GST on rates: Council body Local Government NZ makes billion-dollar rates plea

Local Government Minister Simeon Brown has shown little willingness to give up rates GST. Photo / NZME

Councils could be in line for a billion-dollar boost each year should the Government agree to return GST on rates.

Many of the 78 local authorities representing Aotearoa are hiking rates dramatically to tackle their growing debt pile.

The average rise for homeowners this year is tipped to be about 15 per cent.

Returning the goods and service tax (GST) portion of rates is seen as one way to help ease pressure on councils and ratepayers. Using 2022 data, economic consulting firm Infometrics estimated returning rates GST to councils would cost the Government $1.1 billion.

Infometrics chief executive Brad Olsen noted as the coalition Government was also scrambling for cash, there might be a reluctance to part with the money.

”GST collected on rates is around 4.2 per cent of GST collected, and was worth 0.9 per cent of total government revenue in 2022,” Olsen said.

Local Government Minister Simeon Brown has shown little willingness to give up rates GST, saying he is only considering returning some tax collected on new residential builds.

A 2023 “Future for Local Government” panel report noted that council rates have remained around 2 per cent of GDP for more than 100 years.

How much could each Council get? Source / Infometrics, Stats NZMap data

Local Government New Zealand (LGNZ) is an umbrella group representing most councils.

It has argued that local authorities are doing much more than a century ago and therefore need new ways to raise cash. LGNZ president Sam Broughton has called the funding system for local government “broken” and wants new ways to fund council activities.

”Returning GST on rates would be an excellent place to start. We’ve also put an accommodation levy, GST sharing on new builds, mineral royalties, and congestion charging on the table,” Broughton said.

The biggest winner in total cash returned would be the supersized Auckland Council that would stand to gain $317m.

At the other end of the scale sits the Chatham Islands, which would get an estimated $102,000 back.

When looking at the amount returned as a share of operating income, Infometrics calculates Rotorua would get back more than 12 per cent.

Other big winners would be Thames-Coromandel, Western Bay of Plenty, Kapiti Coast, and Taupō.

Returning GST is less effective for councils who rely on larger amounts of income not generated by rates.

The report identified Chatham Islands land, Hurunui District, Buller, Tasman and Marlborough as the five councils with the least to gain.

- LDR is local body journalism co-funded by RNZ and NZ On Air.