FROM AN EARLY STAGE OUR GROUP RECOGNISED:
Being critical of the present system would not of itself attract support, unless it was constructive criticism, supported by a detailed proposal for a viable, affordable, more equitable alternative. Change is long overdue, and inevitable, because of the many and obvious inequities and injustices of the existing system listed below: –
- Rates collected benefit the wider community.Local government does not provide exclusively for properties, or property owners, but rather provides and maintains a broad mixture of infrastructure, services and amenities to the benefit and well-being of all residents. All residents are therefore interested parties, and are rightfully entitled to vote at local government elections. However, at that point all semblances of equity and fairness disappear, as only property owners are directly taxed in order to sufficiently fund these services.
- Is paying GST on rates fair? By any definition, rates are a tax, being compulsory, not discretionary, unavoidable, and imposed by legislation. Making bad law worse, ratepayers also have to pay GST on rates, in effect, a tax on a tax!
- The impact on homeowners of this narrowly based and discriminatory tax legislation is further skewed to their disadvantage because all commercial enterprises can claim back the GST content, and also treat the cost of rates as tax-deductible items. Homeowners – who contribute most to rates – cannot.
- Current Rates are calculated on a property’s Land or Capital value, arrived at by an arbitrary and questionable procedure that often provides inaccurate results, – but worse, not all property is rateable, so the burden on the remaining rateable property owners is increased.
- Two-thirds of other OECD countries have elements of personal income taxation at the local government level, whereas in New Zealand, all personal and corporate income tax goes to central government.
- The current ever increasing rate demand is harshest on low-income families and the elderly on low fixed incomes, facing ever-increasing rate demands. Rates per household are the same regardless of the number of local amenity users living in that house.
- Ability to pay does not equatewith property ownership, a fact central government recognises by offering small subsidies to low-income ratepayers. Granting this concession could be seen as a tacit admission by central government of the fundamental inequity and unfairness of the rating system.
- It provides a relatively open-ended source of funds, with little or no control by way of limits or restrictions on spending. This is best illustrated by the failures of the Kaipara District Council, which were not revealed until long after the damage was done. It encourages “Empire Building” and a “Cost-Plus” system of management, because councils have the power to set rates at whatever level is required to cover whatever spending they decide on. This elastic funding does nothing to impose fiscal discipline, encourage good management, or promote sound selective procedures to differentiate between spending on essentials versus other “nice to have” things.
- Central government has devolved many of its responsibilities onto local government, and facilitated this transfer by increasing councils’ areas of competence, but without granting them any commensurate financial resources or support as compensation. Across the OECD, local governments receive about 29% of all personal income tax revenue, doubtless reflecting their greater areas of competency being properly recognised and compensated for.
LOCAL GOVERNMENT NEW ZEALAND (LGNZ)
Local Government New Zealand recognised that increased funding would be required in order to finance future requirements, but knew they could not keep on increasing rates ad infinitum. It therefore set up the Local Government NZ Funding Review, to examine future needs and explore the possibility of alternative funding mechanisms.
In view of all the above, one would have thought that the existing method of funding – its advantages, disadvantages, flaws and strengths – would have featured very prominently in the recently published conclusions of that working party. It didn’t – In fact the report completely ignored the present system and its inequities. Worse, it indicated an intention to retain the property based rating system. LGNZ endorsed it by calling for “A diverse set of funding tools . . . with property rates as a cornerstone”. Clearly it indicated that this inequitable burden on householders would not only be allowed to continue, but would be increased by the imposition of other taxes or levies imposed on the wider community. It is obvious that as far as LGNZ is concerned, the inequitable rating system will remain the elephant in the room, known but ignored as usual by central and local government, both of which obviously regard and treat ratepayers as cash cows.
LGNZ wants to retain the open-ended funding mechanism provided by rates, and wants individual councils retain the power to set the level of local taxation. Central government wants to encourage local and foreign investment by continuing to give preferential treatment to business enterprises, particularly big business. Many of these are multinationals or internationals, largely overseas owned, that traditionally have paid next to nothing to directly support the nationwide infrastructure here within which they operate and make their profits, a large proportion of which are exported offshore.
Consider the actual net cost of rates to any such large enterprise. As a proportion of their gross income, the cost of rates would amount to very little, compared to the GST included cost of rates for the average homeowner, calculated as a proportion of his or her gross income. The great disparity in the ratios of real cost to incomes between big business and individual incomes could be interpreted as homeowners having to subsidise the rates payable by big business.
There is a more equitable, affordable, and viable system that could replace rates – and its implementation would be relatively easy, simple, and straightforward. To quote Sir Ross Jansen once more, he said “Taxes should be fair, related to ability to pay, hard to avoid, and easy to collect”. This suggested alternative ticks all those boxes, while by comparison, the present rating system is demonstrably unfair, unrelated to ability to pay, and relatively difficult and expensive to collect.