Central Otago mayor to Labour on water tax

Regions that rely on water for irrigation were always going to be concerned about any proposals to tax water.

Central Otago mayor Tim Cadogan has posted on Facebook about his opposition to any water taxes, and has included an open letter to Labour leader Jacinda Ardern.

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You will no doubt be aware that the Labour Party has raised the idea of a tax on irrigation and have put up a 2c/1000 litre tax rate.

I believe that this is grossly unfair to Central Otago; New Zealand’s driest district. Figures supplied to me have put the cost if introduced at that rate to our District’s economy at $6,000,000 per year. This could put marginal enterprises over the edge and make some of our top-end products (pinot noir springs to mind) uncompetitive.

I have written to Labour Leader Jacinda Ardern today to express these concerns. The text of the letter is below.


16 August 2017

Jacinda Ardern
Leader of the Opposition
Leader, Labour Party New Zealand
Parliament Buildings
WELLINGTON

Dear Ms Ardern

LABOUR PARTY PROPOSED IRRIGATION TAX

I write to you as the Mayor of the driest District in New Zealand, which is also one of the primary revenue earners for the country from the production of stonefruit, pipfruit, wine, meat and fine wool.

Central Otago is also one of the most pristine Districts in the country and it is my full intention as Mayor to support measures to keep it that way.

As we are the driest District; much of the export earnings created by our producers rely on irrigation and many in my rural community have met the announcement by the Labour Party of the proposed tax on water used for irrigation with fear and dismay. A calculation of the effect of the proffered 2c/1000 litres on Central Otago’s economy makes it easy to understand why.
Figures supplied to me by the Otago Water Rights User Group (OWRUG) show that there is approximately 40 000 hectares irrigated at present in the Central Otago District. Proposed expansion of irrigation could add 10,000 to 15,000 further hectares within the next 10 years. Irrigation is essential in this area not just for the obvious green growth that water provides but for frost fighting in the horticulture and viticulture sectors as well.

In an average season in Central Otago, OWRUG estimates that an average Central Otago irrigated property would use 750 mm of irrigation water a season per hectare. At $0.02/m3 (or 1000 Litres) your proposed tax cost would cost the producers in this District $6,000,000 per year over the 40,000 hectares currently in production. The fruit growing industries (including grapes for wine) will generally use well in excess of that amount as they rely on irrigation to protect the year’s crop from frost.
By way of example at a smaller level, I have been told by a local farmer that his family sheep and beef farm of 350 hectares would be facing an extra $52,500 in tax per year.

Irrigation water presently is far from cheap. Pumped piped pressure water currently costs about $800-1000/ha annually which comprises power, administration, maintenance and debt. The cheaper option of gravity water race where available currently costs about $100-300/ha annually.
New schemes such as the proposed lifting of the Falls Dam on the Manuherikia River is estimated to cost about $250/ha annually with pumping done on farm likely to be an extra $150/ha power cost, making for approximately $400/ha in costs. The expansion of irrigation in Central Otago that is currently in train, which will add significantly to my District and New Zealand’s earnings through stone and pip fruit exports amongst other industries, will become marginal to the point of unviable if your tax is introduced as proposed.

I accept that New Zealand’s waterways have been degraded through the impact of intensified land use and that, as a Nation, we must address that issue. I also accept that there is no such thing as a tax that will seem fair to all those being taxed.

However; your proposal is, in my view, grossly unfair on Central Otago for the following reasons:

• The proposal is a reverse tax on rainfall. Central Otago producers must store water in winter to cover the shortfall in summer. Wetter areas do not have to do this at all, or to the same extent. The amount of tax that will be paid by the producers in my District will therefore be determined not by usage of water through irrigation, but by the lack of rainfall here.

• Central Otago is not an area with significantly degraded waterways which can be taken as another sign that irrigation on its own does not have major negative environmental impacts. I have attached a map produced by the Otago Regional Council, which shows that only two of the 20 waterways described as having “poor” water quality are in Central Otago, and these are very small catchments. The effect of the tax as proposed by your party will be to tax this District disproportionately heavily and then apply those funds to the Otago Regional Council to repair waterways throughout the whole District. This is blatantly unfair.

• Your proposed tax also makes an incorrect assumption that the volume of water used matches the impact of water use. The environmental impact of taking large amounts of water for irrigation is arguably less than the environmental impact of taking lesser amounts of water for other purposes. By way of example; a very large amount of water applied to frost fighting in this District is essentially just delayed rain and has no detrimental impact on the environment whereas a comparatively small amount used in a dairy wash-down could (if not have a vastly greater impact.

At a Local Government New Zealand Rural and Provincial meeting last year, Finance Minister Stephen Joyce stated that he attributed New Zealand’s ability to ride the effect of the slump in dairy prices successfully as being due to growth in horticulture, viticulture and tourism. Central Otago excels on the world stage in horticulture and viticulture and will provide even more to the New Zealand economy if planned irrigation expansion goes ahead. Should your tax proposal become law; I am told much of this expansion will not get off the ground.

In addition; I am advised that the extra cost the tax would impose may lead current non-dairy operations to convert to dairy in this District to remain viable. If (as many claim) the dairy industry is a significant contributor to the issues facing our waterways, it would be a dreadful irony if the tax designed to improve waterways causes an increase in the industry many blame for much of the problem.

No matter what the result of September 23; I offer an invite to you to come to Central Otago and see for yourself the balance we are striving to achieve between the needs of the environment and the needs of the families who work the land to make a living.

Yours sincerely

Tim Cadogan
Mayor
Central Otago District Council

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8 Comments

  1. chrism56

     /  August 18, 2017

    Yet more proof that the Tee shirt slogan policy decision has no thought or sensible analysis behind it. It is just sock the “rich” farmers because they never vote for us anyway. And what effect does the water have of ground water nitrate levels – the nominal reason for the tax? Seems like it is close to zero.
    I do note that they still use a lot of water for frost protection PG

    • Blazer

       /  August 18, 2017

      from Brian Fallow..NZH…’ Labour’s water spokesman David Parker says the majority of the royalty revenue would go to regional councils in the areas where it is raised, and none to central government – another reason why it is misleading to call it a water tax.’
      http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11905501

      • Andrew

         /  August 18, 2017

        And this is exactly the problem with this poorly thought out reactionary policy. Heavily irrigated land tends to have the best regional water quality, where as areas with none to little irrigation have the worst water quality.

        From Irrigation NZ:
        “Labour told us at that meeting that they propose charging 2 cents per 1,000 litres of water on irrigators and will be spent within that region. When we ran the numbers on what regions would receive in funding it produces some really ridiculous outcomes where regions with really poor river quality end up with hardly any money, while other regions have more than they could spend”

        Another example of a poorly thought out policy that will no doubt have very little impact on water quality overall and take 50 to 100 million out of the farming community every year. This affects the small provincial towns the most.

      • Andrew

         /  August 18, 2017

        Let me be absolutely clear on this issue. I do think that charging companies to ship our water overseas is a great idea. I also think that polluters should pay for the cleanup of our waterways, not the farmers that happen to use irrigation.

  2. Its almost worth letting them into power just so in the next election cycle you can point out that they don’t have an idea as to the world works but it may take, once again, three election cycles to repair the damage

    • Blazer

       /  August 18, 2017

      Nonsense George…you survived the Clark/Cullen years quite …nicely.

  3. The Central Otago economy is a $1.243 billion economy. To use the mayor’s own figures he’s claiming that a tax that is only 0.48% will make their economy noncompetitive. If they can’t see themselves being able to accommodate this I’d question their business model.

    • chrism56

       /  August 18, 2017

      Most of the Central Otago economy is connected with Queenstown. The appropriate number is what is the size of the horticulture and viticulture economies? They are large seasonal employers and ones that have a marginal existence. One heavy frost at the wrong time of year and the apricots or grapes income is halved.
      And like the mayor says, this isn’t about cleaning up the environment, it is an envy tax.