Low-geared local authorities mull new ways to raise funds in addition to property taxes

New Zealand's local authorities are to review the options they have to raise funds, saying their reliance on property tax as their main tool is becoming less sustainable as populations grow and change.

Local Government New Zealand announced today it will establish a working party this month to conduct a funding review, saying the high reliance of its members on property tax is unusual compared to counterparts overseas, which often have "a multiple taxing power."

Complementary alternatives could include local taxes or levies on residents other than property owners, LGNZ president Lawrence Yule said in a statement from the body's quarterly media briefing.

"Our focus is on developing a strategy and model that is sustainable for New Zealand communities in the long term," Yule said. "Examples of funding tools that may be reviewed for appropriateness in a New Zealand context include local income taxes, local consumption taxes, congestion charges, visitor charges and payroll taxes."

Yule said some regions have static, declining or ageing populations that had less ability to cope with higher rates to fund maintenance on public infrastructure. Others regions were growing, putting them under pressure to fund large-scale infrastructure investments, which would "place severe pressure on a pure property tax model."

LGNZ released data today showing the balance sheets of local authorities are stronger than central government or the private sector. With a combined $121 billion of infrastructure, investment and other assets and $11 billion debt as at June 30, 2012, their combined gearing was just 9 percent on a debt to assets basis.

By contrast, central government debt amounted to 75 percent of its $241 billion of assets and for businesses in the private sector debt was about 65 percent of assets, LGNZ said.

In February 2012, local authorities established the Local Government Funding Agency, creating a borrowing entity with sufficient size to bring down the credit costs of individual councils. LGFA Chairman Craig Stobo told the briefing that the cost of debt to council borrowers had been trimmed by at least 30 basis points since then.

(BusinessDesk)