Federated Farmers has welcomed the Productivity Commission's report on local government funding as another step in a very long journey to genuine equity for farmer ratepayers.

"To cover costs of council services, we value the emphasis in this draft report on the principle that who benefits should pay a fair amount, and that the legislative framework be changed to back this principle," local government spokesman Andrew Maclean said.

"We agree this 'benefit principle' should be the primary basis for deciding cost allocations.

"Paying huge amounts of money for council services distant from farms is a key problem. Farmers need this resolved, and we see potential in this report to achieve fairness."

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A federation-commissioned survey, conducted to support its submission to the commission, found that farmers paid an average of $26,208 annually to their district and regional councils, 97 per cent saying they did not get value for money from those rates.

"We agree with the commission's findings that councils have scope to make better use of rating tools, particularly targeted rates, to achieve the benefit principle in rating systems," Mr Maclean said.

"Federated Farmers has little confidence in property value-based taxes.

"They can have little or no relation to consumption of council services, or often ability to pay. But intelligent use of differentials, uniform charges (including the UAGC), targeted rates and use of the capital value rating base rather than land is key to achieving rate allocation on the basis of who benefits."

Farmers' concerns about paying for the local impacts of tourism were also well reflected in the draft report, the federation welcoming the commission's support for funding from the International Visitor Levy for local infrastructure, user pays and targeted rates.

"Also very good is the report's conclusion that the accumulated burden of regulations and standards required by central government to achieve national objectives should be funded by taxpayers, not ratepayers," he added, while the commission's call for a 'reset; in the central/local government relationship, and an end to the 'unfunded mandate situation,' in which nationally-imposed standards ended up costing local ratepayers, was "excellent, but we note that was also a conclusion of previous reviews, and we have seen no action".

Federated Farmers looked forward to engaging with the commission as it progressed to its final report, and would be making a further submission.