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The commission believes the 71% of New Zealand councils using the capital value of properties to set rates are wrong, and they should use land value.
‘‘Taxes on land value —– the unimproved value of the land on which a property sits — are among the most efficient taxes.
‘‘Landowners cannot do anything to change the unimproved value of their land or, therefore, change the amount of tax owed.’’
Rates set on capital value however created a ‘‘disincentive’’ to invest in property improvements because the improvements raised capital values and increased the amount of rates payable.
The commission noted many local authorities had shifted from land to capital value and this was ‘‘likely’’ to have reduced economic efficiency, with a greater effect on business properties than residential.
The Commission was asked by Finance Minister Grant Robertson to consider a tax on vacant residential land to improve the supply of housing.
‘‘On the surface, taxing vacant properties may seem appealing, especially to address inefficiencies and inequities arising from land banking.’’
However, it found the effects would likely be ‘‘small and transitory’’ and could have a harmful effect on development of new housing — ‘‘reducing developer flexibility and risk-taking which is the opposite of what is needed in New Zealand’’.
It also suggested rate rebates for low income households were inefficient.
Residential ratepayers on low incomes ‘‘may’’ be eligible for a rebate of up to $640 per year, but the commission said the scheme offered ‘‘only modest assistance’’ and was inequitable because those renting missed out.
It was also ‘‘administratively inefficient’’.
The commission suggested the rebates be phased out and replaced with a national ‘‘rates postponement scheme’’ where rates owing were recovered when a property was sold.
The current rebate scheme costs central government around $55million each year.
Overall, the commission found the current funding system performed well, although pressures on local government justified some new approaches.
It said there was not enough benefit in a visitor accommodation levy, however Queenstown Lakes mayor Jim Boult said on Monday the council would continue its push for such a levy.
‘‘Traditional methods of funding aren’t enough any more to address the challenges that many councils are facing.’’
The New Zealand Hotel Owners Association has supported the commission’s view on the levy and on the need for central government to provide more funding for infrastructure.