Property rates not enough

A fresh look into how local governments raise money will be fraught with difficulties, and careful thought must especially go into whether putting more into a council's coffers will simply add more to already (in some cases) annual rate rises.

Local Government New Zealand says basing rates on property values alone may soon be no longer sustainable as the sole form of taxation for many councils.

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

This may lead to residents, workers, visitors and motorists within a council boundary contributing to a council's bottom line through targeted taxes.

LGNZ president Lawrence Yule says it is important for complementary alternatives to be found. The focus is on developing a long-term, sustainable strategy and model.

Examples of funding tools may include local income taxes, local consumption taxes, congestion charges, visitor charges and payroll taxes.

The only tax specifically ruled out was the controversial poll tax, based on how many people live at an address.

Three major infrastructure areas have been identified by LGNZ where councils may be under financial pressure - building and maintaining roads; drink, waste and storm water; and earthquake strengthening.

The review will cover the estimated cost to local government in those three areas.

Business groups have welcomed the review, saying the business community has long been concerned at the over-reliance on property value rates to fund local government.

Modern local government is broadly empowered in terms of its roles and responsibilities, yet it is restricted to a narrow, archaic funding base made up of property value rates and property charges, Local Government Forum chairman Michael Barnett says.

The forum is a group of business organisations with an interest in local government policy.

New Zealand has a reasonably simple tax policy compared with others in the Asia-Pacific region, as borne out by a new report by accountancy giant Deloitte.

The country's tax policies are seen as straightforward, consistent and predictable, laws are relatively certain and the tax authority is seen as generally fair towards taxpayers.

Being seen as a country in which it is easy to do business, from a tax perspective, is positive to attracting global investment. However, the report notes it is not the only factor.

Whether New Zealand is ready for another layer of taxes, albeit at a local government level, remains to be seen.

Mr Yule says local government is bearing the risk and cost of nearly 90% of the road network length, and is investing $1.23 billion in new roading infrastructure, maintenance, renewal and operations in 2012-13.

Some regions have static, declining or ageing populations that are less able to cope with higher rates.

Other regions are growing, putting them under pressure to fund infrastructure, which will place severe pressure on a pure property tax model.

New Zealand has moved a long way into the user-pays model adopted by many Western countries, and there will be a case made that those who use local government services should pay for their use.

A debate has long been held in Dunedin about the rate burden faced by businesses in the city, which commercial representatives see as an unfair burden on the people who employ locals. The Local Government Forum agrees.

It says property value rates bear no relationship to either a person's relative ability to pay or use a service.

Rates prevent communities from truly assessing the costs and benefits of council activities.

For many businesses, this means a heavy tax on a key asset to pay for all manner of community services - many of which they may rarely, if ever, use and have very little say over.

There is no doubt debate on the matter is needed - but giving councils the option to impose extra taxes, without some guarantee the profligate spending of some will be closely monitored, will be a recipe for disaster.

 

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