Hide: farmers are paying too much in rates
Farmers' rates continue to climb as farm income drops, but local government minister Rodney Hide has told farmers any cash-saving rates reform would have to wait until after the Auckland super city is formed.
Throughout New Zealand, local authority operating expenditure is forecast to rise by 41% over the next 10 years and rates revenue by 59%.
The total rate take across all local authorities was $3.5 billion to June, 2008.
This isn’t news to farmers - many of them have been writing five figure cheques each year to satisfy the rates demands of their local authorities. To highlight the issue, Federated Farmers formed the 10K Rates Club a number of years ago, which now has nearly 250 members all paying more than $10,000 a year to their councils.
Mr Hide recently told Federated Farmers that Auckland’s governance issues were his first priority before “getting local government expenditure under control”. Then he would welcome discussion on future priorities for local government reform.
The Minister is in favour of capping rates so increases are kept down to the rate of inflation or less. This concept is opposed by Local Government New Zealand (LGNZ), which this year commissioned a literature review on the concept, which was tabled last month.
Its findings broadly suggested that rates capping constrains growth and restricts development and that local government throughout New Zealand and other countries involved in the review were highly conscious of keeping costs to a minimum.
LGNZ president Lawrence Yule said all rates capping does is reduce expenditure, particularly on big ticket capital items and roads.
Mr Yule said there was a general feeling that local authority rates were a wealth tax. As the value of farms grew, so did the requirement to pay more rates based either on capital value or land value.
While some councils have changed the structure of how they gather revenue, usually, the biggest proportion of the revenue comes from the general rate, which is tied directly to the value of the property, regardless of the performance of the business.
This is also true of urban-based businesses. However, if a dairy farm with a revenue of $600,000 is compared with a small law firm attracting the same level of income, only one is paying a general rate based on a property worth $3 million or more.
As farmers provide what they believe is a disproportionate level of revenue to local authorities, they ask what services they receive in return.
In a nutshell, farms don’t have reticulated water or wastewater services, no sewerage, no rubbish collection. They argue they don’t benefit from spending on parks and reserves and are usually too far from town to make good use of libraries and public swimming pools.
What they do have and need is a road outside the farm gate. However, upgrades to roads owned by the local authority are funded up to half by the government.
There are numerous funding systems local authorities can consider including relying more on a uniform annual charge (UAC) rather than the general rate.
Mr Yule pointed out that this would mean those in urban areas would end up paying more with as the costs became more proportionate to the actual users of the services provided by local authorities.
Councillors are elected along with mayors and the majority of voters live in urban areas. So for those keen to retain their seats, there is a requirement to keep the majority of the ratepayers happy.
However, Mr Yule said a number of councils, including Hastings district of which he is mayor, have gone some way to address the issue raised by farm businesses including discounting cost for the funding of some services recognised as poorly used by rural residents.
Mr Hide told farmers he wants ratepayers to have greater control over council decisions to invest in large and controversial projects, especially those considered beyond the core responsibility of local authorities.
Federated Farmers general policy manager Nick Clark said this year the organisation has made annual plan submissions to 68 local authorities out of 85.
“We make some progress on each of them, but we want a national fix,” Mr Clark said.
“Unless you fix how local government is funded, then this situation will continue.”
Both UACs and differential rating systems are both used by local authorities in order to introduce more fairness, but the general rate dominates.
LGNZ and Federated Farmers have lobbied successive governments to increase the funding for roads. Mr Yule said the pleas have not been addressed yet.
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Comments
Local body rates
So true Rodney but lets not forget that rates are a tax deduction for our rural friends. At 40% tax levels they enjoy a considerable advantage over our city cousins who pays rates after paying the tax.
Far better to concentrate on massive changes to ACC where farmers have all those costs passed onto them and of course as producers of our exports, that is where the buck stops. You cannot pass it on from here.
Hide should have reformed
Hide should have reformed the LGA BEFORE embarking on the super-city. Increasing the size of a local authority does not make it more efficient. Hide should know that the only way to make council's more efficient is to reduce their scope of responsibility, and that requires a reversal of the 2002 reform of the LGA. Rates and council debt have soared since the 2002 ammendment because now council's are spending money on "well-beings" (cultural, social and environmental mainly).
By way of example, prior to the 2002 Act, the major spending item of the Whangarei District Council was roading. Today it is #6 behind things like planning, parks, community services, etc. It's not that they are spending less on roading, they are spending more on pandering to minorities.
Does Hide not see this? Is he totally blind?
Local Rates
Sorry Annonymous 04.44: teh totally blind people were the electors who allowed the Clark -Cullen mismanagement team, with a hidden agenda, onto the Government benches in 1999.
It is going ot take years to rectify the damage they di, and the sacrificing of saome sacred cows, and the 'Power of general competence' provision in the lOcal Bodies act 2002.
Out of the woodwork they
Out of the woodwork they come, lets sell the roads, libararies, parks, museuns, toilets, stadiums, street lights water, etc and so on.
People like you 3 should come out and say that councils should seel everything and hit the poor with user pays for everything.
Steady now Millsy
I think you may be over reacting some. I dont read anything into what the first 3 resposes siad which indicate anything along the lines you suggest.
There was simply a defence of Rodney, who inherited the mess of LGA reforms of a few years back, and who also inherited the Super City project from Labour. As I hope you will remember!
Personally I dont stress too much over a small minotity of farmers (250 is not that many ) who pay $10,000 in rates when they have a multi million dollar asset working for them, it is fully tax deductable to them unlike us city types, and I challenge the point about being too far from town to use the services!
They mostly have kids who will be using pools and tennis courts and libraries. They can get books from the library by carrier too. Use the Halls for dances and functions, Federated Farmers meeting etc.
Well I suspect it's about to
Well I suspect it's about to get worse. Central Planner, Welfare State builder Bill English is now looking at the Whitehouse report, again, and thus a land value tax and/or a capital gains tax. Can one of these be more than five years away now, given governments have built this huge parasitic State ediface that has to be fed by plundering a productive sector crumbling under the weight of bureaucracy and past and present central planning incompetence, particularly through the central fractional reserve banking system?
For Millsy - yes, most
For Millsy - yes, most certainly, councils should sellprivatise everything and move to user pays. At the very least, a poll tax. If you've got ten kids, you're using more resources than me, thus should pay for them. It's called responsibility.
taxes and death are
taxes and death are certaintities! do we really have a say in the level of taxs anyway? what about things like the RMA / Rsource consent processes, building consent process times etc that drive the very heart of people trying to get on and do things that employ capital people, and actually carry 1/3 of life? Those who watch? Those who wonder? Those who make it happen! Last man out turn off the lights.
Local body rates
Oh I almost forgot! The tax on the tax, the GST on rates. Lets scrap a couple of fluffy ministries like SPARC,The Families Commission,Ministry of Womens Affairs,Human Rights and many other feel good nonsence. Remove GST on rates. Give those savings back to the people via a 12.5% reduction in rate demands. Rodney Im sure you would agree on the significance of that sort of change.
Why is the payment of tax
Why is the payment of tax inevitable? What a ludicrous brainwashing. I do not want the services I am half getting, I want choice. Keep taxing the productive - was so very effective in Russia. It is morally wrong.
BARRY - Some data on
BARRY - Some data on misconceptions re tax deductability of rural / business ratepayers.
Tax Treatment of Rates - Rates Setting
Rates paid by businesses can generally be deducted in the calculation of pre tax income. This fact has led some councils to suppose that rates have less impact on businesses than non-business ratepayers. This difference in impact is said to justify rating policies which increase the impact on businesses by an equivalent amount.
This view is misconceived. Businesses can deduct rates because their income is taxed on a net rather than a gross basis. Residential ratepayers can also receive a deduction if their gross income including rent is taxed, as when they earn rents from properties. Most residential ratepayers however are not taxed at all on the implicit rents they enjoy through their investment in housing, and because they are not taxed on this income they cannot deduct expenses from it. This does not mean that residential ratepayers are disadvantaged, rather their tax status is generally an advantage to them.
GST is paid on final goods and services. This is achieved by allowing businesses to deduct the GST on the inputs into their productive processes. Business can deduct the GST on inputs so that each business in the productive chain only produces a GST liability proportionate to the value it adds to the product.
The GST on rates can be deducted like the GST on any other input, and businesses should be free to make their own trade-offs between rates and other inputs into their business on a level playing field without rates levels themselves being affected by the GST process.
When a final good or service is produced, GST is added to the purchase price and the purchaser appears to pay it. However businesses’ ability to pass on the burden of paying GST (or any other cost) will be governed by the markets in which they operate. Where markets are highly competitive they will not be able to pass GST on fully to purchasers and the cost will be borne by owners or those providing labour. Rating policies which second guess this process by making assumptions about the economic incidence of GST liability will discriminate against businesses.
In addition the task of identifying and distinguishing between ‘business’ and ‘non business’ ratepayers is a hugely difficult one. Any available proxy for ‘business’ status (such as commercial zoning) could miss a large number of intended targets.
Falling income, rising costs
Farmers are in for a (very) tough time, for a while there everything was peachy, property values rising (for dairy), every single person in China was going to buy a few kilos of milk fat at $7 and predicted to rise for many years. The accountants and bank managers used rose coloured glasses to filter out any downside risk and pushed their ample funds to encourage leveraged growth.
oops
Rates are just another tax, so that Govt and Local Govt can provide for the many. Is the system distorted? very possibly.
One thing for sure when we don't have contestability we get poor service and poor outcomes.
Rodney and National Govt can't solve all the problems in a day, they do need to focus and get the biggest bang for their efforts. It is likely that if the number of farmers in desperate financial plight increases the Govt will step in to assist in some way, but fast reactionary reform of LocalGov, the RMA, the Tax system, the Welfare system, would be ill advised.
Don't worry I'm not suggesting the Councils/Govt sell the roads, the schools etc, but when it comes to the idiots in Dunedin I am certainly suggesting they should not be buying plots of land around Wanaka/Queenstown (or wherever) from the likes of Hotchin and Handover Finance. Some serious oversight is needed there. Next thing we will find the DCC will have bought a few dairy farms at 2007 valuations to ensure their rates are paid on time. go figure.
I like rates discussions
They always end with shot at the Dunedin City Councils incompetance/stupidity/corruption! Whay do you Dunedinites put up with them??
Rates
Forcing councils to resign and seek re election when proposing rate increases beyond inflation is a no brainer, oppose the base priciple of democracy and taxation - the will of the majority to prevail and no taxation without representation - and you become a communist or in NZ a PC Socialist.
Rates
Many farmers in the Hawkes Bay( AND OTHER PARTS OF NZ) are paying rates that are greater than the farm net income.
This means the council is taking all the farmers income from both the asset value of their land and proving no oncome for the farmers labour either.this situation has got to stop immediately.
Since apparent land value and not other things like artwork, gold, or any other asset why is this not taxed in the same way as land?
Why discriminate AGAINST farmers(THIS IS ILLEGAL UNDER THE BILL OF RIGHTS-DISCRINATING ON THE GROUNDS OF EMPLOYMENT!), asset value usually in the family farm situation is never sold so appart from and asset which is a tool of productivity for the country as a whole.......why is it being taxed?
WHY NOT THEN USE A CAPITAL VALUE TAX THIS WOULD BE PROPORTIONATELY FAIRER ON EVERONE-OR SPECICALLY USER PAYS!
THIS NEEDS IMMEDIATE ATTENTION BY THE LOCAL GOVERNMENT MINISTER!
Rural rates
There are thousands of farmers paying more than 10,000 dollars per annum in rates!
250 Federated farmers member indicated the are most have not bothered to contact Federated Frmers on the issue!
Some farmers are paying in excess of 100,000 dollars a year in rates!
Get your facts correct please.
I for one get no services other than a road which I pay petrol tax on each time I use. I pump my own water from wells that I have to maintain at a cost of some extra thousands of dollars each year.
You really need to go down to a farm and have a chat to a farmer about his/her costs.
I have no children or family who uses any of your specified facilities!
NN Rural rating fairness!
Please excure obvious typing errors in my earlier comments!
As far as I am aware British Farmers do not pay Local body Rates on land, only on buildings........how then can NZ farmers be expected to keep paying for sevices and facilities they will never use........how about some justice for Rural NZ.
This is a very clear case of discrimination and needs to be debated in the NZ Parliament as soon as posible!
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