Unbalanced rate burden must go

 Federated Farmers local government spokesperson Katie Milne says setting rates based on the value of a property is a crude and simplistic tool which is unsustainable.

Milne says a new Local Government New Zealand (LGNZ) discussion paper shows local body rates must go.

“Farmers find themselves paying for services they don’t or can’t use.  In effect, the current rating system means farmers are subsidising people who live in towns.

“Local government in many cases is suffering a decline in its population from which to draw rates.  This problem then gets passed to farmers who find rates a spiralling proportion of their farm costs.”

The discussion paper suggests ways to address current and likely future funding shortfalls among councils.

The paper details the findings of LGNZ’s major funding review, which last year examined issues facing local funding, and considers alternative funding for increasing community demand on services and infrastructure – and incentives to drive economic growth.

LGNZ president Lawrence Yule says the findings, and the demands of central government policy makers, should prompt a fresh look at how local government is funded for the benefit of communities. Revenue now falls short of spending.

“Councils [account for] 10.5% cent of all public expenditure, yet they raise only 8.3% of all public revenue,” says Yule. 

The World Bank, referring to this “vertical fiscal gap”, says a growing number of councils face financial challenges at a time when demand for infrastructure and services is greater than ever. 

“Local government is an important contributor to economic growth but the right incentives and resources must be in place to drive this growth,”  Yule says.

To help solves this, LGNZ proposes councils partner with central government, with the government considering costs and benefits of decisions for local communities and co-funding costs where policy proposals have significant national and local benefit.

Milne says the discussion paper is timely in its pointing to more equitable and efficient rating systems.

“We like the attention given to expanding the existing revenue system, such as in user charges. 

“This is clearly a fairer and more flexible way of at least part funding local government activities.

“There should also be a look at institutions which are rates exempt, yet which use council services.”

“Local bodies need to get a more robust way of deciding their rating and spending.  

The long term plan process for councils helps, but is not the full answer.”

Milne says there needs to be a close look at how central government imposes new rate burdens on local government.

“It’s the easiest thing in the world for a government to keep taxes down by shoving the cost down the chain to local councils.  But… then they need to help by paying for it out of income tax and GST income.”

Key pressures on council's

• • Changing demographic and economic growth resulting in some councils being required to spend heavily on infrastructure to accommodate growth, while others are forced to maintain and renew infrastructure with declining populations and funding bases.

  •  Increasing community and central government expectations.

  • Increasing impacts from natural hazards and environmental challenges.