How will local body taxes solve council spending escalation?

Local body rates have already been climbing well ahead of inflation. They are predicted to rise another 50% over the next ten years in the major cities.

So local bodies are looking at other ways of getting revenue. That doesn’t solve the escalation in spending, but I guess it makes it easier for mayors and councillors to divert from broken rates rise promises.

In the weekend Local Government New Zealand

Substantial review of local government funding welcome and needed

Local Government New Zealand is pleased with the terms of reference for the Productivity Commissions’ forthcoming inquiry into local government funding and finance which were launched by Minister of Finance Hon Grant Robertson at its annual conference in Christchurch this afternoon.

LGNZ President Dave Cull says that the current way of funding local government doesn’t provide the means to invest for growth and development, particularly given the diverse challenges facing communities.

“Our regions, cities and districts shouldn’t be entirely dependent on central government to resolve the complex issues that we are now facing – it is essential that we empower local authorities with access to funding and financing tools to make a difference,“ says Mr Cull.

Local government has been calling for a significant review of local government funding since 2015 when LGNZ first released its Local Government Funding Review and 10-Point plan: Incentivising economic growth and strong local communities.  The review found that the heavy reliance on property rates to fund local services and infrastructure failed to incentivise councils to invest for growth, which is necessary to provide the additional income to deal with issues such as infrastructure improvements and the pressures from climate change, extreme weather events and the impact of tourists on infrastructure.

“Local government is critical to the overall wellbeing of New Zealand’s communities and the way in which councils are funded influences their approach to new investment.  If the only funding sources are property based taxes then the ability and incentive to fund long term growth investment is limited.”

So local bodies want more alternatives to property based rates. Auckland City Council has already got approval for a fuel surtax, and other local bodies are considering having one too. How long will it be before just about everyone pays a local body fuel tax?

Mayors and councils are struggling to keep rates rises below eye watering levels.

LGNZ President Dave Cull’s own Dunedin council has big plans – rates wise. See 7.84% rates rise “a normal part of the cycle and 60% rates rise proposed.

And this is level of planned rates rise is common.

Stuff – Rate rises continually outstrip incomes and inflation – do they need an overhaul?

Analysis by Stuff found that over the coming decade ratepayer bills in five main cities will, on average, increase by 50 per cent.

As well as everyday council expenses, these increases will contribute to major projects – for example, $253 million for a new stadium in Christchurch and $311m for pest and disease control in Auckland.

Exact comparisons are difficult because of variations in the way rates are calculated, what they include and when rating valuations of properties are carried out. But indicative figures provided by the councils for average house prices suggest Hamilton and Christchurch ratepayers will see bills surge by around 53 per cent by 2028, and those in Wellington by 48 per cent.

Auckland rates will rise 38 per cent, and Dunedin by 59 per cent.

Rates for 2018/19 rose across the board on July 1, from 2.5 per cent in Auckland to 5.5 per cent in Christchurch and 9.7 per cent in Hamilton, against a backdrop of 1.1 per cent inflation.

But it is likely to be worse.

TEN-YEAR RATING FORECASTS ARE ‘BEST CASE SCENARIO’

Gough has an ominous warning, at least for Christchurch – that the annual increases outlined in the long-term plans are far from fixed in stone.

“Every year we do an annual plan, and I have never seen one where the rating increase is less than what’s projected.

What seems to happen is councils warning of a large rates rise, finalising a slightly less large rise and claiming that is a reduction.

Cull believes there is an over-reliance on property rates to fill the coffers, the 60 per cent of council income they provide far exceeding that of other developed countries, and that putting them up year after year in the face of sluggish wage rises is not sustainable.

He is a proponent of local taxes as an alternative funding tool – sales taxes, GST, a local income tax or the like.

That makes taxes even more complicated, and will presumably end up with variations between different councils and regions.

But all this focus on alternatives for raising local body revenue misses a fairly large point – why is expenditure going up so much?

It sounds like 50% rates increases are inevitable and mayors just want to disguise where their revenue comes from.

Broken rates rises promises make for embarrassing election campaign fodder.

Alternatives to rates should certainly be considered, but I wish as much effort was put into containing expenditure.

A plethora of regional taxes may help mayors and councillors, but it will still cost us all one way or another – probably more given the costs of administering a complexity of taxes.

Back to the Stuff headline: Rate rises continually outstrip incomes and inflation – do they need an overhaul?

What about ‘Spending rises continually outstrip incomes and inflation’?