Rapier versus broadsword

OPINION: The article "Southland District value jumps $5b" (January 7) will no doubt have some farmers in the district even more concerned about soaring rates increases after witnessing their mates across the boundary line get hammered by similar changes in Invercargill city last year.

When it comes to deciding who pays what in rates, Southland District Council is wielding a rapier, Invercargill City Council a broadsword. This isn't an accident. Over the years Southland district has structured its rates so that they are not at the whim of the valuer's pen, and avoids wild swings in rates that follow any swings in the relative capital value of any property in the district.

While few like being struck with either rates or swords, at least district ratepayers can know the amount they pay in rates is subject more to the decisions made by their elected representatives than the vagaries of the property market.

Let's be clear; the district revaluations are not a great outcome for farmers who will face, on average, higher rates increases than any other land use category. According to information supplied by SDC, rural properties now account for 70 per cent of the district's total capital value, compared with 64 per cent in 2006.

Because rates are reliant on relative property values, district farmers will on average end up paying more than they did last year, on top of the signalled 6.94 per cent overall rates increase for the district.

The question on all the farmers' sun-cracked lips is how much more? As Southland District Council finance and customer services group manager Phil Culling has stated, this won't become apparent until the council develops its budgets for the year ahead. It will also differ on a property-by-property basis, depending on how one individual's property value has increased compared with the average. But Southland district's farmers' rates will certainly not be doubling in 2010 as they did in Invercargill city in 2009 as a result of valuation changes.

District councillors can also look at the redistribution of rates after the valuation changes and further develop their targeted rates to mitigate the effects of the valuations on individual properties. To their credit they have a history of assuming this responsibility.

When it comes to funding policies, this is the big difference between the two councils. By adopting such a large suite of targeted rates, uniform annual charges and ward rates, SDC has more control over the outcomes of its rating system than ICC has.

SDC has just over 20 per cent of its 2009 rates on a straight property value basis. Comparatively, roughly three quarters of ICC's rates are reliant on straight property value. As a result, relative property value changes in Invercargill city lead to more volatile swings in individual rate accounts. So what?

The problem is that the Invercargill City Council is indirectly yet effectively dodging its responsibility by relying so heavily on property value to decide who will pay what in rates. Ratepayers should expect that their councillors will look at the overall rates picture and make a judgment call on whether the outcomes are equitable rather than just pointing the finger at valuation changes and claiming limited responsibility for how these valuations impact on rates. The local government rates system is by its very nature reliant on relative property values. But councils have available to them a series of tools that they can use to mitigate the effects of the underlying blunt property value instrument.

Invercargill City Council does apply a differential to its pastoral ratepayers that reduces the overall effect of higher relative rural property valuations. However, ICC made the decision to change this differential last year to the detriment of farmers, exacerbating the rates increases farmers were facing after the valuation changes. This differential does little to reduce ICC's underlying reliance on property values to allocate rates.

Besides, the pastoral differential would be unnecessary if ICC made better use of the available rating tools such as targeted rates to create a connection between those who benefit from council activities and the amount each rating category pays towards it.

ICC will claim that because it is a city council it has to offer community services aimed at its predominately urban constituents, and that sets it apart from Southland district. But it doesn't follow that rural ratepayers should shoulder the disproportionate burden of the costs for these urban services as they are now.

For 2009-10, farming properties make up less than 1 per cent of the total number of rateable properties but pay just over 8 per cent of the total rates. That is the council's deliberate choice, not some unfortunate occurrence that it is unable to rectify.

Federated Farmers has over the years questioned the form of some of SDC's rates, especially the model it uses to allocate its roading rate. But we encourage councils to take a proactive approach of adopting a broad suite of targeted and differentiated rates, rather than simply allowing property values to do the job for them. Using those criteria alone, Southland district's approach is far preferable to the one taken by Invercargill city.

We should be able to place faith in our councillors to make balanced, fair decisions and we should be able to have faith in local government staff to provide options to councillors for them to make these decisions. As our Invercargill farming friends look forward to the outcome of a review of the funding policy let's hope their faith is not blind.

» David Cooper is Federated Farmers' regional policy adviser

- © Fairfax NZ News

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