Rates Report
I’ve not yet had time to read the full report. I intend to do so.
Stuff reports an average 8% per year increase is predicted. To be fair to local Govt, central Govt grows far more than this. But they get extra revenue from bracket creep, while Councils actually have to put the rates level up.
One area I plan to cover more is all the land which does not get rated, ranging from churches to Govt land to some Maori land.For some Councils this is a major issue, as it means all the other land has to be rated even higher.
The notion of local referenda for any increases beyond population and inflation growth is worty of support in my opinion.
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Tags: Local Body Politics
August 29th, 2007 at 8:13 am
Local Government is essentially run by over staffed over paid bureaucrats. The politicians are lazy and completely manipulated and overwhelmed with masses of useless paper. Plus the calibre of the typical local politician is very low. Where have you seen a local authority take a serious look at their cost structure. Never I suggest, There needs to be an amalgamation of local authorities and a massive yes massive cleanout of dead wood. I think about 1/3 of local authority staff should be dismissed. And then the much leaner cost structure needs to be sat on very very hard, legislatively if necessary. This could be controlled by having severe restrictions on rate increases, and borrowings. The reduced cost structure should naturally be paid out as a rates rebate.
August 29th, 2007 at 8:52 am
Funny how National party people claim to be all n favour of local autonomy and being against centralisation, unless they are not of course.
August 29th, 2007 at 8:52 am
Councils do enjoy a form of bracket creep as land values increase.
August 29th, 2007 at 8:54 am
Amalgamation doesn’t lead to cost savoings, as shown in the 1989 amalgamation, where more than 200 local authorities, catchment and harbour boards became 86. No economies of scale following that bright idea, in fact there was an increase in costs in some areas. Paul Rouse at Auckland uni did a fascinating study on it nad concluded that more smaller councils was the way to go for cost savings and better representation.
August 29th, 2007 at 8:57 am
A major issue with local authority rates are that they do not take into account the level of service useed by individual rate payers. Some very high users are simply being subsidised by others.
User pays needs to be instituted.
And before Selma and Sonic respond, yes, that probably means a greater contribution by some businesses and others including central govt who are effectively on a tax (rates ) holiday.
The bad new is that if central govt have to pay rates , guess who is actually going to pay them. Yes those who are currently overtaxed.
And by the way, professional sport needs to make a far greater contribution to the operating costs of their professional activities currently heavily subsidised by ratepayers. To be clear we need to separate amateur community based sport from the business of professional sport.
August 29th, 2007 at 9:21 am
The Rates Report confirms what I amnd my team are campaigning on and we agree with its contents, that local authority expenditure has been rising rapidly; that local government needs to show more restraint in its expenditures; and that it needs to improve its planning function, which drives these expenditures.
Of concern is the point that the expenditure figures are likely to be understated. I also entirely agree that alternative ideas for revenue gathering need to be put forward and also that the current levels of rates are unsustainable.
However I don’t believe the Rates Cap idea won’t work and is not a ‘magic bullet’. A Rates Cap helps those on fixed incomes and also assists the the younger generation with budgeting for their first home. It has also worked in The Hutt Valley.
August 29th, 2007 at 9:54 am
The 2006 annual house price increase was above 10%, in 2005 it was above 12%. If rates are only going up by 8%, where is the fire?
A major issue with local authority rates are that they do not take into account the level of value provided to individual rate payers. Some very high recipients of value are simply being subsidised by others. Household ratings need to be linked to rise in concert with house prices.
Before cubit9f responds, yes that means a greater rates burden on households with higher rates increases each year. The same households who benefit from the council controlled housing market should pay for this.
August 29th, 2007 at 10:23 am
unaha-closp you are presupposing that rates struck as a proportion of the property value is an appropriate mechanism for sharing the costs of running the local authority.
There are many who would dispute the adequacy, fairness and suitability of this mechanism.
Incidentally, relating rates rises as a % with house value increases is completely fallacious as a proposition.
Firstly an increase in a house’s value does not provide the owner with any additional cash to meet the rates bill
Secondly there is absolutely no linkage between housing inflation and local body cost inflation
The mistake comes from assuming that the rates % is the starting point whereas , if you are going to use property values as a sharing mechanism, it should be the last calculation in the sequence.
i.e. start with the $$$ needed and divide by the total “rateable value” in the rating area to derive the rates %.
Starting with a rate as a % of value puts you in the same position as Central Government with its taxes where the exercise becomes firstly to take as much tax as possible then work out how to spend it. …. completely arse about IMHO
August 29th, 2007 at 10:28 am
Thank you David.
You have responded more eloquently than I.
The whole equation, rationale and application has gone out of whack with the passage of time.
August 29th, 2007 at 10:53 am
Rodney Hide has made the best comments so far (it’s not about the raising of money its about curtailing the spend) and John Key was a bit flat on morning report today. All he needed to do was confirm a date for the release of National’s policy. My opinion; It’s about time people got used to the idea of user pays for roads, water, rubbish, sewerage etc. the lot and bring in competition for the delivery of these services. Rating on house value is unfair and should be minimised. What isn’t user pays should also come out of GST collected in the area (or a similar central government formula based on economic activity) and that way local bodies get some advantage out of the tourists travelling through and for events being held in their area.
August 29th, 2007 at 12:04 pm
David,
Firstly the owners assets are increasing faster than the costs, thus it is possible to borrow cash on the increasing equity of the asset. This can be done with something called a mortgage, perhaps you have heard of this arramgement or perhaps not.
Secondly the council spending $X millions more making improvements to the local enviroment increases the attractiveness of the area and this increases demand. The council restricting the amount of land and subdivision available for development is a restriction on supply. So here we have a body increasing demand and restricting supply in a market that is seeing the price of the good rise, but according to you “there is absolutely no linkage between housing inflation and local body cost inflation”. I am going to go out on limb and say that standard economic theory disagrees with your conclusion.
I do favour reducing council costs, but rates caps and transferal of cost to non-property owners are not the answer. To do so would be to tax non-beneficiaries for the purpose of financing the rent-seeking behaviour of property owners.
August 29th, 2007 at 12:43 pm
Fred,
I’d agree with what you say as long as there was a concurrent free market of land for housing and an end to bail outs for leaky buildings. In such an enviroment I would expect our housing prices to fall to a level similar to that of Atlanta, Georgia ~ $250,000. This 35% reduction in house pricing would be the result of ending all of councils rent setting market distortions that benefit property owners. And in such an enviroment “rating on house value is unfair and should be minimised”, I’d go for user pays in a nano-second.
You (property owners) accept a free market on property that will reduce your equity by 30 – 40%* and we (non-property owners) will accept a free market on user pays council services. Until then you rent seeking beneficiaries can pay for your own crap and leave our taxes alone, okay?
* david – a 30 – 40% reduction in house prices is an equity loss and not a cash loss so will not matter to you.
August 29th, 2007 at 2:18 pm
Rating government owned property would simply lead to increased charges and or taxation as departments recover the costs They have no incentive not to do so.
What we need is a 3 year freeze on rates and a real debate on the way local authority costs are recovered. This farce we had was just a repeat of the same old same old.
The current system is a joke. Councils provide services to people yet 2 propertys with the same value but with different numbers of income earning occupants pay the same amount. How the hell does anyone with a brain justify that nonsense.
August 29th, 2007 at 2:59 pm
Because council services provide market distortions that add “value” to the property it is most appropriate to base charging on the property’s valuation. What we do not need is some sort of egalitarian bullshit where all NZers are expected to bear the costs and thus risks of property ownership instead of the property owners.
August 29th, 2007 at 2:59 pm
gd: Perhaps a poll tax would allow a different approach.?
August 29th, 2007 at 3:03 pm
“Stuff reports an average 8% per year increase is predicted.”
Only 8% – yeah right we’ll see that when we believe it!
“To be fair to local Govt, central Govt grows far more than this.”
Yeah thats right – getting the left’s snouts out of the feeding council feeding toruhgs is just practice for the “biggie” next year!!!
But they get extra revenue from bracket creep, while Councils actually have to put the rates level up.”
Councils get massive** extra revenue from house price inflation, so dont tell me they need to put the rates up as well – its bullshit.
August 29th, 2007 at 3:16 pm
unaha-closp
are you seriously suggesting that it is legitimate to have to borrow to pay your taxes?
If you are then there is no hope in even trying to discuss this as you are well and truly a lost cause.
Your point about falling house values illustrates my thesis perfectly for it is more than likely that at some stage rates and house prices will be moving in opposite directions. This makes the charging of rates based on property values the perfect nonsense and reveals it for all its artificiality as the alternative would be for the Council to also reduce its income by 30-40% which we all know would be the making of the ultimate Tui billboard.
Most of us are not looking for our council to be responsible for increasing our property values through “enhancing” the neighbourhood – we would be more than satisfied with adequate roads, footpaths, waste removal services and basic infrastructure.
We can debate the extent of social amenities such as swimming pools, libraries and parks and I am prepared to concede a level of these. Beyond that my attitude becomes much more entrencehed.
You ask me to believe that standard economic theory supports a linkage between property prices and the costs of running councils.
Frankly I can’t think of any way in which Council’s propensity to spend is in any way linked to housing demand.
Yes, I agree that Council’s may be responsible in large measure for artificially constraining the supply of land for new housing, and certainly the density rules in certain residential zones have made some areas attractive for their redevelopment potential but that is totally removed from Council spending, staffing, Queen Street renewal, Cathedral Square revamps, new high rise council office buildings, monuments to aging political hacks, plans to construct hotels for the homeless, lack of sensible cost control, tripping around the world etc etc etc
gd – same argument as to why should Councils charge GST on their rates and pay GST on their purchases? simplicity and better, more responsible allocation of true costs would probably be the answer. Why should the University not recognise the cost of removing all that shit produced by its “clients” and staff on campus?
Incidentally I suspect that Govt departments also have to account for GST which makes the money-go-round even tighter.
August 29th, 2007 at 3:54 pm
I agree with Fred.. Rodney hit the nail on the head and John KEY hit his thumb instead. He failed to appreciate that it was the rank wastage and extravagances in local body spending that was the problem. The Goverment dictated 10 years plans were an excuse for every little suburban and special interest pipedream within the boundaries to be included in future expenditure.Ultra modern nuclear proof civil defence headquarters, multi million dollar libraries with almost as many assistants as visitors. extravagant public constructions of modern or Maori art with each new project. Generous Kohas with a multiplicity of Iwi consultations. Perfectly serviceable Public Toilets ripped out and replaced with automatic sliding door types complete with robotic speech welcomes. All sorts of utility upgrades. Annual car renewals for the phletora of managers, and thats just the visible run of the mill wastage, God alone knows what goes on behind closed doors. I also agree that amalgamation solves nothing and causes substandard service to satellite towns and districts which are far better off under a cheaper decentralised local administration. Unfortunately Central Goverment has duckshoved so many expensive responsibilities uneccesarily onto Local Goverment that it would be difficult to unravel the previous unsuccessful amalgamation experiment.
August 29th, 2007 at 3:55 pm
Exactly cubit9f IMHO its a nonsense to charge on an artifical basis that takes no account of the actual service provision nor the ability to pay. Its a fraud on a massive scale by lazy politicans who cant control their spending habits
August 29th, 2007 at 4:23 pm
Porc,
There is no “bracket creep” seperate from the 8% raise. And since property is going up by 10-12%, property rates are currently going down in proportion to the value.
david,
I have reread your postings and agree with you, this is how it should be: “The mistake comes from assuming that the rates % is the starting point whereas , if you are going to use property values as a sharing mechanism, it should be the last calculation in the sequence.
i.e. start with the $$$ needed and divide by the total “rateable value” in the rating area to derive the rates %.”
This statement I made is wrong:
“Household ratings need to be linked to rise in concert with house prices.”
It was a petulent remark made in response to the inane suggestions by cubit9f that all taxpayers should carry the risks of a property service monopoly who’s only apparent beneficiary are property owners. I just get all riled when I see a sit on their arse bludger stick their hand out and say ‘more please’.
Through the existing system rates charges are paid by all people either directly or through rent. All of us see the benefit of amenities and none of us see value from councils wasting money. However property owners get a direct benefit from the regulatory constraints council applies to the supply that no one else gets, for this reason it is most appropriate for the costs to be charged to property owners so they bear the risk to go with the profit.
PS – You have a capital asset (for example a house) that is appreciating in value, but do not have money to pay for its upkeep and if you can borrow money at a lower cost than the rate of appreciation – you make money by borrowing money. There is nothing wrong with borrowing money if it makes you wealthier.
August 29th, 2007 at 4:51 pm
unaha-closp
Appreciate your generous concession. It is a pleasure to argue in a civilised manner.
I still cannot concede that paying my rates is equivalent to maintaining my house. I agree with your economic argument that borrowing to maintain the value is feasible as long as the amount spent is exceeded by the value improvement. Unfortunately once I have the loan and values drop I am in a hole unless I can bring in financial support from outside the closed system which is my property – not only to continue the upkeep but to repay the loan. Was it Scrooge who had a saying about Income vs Expenditure and the resulting state of happiness (or otherwise).
And that is the misconception about using this artificial mechanism to apportion the cost of streets and Councillor’s afternoon scones among the community – that it is defensible and fair. Find another way of financing the Council and all the discussion about house values becomes totally irrelevant as it should unless the whole rating system is to be a method of the envious punishing the adventurous.
My real problem tho’ is that there is no simple alternative. Instead there is a mixture of poll tax, uniform charges and user pays which would be required to make this cost apportionment fair.
Anyway must go and join sonic on the bus – its all so depressing that I might just push him under.
August 29th, 2007 at 5:58 pm
David,
If you think prices are going to drop then sell the house now, go renting and buy before the price rises.
Alternative financing for the council is a problem, because council policy is integral to setting house prices. Thus council policy can greatly benefit property owners through property values – this benefit is paid (along with all the other crap) for by council levies. To move away from a property value based system requires non-beneficiaries to pay for someoneelses benefit. I know the government does this all the time, but I do not agree with it.
PS – a local park is about to have a $20,000 art installation added. This installation will be 7 cm tall and about 20 cm square.
August 29th, 2007 at 8:24 pm
Oh there is definitely “bracket creep” in rates – and a lot of it! the problem is when they say we will limit it to the rate of infation they mean we will limit the increase in “the rate” to the rate of inflation. so you get hit by house price increases and increases in the rate struck – its massive. And why should council expenses go up just because house prices go up?
The rates inquiry also carefully left out water and regional rates, and wait, I’m sure they will think of more things to “split off”.
Here is a bit from what I am going to post:
Home spun at a government department near you!
The newly released report of the commission into rates says that rates have risen by 38% in 12 years. How can this be? This is another example of government creative use of statistics and the unquestioning main stream medium. Well what they are talking about is the average rate struck across the country has gone up by 38%. so if you were paying 1% of your house value in rates 12 years ago you are now paying 1.38% That’s a massive increase.
But the reality of the situation is far worse depending on the city you live in. Fifteen years ago we paid $1000 for RATES + WATER + ARC. Now we pay $4000. A 400% rise in 15 years. Our rates went up 40% last year alone, due to yet another “one off” rates rise for “infrastructure” and house re-valuation.
Successive governments have been very tricky by keeping the cost of housing out of the CPI. If housing costs were factored in fairly it is very unlikely that inflation would have been in the 1-3 % range anytime in the last 15 years. And, off course the rates inquiry conveniently forgot about ARC and water rates!! As I said, figures home spun at a government department near you!
Enough is enough! The increases are, simply, not sustainable. More cost effectiveness is needed and along with creative ways to solve problems of large cities.
August 30th, 2007 at 9:34 am
This is how the ARC is spending ratepayers’ money:
Subject: Extract from High Court Judgment
This is an extract from the judgment of the High Court Judge Harrison in
Auckland Regional Council v Rodney District Council and Parihoa Farms Ltd, CIV 2007-404-3464, 24 August 2007, Harrison J.
[5] Mr Stephen Mills QC for Parihoa complains that ARC is pursuing a personal vendetta against his client’s principals. Whether he is correct is not for me to determine. But it can safely be observed that nobody could complain that ARC has left a pebble unturned in prosecuting this claim, has failed to commit all available resources to that end, or has failed to dissect RDC’s decision from every conceivable angle. Saturation advocacy, requiring navigation of a mire of documents in an attempt to discern what is truly relevant to the issues, has presented its own challenges in writing this judgment under constraints of relative urgency.
ENDS
Maybe its time for someone to ask, under the Official Information Act, how much money the ARC has spent on legal actions against its own ratepayers and against its District and City councils during the last twelve months?
August 30th, 2007 at 10:36 am
Here, here to those sentiments across the “board”, Owen.
August 30th, 2007 at 10:45 am
tim.barclay has summarised well – Council’s in my professional experience have become more bloated and inefficient than even Central Govt agencies in the last few years. It wasn’t helped by Labour’s grant to Local Government of the power of general [in]competence. There is no dsicipline on internal costs (officers respoonsiblity), or on expenditure (politicians and officers).
I favour a CPI cap on rates increases, unless an increase is supported by a local referenda or similar. Amalgamation is also viable. It may make elections more meaningful and raise participation up from the 80 councils is way too much for this small country, and Auckland and Wellington local government is direly in need of rationalisation.
August 30th, 2007 at 10:51 am
France has a Mayor for every 300 people (13,000 local bodies in all if I remember correctly) but only five companies manage the water and wastewater on a competitive franchise basis. There are economies of scale in engineering but not in democracy.
If you amalgamate rural districts then democracy suffers. If I ran for Council here in Kaipara I would face a one and a quarter hour drive to the Council chambers.
I have better things to do with my time. further amalgamation only makes councils even more remote from their electorates.
August 30th, 2007 at 11:20 am
Owen you are right Every little village in the country side and every surbub in the towns and cities have a Mayor and Councillors.The French system seems to work well from what I have seen there. As Owen says the work is all contracted out so the Mayor and the Councillors dont get bogged down like ours. There they concerntrate on listening to the local people and ensuring that by and large they get what they want. Very different to our lot here. The Mayor knows their constituents and they know them so there is a pressure to deliver
August 30th, 2007 at 1:24 pm
The guys who do the business of delivering the services asnd the real bureacracy in each “department” (region) are civil servants (Prefets).
They actually wear military style uniforms and have their origins back in the time of the revolution. (probably still have a guillotine or two ready for politicians who get out of line.
August 30th, 2007 at 4:12 pm
Our inefficiencies are not helped by the small economies of scale on the delivery side. If you could restrict the functions of local government, and amalgamate the delivery, then you could decouple the representation to a lower level.
Also in the French example, do they also have 12-16 other parasitic Councillors? (Do they have any of them guillotines for sale?)