Nobody enjoys paying rates, any more than they do taxes, and the rates bills come to households in visible instalments. If local bodies were allowed to raise their revenue insidiously, as the state does through employers and GST returns, rates would hardly be noticed. They amount to just 4 per cent of the average household income, against 40 per cent that goes to the Government in various taxes.
The visibility of rates is a thoroughly good thing. It makes councils agonise over their annual demand and any increase above the inflation rate is bound to bring an outcry. When it happens too often the ratepayers wreak their revenge at the triennial elections. Mayors and councils often lose office on resentment of rises and gain it on promises to better control spending.
I disagree with the Herald on this issue, as there are major differences to how taxes and rates are down.
First of all, the way local Government operates is upside down. They draw up a list of everything they want to do, and them set the rates level to fund it. So income changes to meet expenditure.
In central Government (and in 99% of the private sector), you adjust your expenditure to fit within your income. You have a much higher degree of fiscal restraint.
Yes the Government can put up tax rates, but doing so is a very public, very high profile event. Not even Labour put taxes up every year, like rates go up.
The second key different is transparency. Almost all taxpayers know when their taxes have gone up. Ratepayers often have no idea as to how much a Council has increased rates by – because changes in relative house values affect an individual’s rates as much as the overall change on the level of rates. If your rates bill goes up 10%, you don’t know how much of that is increased relative house value, and increased Council spending unless you go out and research it.
So I back there being a population and inflation based cap on rates, with a referendum needed to increase rates beyond that level.