they are applied at a local government level may be in for a shake-up.

Local Government New Zealand (LGNZ) is reviewing how councils are funded, looking beyond the reliance on property-based rates.

The national body is concerned that some regions will become increasingly affected by a static or falling population, as well as an ageing one.

It argues that this will create more asset-rich, cash poor ratepayers who will struggle to pay rates bills based purely on the property they own.

In other regions the pressures of major growth will load up the infrastructure costs councils have to meet.

All councils face increasing bills for roading, water supply and wastewater, and earthquake strengthening in the wake of higher building standards.

LGNZ believes that relying largely on property tax revenue to cover these pressures will no longer be appropriate or sustainable.

Among complementary funding options it has floated are local income, consumption and payroll taxes, and congestion and visitor charges.

One option that has been ruled out is a poll tax - a fixed charge per adult resident - that led to riots in Britain in 1990 and contributed to the downfall of prime minister Margaret Thatcher.

Sparking a debate about how we pay for local government is a sensible step.

There has been some grumpiness about the current system that is based on property values, plus targeted rates and charges, particularly from those with highly priced properties.

However, much of the ratepayer angst has come from the size of the increase in any particular year, rather than the basis of collection.

Bringing in a new tax is never going to be popular, and any major change may require new legislation that will run into political flak.

Of the options being looked at in the review, taxes on local income or consumption have the advantage of a much wider revenue base.

But they will be harder to equate to the council services provided, other than on generic grounds that residents all benefit from services such as water, refuse and roading.

Congestion charges will gain traction only in the main cities, and visitor charges give rise to collection issues and the wisdom of potential damage to a vital regional industry.

The key to any new proposal will be how well it is explained, its perceived fairness, and the value communities receive from their councils.

That value can be underrated but there are also question marks about how efficiently local bodies operate.

Councils will have to convince ratepayers that they have their own costs in order before any new taxes are brought in.

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- Nelson

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