Christine Fletcher v Len Brown: Rating system - will it work?

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Auckland Mayor Len Brown says that 'no one likes paying rates, but they are the price we pay to live in an exciting, growing and dynamic city'. Photo / Natalie Slade
Auckland Mayor Len Brown says that 'no one likes paying rates, but they are the price we pay to live in an exciting, growing and dynamic city'. Photo / Natalie Slade

This week, all Auckland households and businesses will receive a rates bill, the first to be based on calculations across the whole Super City.

Christine Fletcher, leader of the Communities & Residents group on the Auckland Council, says the rates are unfair and unaffordable:

The value of the Auckland Council's services will be under scrutiny by many property owners across Auckland this week, particularly in the central, eastern and North Shore wards, when they receive rate demands with increases capped at 10 per cent excluding water-related charges.

This is a sharp, unexpected and unsatisfactory rise, wildly inconsistent with the 3.6 per cent rise extensively publicised as part of an expensive public relations campaign.

Many of these same properties will get a further 10 per cent rise next year, and some will see the same increase the year after - just in time for the next capital revaluations to be calculated and start the cycle again.

It has, or will, become impossible for people in highly stressed financial situations to sustain, particularly if on fixed or falling incomes.

Last month the council approved its 10-year plan and associated budget. Rates comprise about 70 per cent of the revenue. When underlying assumptions are analysed it becomes apparent that there are significant risks in this budget. If economic growth does not reach the projection, if costs of capital increase above the forecast or if growth in the number of new rateable properties falls short - what then?

To get to this stage of financial reporting and analysis has been no small task, with challenging technical complexities and finely nuanced future-forecasting. There is no wriggle room if predictions fall short.

We know the past four years have seen unprecedented global economic upheaval and this volatility continues. We should not think New Zealand is immune. Add to that the impact of our own challenges.

The budget for the next 10 years sees the council's debt rise from an estimated average of $1950 a head in 2012 to $4830 in 2022, and annual interest charges from $111 a head to $303 in 2022.

On top of these costs is the need to increase the amount saved to fund depreciation of assets as some former councils did not fully fund depreciation at the time of amalgamation. Worse, a minority did not run break-even or small surplus annual accounts.

With these risks, combined with financial pressures already in the council's system, we see clear and compelling reasons to be concerned. Rates, paid by all directly or indirectly, provide most of the revenue.

Ratepayers' ability to pay technically determines debt levels, but in reality they don't have a choice. The burden is compounded for those whose properties rise in value faster.

We all pay for rates, so a clear focus is needed on activities that make the council work better and deliver more to communities and residents, without inflicting excessive burdens on future generations that inhibit their ability to make their own choices.

This year I wrote to the Prime Minister with Tim Woolfield (chair of the Albert Eden Roskill Communities and Residents) outlining our concerns that the mayor's vision for Auckland is "liveable" but not affordable.

So we welcome the Government reviewing local government activities. Rates are not in the same category as income tax yet they form an increasing share of a household's or business' contribution to our Government. We see this as neither fair nor affordable.

Auckland Mayor Len Brown replies:

The Government's amalgamation of Auckland's old councils requires us to introduce a single rating system for the region. The fact of the matter is that when you bring together different systems, some people's rates go up and some people's go down.

This has presented many opportunities for misinformation - so here are the facts.

The average rate increase for Auckland is 3.6 per cent. This is down from the 9 per cent increase we faced after amalgamation and compares with an average 5.7 per cent annual increase across the former councils for the past seven years.

We cut those increases by finding $1.7 billion in savings and efficiencies across the organisation, and absorbing the costs of amalgamation.

So why are some rates going up by more than 3.6 per cent? Legislation passed in Wellington means properties of equal value must pay equal rates no matter where they are in the region.

Most people will be around the average. More than 187,000 residential ratepayers will get a decrease in the first year. However, almost 133,000 faced increases of 10 per cent or more because of the amalgamation. That wasn't fair, so we asked the Government to change the legislation so that we could cap the annual change for standard ratepayers and stop double-digit increases.

Some will look to blame any rates rise on public transport spending or investments in community facilities or other things. Even if we dropped plans for electric trains, the City Rail Link or free pools for our kids and presented a zero budget, tens of thousands of ratepayers would still have faced rate hikes as a result of the amalgamation.

It is easy to play politics, but the increases and decreases were locked in when the Government legislated for a single council. The irony is some of those attacking rate rises supported Auckland's amalgamation - the very cause of these increases.

Critics will also say the council has protected one area of the city over another by setting a low uniform annual general charge of $350. Again this is untrue. Setting the charge higher would have meant more households facing increases of 10 per cent and more. Also, while debt will increase, so will the population. The council has kept our credit ratings in check at the same time as preparing for that growth. Auckland is projected to grow to two million people by 2031 and we need to invest now to prepare for that.

For business, the story is the same. By merging the old differentials and rating on capital value, more than 11,000 businesses will receive a reduction in the first year, but 14,000 businesses faced more than 10 per cent rate increases. That's why we smoothed the harshest edges of the transition by phasing in the change over three years, alongside a year-on-year decrease in the differential.

No one likes paying rates, but they are the price we pay to live in an exciting, growing and dynamic city. Rates cover our investments in public transport, in libraries, in pools, parks and events.

We know that every dollar of rates has to be earned and that times are tough. In the end we will have a fairer system where a house in Takapuna will pay the same rates as an equal value house in Titirangi, Tamaki or Takanini.

We are all in this together now. We've delivered savings and efficiencies from the amalgamation and tried to be as pragmatic as possible in bringing in this new system. Now we're getting on with the job of building the world's most liveable city.

- NZ Herald

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