Friday, January 27, 2012

Steve Baron: Council Rates System Unfair & Inequitable

Let's face it, getting your Council Rates bill in the mail isn't exactly an exciting experience - rather depressing in fact, especially when they tend to increase year after year. USA President, Franklin D. Roosevelt, once said, “Taxes, are the dues that we pay for the privileges of membership in an organized society.” Well that may indeed be the case but Council Rates certainly aren't cheap when the average ratepayer coughs up around $35-$50 a week as their contribution to the millions City and District Councils collect from ratepayers. Rates are becoming forever more difficult to afford as incomes do not appear to be keeping pace with the cost of living. Even for the so called wealthy, given economic conditions that have reduced investment returns substantially, find making Rate payments far more difficult. Neither is it easy for the Council, there are always important projects and expensive projects Councils have to plan for.

Now seems as good a time as any for central and local body governments to step back and consider how local government is funded and to consider the unfairness of the current system. I have two questions regarding Rates I feel should be given serious thought, rather than just continuing with what we already have simply because that's the way we have always done it.

Firstly, is it fair and equitable that only those residents/businesses that own properties, pay Rates out of the total working population? I would suggest that this load should be spread much wider given that far more people use the services a Council provides. Now I realise some of you will be quick to argue that even tenants pay Rates as part of their rent, so to speak. However, I would argue that in reality they do not. For years I personally managed a group of investment properties and I can tell you there were a number of times that Rates continued to increase but rents had to be reduced because of a depressed rental market. So in other words, even though the Council increased the Rates, we were unable to pass that increase (or even part of it) on to our tenants.

Secondly, is it fair and equitable to base a tax simply on the value of a property regardless of the services used or the people that live there? For example, Granny who lives alone may very well be paying more than a family of five who use far more services than her, because Granny lives in a more expensive home. That may sound fair enough to some, but it isn't Granny's fault the value of her home has increased exponentially because she has lived there for 40 years—but she still has to pay Rates based on the value of the property, even though she has a meagre income from government superannuation.

There are other options that could be considered. Poll taxes (tax per head) or Community Tax as it was known in the UK under Prime Minister Margaret Thatcher is one option. However, they were very unpopular and inefficient to collect. A Service Tax, or a local income tax, that operates separately from the national tax system has often been suggested, although this would also incur significant costs to collect. Perhaps a more equitable and simpler way to fund Council services would be through central government taxation which already funds a large amount of Council spending. This would simply mean raising national tax levels slightly, and spreading the load throughout society. If Council services were to become funded in this way a specific scientific formula would need to be designed to ensure fairness of distribution for Councils.

Regardless of how Councils are funded, another important consideration is how Councils allocate budgets. One option becoming ever more popular throughout the world, and often used by the Wanganui District Council, are referendums (well plebiscites actually—to be accurate). These allow ratepayers to prioritise Council spending and give residents more control over how their money is spent. Wanganui residents have had a say on, many issues including gang insignia, water softening, recycling options, the Splash Centre (pool) extension and also various options on Rate increases. These referendums have proved very popular, with referendum voting higher than the Council elections themselves. It is also interesting to learn from an empirical study by Professor John Matsusaka from the University of California which has shown that those American States that have the referendum system, spend up to 19% less than those who do not. The difference is that in the USA and Switzerland, these referendums are binding on local government and citizens even have the power to initiate referendums on issues that concern them.

To many, the current rating system is held in the same regard as the old TV licensing fee, it is hated and simply not fair. Council Rates are a regressive tax because they are not linked to the income of the ratepayer, nor by the amount of services used, therefore they are inherently unfair and should be replaced.


Anonymous said...

Perhaps this should be approached from the point of view of identifying the rates component in the weekly rental payments and indexing that component to rate increases. Eg if you are charging $300 pw at the moment and you as the landlord are paying $30pw in rates, break the $300 into 270/30 and show it separately. Is this lawful under the Residential Tenancies Act?

Brian said...

In general; I agree with Steve.
However are we not, in fact, placing the cart before the horse in this instance?
Before ratepayers receive these ever increasing demands by local government for more and more money for "services" there has to be some method of financial control of just how, when and where, a Council spends the rates that are levied. Our local council against the majority of the view of its ratepayers, went ahead and financially supported the building of a large and expensive Vela drone together with other councils in the region.
Since the Local Government Act No 2 came into being Councillors have the “licence” to spend ratepayers’ money on non-core projects, and are not bound to be financially responsible for their actions. “By this have moved away from the original established idea that they are there to provide "core" local government services.” They have now entered the fields of entertainment, Concerts, Olympic swimming pools, costly stadiums for sports, and lately in financing World Cup venues.
One has only to see the hype and media attention when Mayors open major non-core projects with of course their names suitably inscribed. However the reverse situation also applies so a Council Engineer once informed me, in how difficult it was to get a Mayor or Councillor to open a newly completed sewerage works!
The idea of a “Binding Referendum” that Steve advocates is a step in the right direction, I for one have no faith in Local Government Councils acceding to the majority wishes of their ratepayers without such a law. The same would also apply to Central Government.
If the example of bigger Councils like Auckland’ are the future of our local Government then the sooner we ratepayers secure a measure of control over the excesses of those we elect; the better it will be for us all.

Anonymous said...

I believe the occupier should pay, weather owner or tenant like in so many other countries. As regards older folk yes, the rates rebate should be greater to account for the lesser use of public services.

Anonymous said...

Do state house owners (Central Govt) and Govt (DOC etc) pay rates? Because users (Tenants, visitors and tourists)of these properties use Council services. And what about Iwi, who own large tracts of forest, do they pay rates on that? What about the foreshore(riparian area) given to Ngai Tahu in Queenstown from which they derive considerable cash income from tenants and tourism operators, are rates paid for that? And what about the foreshore and seabed, it incurs costs for services, why should it be excluded from assets if rates are based on land? What about Maori land where rates are charged but written off because of the impossibility of collecting?
There has to be a fairer way.

Anonymous said...

If only actual Ratepayers could vote in Local Body elections,(as it was until about 30 years ago)the problems would dissappear. What we have now, is those who can vote to spend the money of of the relatively few actual ratepayers.