GST rise would push rates up

Ratepayers across Otago face the possibility of unscheduled rates hikes within months if the Government confirms plans to lift GST as high as 15%.

The warning came from most Otago councils yesterday, after Dunedin City Council finance and corporate support general manager Athol Stephens highlighted the likely effect of an expected GST hike.

Mr Stephens told reporters the full picture would not be revealed until the Government unveiled its Budget in May, but Finance Minister Bill English had already given a "strong indication" GST was likely to rise.

The increase was expected to be up to 2.5% to 15% as part of tax changes to be introduced later this year, Mr Stephens said.

If confirmed, the hike was expected to be in place from October 1.

In Dunedin, the increase would add an additional 1.67% to city council rates forecasts for the 2010-11 financial year, taking the rise from 5.3% to 6.97%, he said.

A further 0.55% jump would occur in 2011-12, from 9% to 9.55%.

Following years would remain unchanged, but council fees and charges - such as the cost of registering a dog - were also likely to rise, he said.

The increases could also be repeated across Otago and force the Otago Regional Council to reconsider plans for general rates to stay the same for 2010-11.

ORC corporate services director Wayne Scott said it was too early to speculate on the effect of a GST hike, but generally "if GST goes up, so do the rates".

Clutha District Council chief executive Charles Hakkaart said staff were still scrutinising the possible impact, but confirmed a GST hike to 15% would add to the 2010-11 rates bill, at present forecast for a 3.66% rise.

Waitaki District Council corporate services manager Stephen Halliwell said the impact of any increase in GST remained uncertain and staff were awaiting clarification before calculating changes to the 1.8% rates rise already forecast for 2010-11.

However, some council fees and charges set to increase on July 1 had been deferred until plans for GST were confirmed, and in other areas - such as $2 parking meter charges - the council had already absorbed the extra cost in the meantime, he said.

Central Otago District Council corporate services manager Susan Finlay said the council's forecast rates increase - set at 7% in the council's 2010-11 draft plan - would be "amended accordingly" if GST climbed.

A warning about the possible hike had been included in the council's draft annual plan.

Queenstown Lakes District Council finance manager Stewart Burns said while details were yet to be confirmed, raising the GST rate would mean higher rates.

Council charges would also have to rise, but the council's overall revenue would not be affected, he said.

The same issues would be faced by Lakes Environmental and Lakes Leisure.

While raising GST was yet to be confirmed, it appeared likely, Mr Stephens said.

Mr English had hinted "pretty strongly" an increase was coming, while Prime Minister John Key - who ruled out an increase during the 2008 election campaign - appeared to have been persuaded.

In February, Mr Key told Parliament an increase to "no more than 15%" was being investigated, with any change to be offset by personal tax cuts and benefit increases.

Mr Stephens said the Dunedin City Council wanted to alert ratepayers to likely changes to the 2010-11 draft annual plan, which was midway through a round of public consultation, with submissions due to close on April 12.

It was due to be adopted by the council in June, but GST changes would not see the process restarted.

The likely changes could still be considered during public hearings next month.

The only alternative to raising rates to cover the rise in GST would be to absorb the increase by cutting spending by the same amount, he said.

The cost of the council's planned capital expenditure programme - including the Forsyth Barr Stadium - would not be affected, as the council could claim back GST on capital projects, making increases "cash neutral", he said.

All the councils were working with the Society of Local Government Managers, which would discuss any changes to GST with the Government.

The talks would also help the Government understand how changes to GST partway through a financial year could complicate matters for councils trying to prepare budgets now, Mr Stephens said.

The council was planning a pro-rata rates increase for the 2010-11 year, based on a 12.5% GST rate for the first quarter and 15% for the remainder of the year, after GST changed on October 1, he said.


Councils' GST headache

- Government considering possible rise in GST to maximum 15%.
- Final decision expected with May Budget announcements.
- Any change expected to be in place on October 1.
- Most Otago councils warn raising GST will force them to raise rates.
- Uncertainty continues over how changes will be implemented.


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