Rates: more certain than death and taxes

The Government's income tax take dropped from $30 billion to $25 billion as New Zealand dipped into recession, but new figures show local authorities increased their rates each and every year. So why are city and district councillors allowed to spend first, then go banging on ratepayers' doors demanding the money to pay for their pet projects?

Gaylene Mackereth is hoping for an end to rates rises because she can't shift _ she's disabled, and her home has been modified. Photo / Getty Images
Gaylene Mackereth is hoping for an end to rates rises because she can't shift _ she's disabled, and her home has been modified. Photo / Getty Images

When Gaylene Mackereth left her home in Howick on a trip to the beach with her granddaughter recently, she paid a bit more attention than usual to the houses they passed.

Some were impressive - big, flash places that looked like they might have cost a bit to build. But most were ordinary, unassuming homes. Many housed residents who had lived in them for decades.

Mackereth herself has lived in the area for 40 years. But she's worried that her days of being able to nip down to the familiar, local shops may be limited. Rates rises are hitting her community hard, and the increases are being felt the most keenly by people like her: elderly residents who are on a pension.

Mackereth herself has had several years of 10 per cent rates rises, and is looking down the barrel of another 6 per cent rise next year. If she lived alone, her rates would hoover up more than 20 per cent of her income.

"I've been here 40 years and these rates rises are a huge concern because they are unpayable. Then we have water charges on top of that, and we are going to get rubbish. Everyone is so worried. We will have to leave because how are we going to pay? We just can't."

The Government's income tax take has fluctuated as the country has ridden out a recession, dropping markedly from $30.59 billion in 2008 to $25.52 billion in 2011. But local authorities' rates take has continued to climb ($3.59 billion to $4.36 billion over the same period). When the country was in the depths of the doldrums in 2009, the amount of money collected in rates nationwide rose more than 9 per cent.

It's little surprise rates rankle residents, no matter which council they pay them to. Local government experts say financial management training for councillors wouldn't go amiss - but ultimately, if we don't like shelling out for multimillion-dollar whitewater rafting facilities or gym equipment in local parks, we need to be more vocal about it.

After calls to cap rates rises, the last Labour-led Government kicked for touch by commissioning an inquiry. The inquiry panel found rates had increased 38 per cent in inflation-adjusted real terms between 1994 and 2007. "Local governments need to show restraint in spending," the report said. "Councils are failing to consider the affordability of rates to some residents ... Many councils are not making the best choices in funding policies."

The report said local authority spending had been rising rapidly, driven by the cost of big infrastructure projects. Rates were on track to account for 60 per cent of council revenue by 2016 - but should be limited to 50 per cent.

The inquiry panel made 96 recommendations, including reining in spending, reducing funding from depreciation and relying more on debt to fund assets that would have a long life span. It also recommended the Government start paying rates on its land and chip in for infrastructure.

Christine Cheyne, one of the panellists, says none of the recommendations were implemented: "Nothing has changed, there are still the same issues."

What you pay in rates is largely determined by what your property is worth, but ratepayers should not assume that just because their latest home valuation goes up or down, their rates bill will follow. Councils still have to make the decision on what rates revenue they need - and then work out how to pay for it.

Imagine if you were able to manage your household budget that way. In your New Year's resolutions, you might decide to build an extra bedroom, and take a holiday to Fiji. You'd work out how much money you would need - then you would go to your boss and demand that extra money as a pay rise.

In the real world, your boss would fall about the floor laughing.

But if you are a city or district councillor, you can insist ratepayers stump up the extra cash. Ratepayers' only option is to grit their teeth, pay the bill - then sack their councillors at the next election.

For Auckland home owners, the council values their property, then takes 0.003 per cent of that every year in rates. The exact cut depends on whether they live in a house or an apartment, in an urban area, on a lifestyle block or on an island with no road access.

That constitutes only half the rates revenue. Another 12.5 per cent of the rates take comes from a $350 uniform annual general charge, levied on every home owner. Further "targeted" rates, for services such as rubbish and recycling, make up the rest of the council's rates revenue.

In addition, councils have introduced user-pays charges to try to keep a cap on rates rises. That hasn't worked: rates have continued to rise, and so too have new charges. In Auckland, water charges are to increase by 3.5 per cent from July, and wastewater by 3.8 per cent.

"Wards like mine are paying more in rates as well as tolls, rubbish collection and dog registration fees," says Auckland councillor Cameron Brewer. "All the costs keep going up."

Auckland City's chief financial officer, Andrew McKenzie, insists councils will not take more than they decide they need. "If the value of the city doubles, but we still only need $1.4 billion, instead of 0.04c in the dollar we would charge 0.02c."

In 2012-2013 year, Auckland decided it needed 2.9 per cent more rates revenue. That translated into a 3.6 cent increase in rates overall as the council levied them more heavily on households than businesses.

But McKenzie says it's unfair to compare councils to central Government, because councils must balance their budgets every year.

Rates fund everyday expenses and the depreciation costs of big assets. Twenty per cent of the council's costs are wages. Auckland Council borrows to fund capital expenditure. "When rates go up, it's because we're doing more."

He says if rates don't rise sufficiently, it will be the ratepayers of the future who will pay off the expenses the city is incurring now.

Former Auckland mayor Dick Hubbard says in a growing city, increases that just cover inflation are simply not enough. Councils have to pay for infrastructure to accommodate new ratepayers before the ratepayers are actually there to help pay the rates. "It's a very sensitive issue. It's easy to keep rates fairly static if there is a static population. If it's an increasing population, you have to put infrastructure in place before the population goes up."

And he says rates are easy to pick on because they are so obvious. Unlike income tax, which is snaffled out of your pay before you see any money at all, rates come as a separate - and usually chunky - bill.

There aren't many jobs where someone with no financial knowledge or experience can walk in off the street and find themselves managing a multi-million-dollar budget. But being a councillor is one of them.

Councillors are not required to have any qualifications or credentials beyond the ability to win an election. That, says Massey University local government specialist Dr Andy Asquith, may be why rates sometimes run awry. "The majority of councillors in New Zealand and around the world have trouble putting their shoes on the right feet in the morning. They get elected simply because they are known. It's not unusual for someone to one day be reading the weather on television and the next to be on the local council with no knowledge of what council is about."

Last year, a Massey survey found less than a third of councillors reported having access to governance education and even fewer had done that education. "I think that's a major shortcoming in councils in this country."

Asquith says Kaipara Council, which dramatically fell apart, leaving ratepayers facing a 200 per cent rates hike, was run by a bunch of farmers who had several million dollars to play with. "At the same time the managerial leadership there was out of its depth."

Hubbard says he never felt his councillors were unable to understand the financial implications of their decisions. "But officers need to present it in a clear, understandable manner."

Councillors spend at least a third of their three-year term preparing for the next election. So are they using our rates to claim political points?

Hubbard took over the mayoral chains from right-winger John Banks, who had campaigned on a platform of keeping rates low. The new mayor was stuck with a legacy of under-investment, he claims - footpaths had been left to fall apart for 10 years - which made the rate hikes during his term higher.

Now, Brewer (who previously worked for Banks) says council spending is soaring out of control ahead of this year's local election. He says Mayor Len Brown is saying "yes" too much. "Everyone leaves Town Hall with a smile on their face and a cheque in their pocket."

Brown's office rejects that accusation, saying rates haven't been climbing as steeply since he took charge. "In the first 10 years we will save $1.7 billion in efficiencies," a mayoral spokesman promises.

Perhaps stating the obvious, Asquith says there is one easy way to cut rates - and that is to slash services. But, especially in election year, what mayor would be willing to take that political risk?

Perhaps we have ourselves to blame. New Zealanders don't engage with local politics terribly well, which means most of us aren't always too sure exactly what the council is planning to spend our rates money on.

Unlike a business, which generally tailors its activities to its budget, councils set budgets in line with what they would like to do - then collect the rates money to do it.

Residents get the chance to make submissions when the council issues its plans for consultation, but few apart from diehard political lobbyists do so. In 2011, 2500 people made submissions on Auckland Council's plans - after the deadline was pushed out because only 143 had been received at the intended closing date.

So is there a better option?

Cockle Bay Residents' Association secretary Maureen Forrester is pushing for a citizens tax, similar to England's council tax, to be levied on every resident - not just property owners.

"It's people, not the price of a house, that create the need for council services," she argues. "If you get petrol and you pull up in a BMW, you don't pay double the rate of someone in a Toyota. Why the difference with rates?"

Alternatively, Auckland could have a stepped differential (like Waitakere used to) so when a property value reaches a certain level, the percentage used to determine its rates bill drops. That is the opposite to income tax, which some regard as robbing the rich; the differential idea might steal from the poor, or at least ask those in smaller houses in poorer areas to pay a disproportionately larger share of rates.

Anti-rates campaigner David Thornton suggests a cap on rates rises, like in some American states where property taxes cannot rise more than 2 per cent a year.

Asquith agrees there are other options, but says nothing else has worked very successfully.

"Some places have a property tax, some places have an income tax," he says. "You name it, you can tax it."

He was in Britain in 1987 when Prime Minister Margaret Thatcher introduced her infamous poll tax, because property rates were going up too much. "Every adult had to pay the same amount. It was an absolute disaster and cost her job."

In Howick, Mackereth is hoping there is an end in sight to the rates rises - because she can't move. Her home has been modified for her mobility scooter due to her disability. "I don't want to be in a high-rise. Being able to get to the shops is important."

But she's not hopeful. She's expecting the next round of local election promises to be expensive, and says it's ratepayers who will, as always, be handed the bill.

- Herald on Sunday

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