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.