The case for alternatives to rates confirmed

A case study based on the major recommendations in the Shand report on local government rating has confirmed there are no quick fixes and "no magic answers" in the offing to resolve rating equity issues in the Far North.


The Far North was one of a cross-section of 20 local authorities modeled by Local Government New Zealand to assess the implications of the report which emerged from the government's rating inquiry last year. The Society of Local Government Managers (SOLGM) report was released today (12 March).


The modeling has indicated that because of the economic disparities across the Far North district, significant changes to the incidence of rating could occur if the recommendations in the Shand report are adopted by the government.


"A shift in rates from one sector must be balanced by a shift to others, and the increases and decreases in rates in one sector flow through to others. This is why we say there are no magic answers in these recommendations," the SOLGM report says.


The SOLGM model has also confirmed that because of high deprivation indices and low average incomes, the Far North is likely to remain towards the top of the national list in terms of rates affordability, irrespective of the changes proposed in the report.


The SOLGM modeling was confined to Shand report recommendations on changes to the existing rating base. It did not look at recommendations regarding new sources of funding from outside rates and increasing levels of existing funding, because of uncertainty over actual impacts and how these recommendations may be perceived by the government legislators.


The SOLGM modeling and report was based on recommendations in the Shand report to abolish powers to levy a uniform annual general charge (UAGC), abolish powers to levy general rates on a differential basis, encourage local authorities to switch to the capital value system, and strongly encourage local authorities to introduce meters and user charges for water supply and wastewater disposal.


Summarising the potential impact on the Far North, Policy & Revenue Manager Chris Ellington said today it needed to be emphasized that none of the impacts suggested in the report could be taken as a certainty.

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"Unless the government adopts the Shand report recommendations and makes changes to the Local Government Rating Act, this is really only an academic exercise. In the meantime, we needed to know what some of the impacts could potentially be, and preparing a case model was the most effective way this could be achieved."


"To my mind the most critical element to emerge is confirmation that we need a revenue stream which is not based on land ownership. If the Far North is to move ahead, we cannot continue to rely solely on a system based on rates," he said.


The main points the SOLGM report had raised were:-


The Shand report is all about slicing the same cake in a different way
The report is an affirmation of the principle that rates are a tax on wealth
There are no proposals for alternatives which will shift the burden off landowners.
The Shand report shifts the incidence of rating – residential properties will pay more to provide a significant level of relief for commercial properties, and there will be a minor movement from residential to the detriment of the rural sector.
The proposal in the report to abandon Uniform Annual General Charges (UAGCs) would have a significant impact in the Far North, relieving lower valued properties to the detriment of higher valued properties and the rural sector
Without the ability to apply a UAGC the trend from the latest revaluations which narrowed the rating gap between high and low-valued properties is effectively reversed.
Because there is no ability to apply differentials on the general rate, councils are likely to opt for a range of targeted rates to help equalize the impacts.
The report suggests a compulsory movement from land values to capital values as the basis on which rates are struck –a move on which the Far North will consult over the next few months, with a view to introducing the change for the 2009/2010 rating year.
The report has no impact unless the government commits to its recommendations and makes the required changes to the Local Government Rating Act.