Greg McKeown: Put an end to reliance on rates

As they finalise their annual and 10-year budgets, local and regional councils throughout New Zealand are struggling to fund projects and programmes important to their communities.

Squashed between increasing costs and the political suicide of double-digit rates increases, they are imposing development levies, increasing debt, and lobbying government for the powers to introduce new taxes.

The most avaricious proposals come from the Auckland City Council, which is advocating tolling new roading infrastructure, parking levies, "enhanced existing local sources" - an ugly euphemism for increased rates - and increasing the regional fuel tax.

This comes on top of 13 per cent residential rate increases and options in their plans that have debt burgeoning more than six-fold to more than $1 billion.

Property rates are inequitable and inadequate. Reliance on them to fund city and regional growth is unnecessary and imprudent and needs to be overhauled. Countries now compete at city level and other world cities fund their growth and development with additional revenues, including a share of sales and income taxes.

In Auckland, developing a great Central Business District waterfront, better public transport system, economic infrastructure and cleaner urban environment, without the usual compromises that usually blight our largest city's development, will require more than increases in rates and development levies.

One way or other, both major political parties have acknowledged that central government is over-taxing New Zealanders - National by advocating tax reductions, Labour by spending more.

Unlike property rates, the beauty of central Government's revenue streams (principally income tax, company tax and GST) is that they are linked to how much people and companies earn and spend.

The more that passes through a person's pocket or a shopkeeper's till, the more the Government gets.

Local and regional governments need a bit of that tax action, a small portion, to supplement property rates and diversify their revenue base.

A new tax is not being proposed here, but rather a different way of spending the rates and taxes that are already collected.

It is already done overseas. Manitoba allocates revenues from 2 per cent of the personal income tax and 1 per cent of the corporate income tax for distribution to cities in the form of a per capita grant. There are many other examples where cities have moved beyond property rate dependency.

In New Zealand, central government collects about $50,000 million in tax revenues annually. It is important to get that amount into perspective. It is huge, for example, by comparison to the Auckland Regional Council's rates' income of $120 million.

Removing 2 per cent of the tax take from the Government's pockets and using it to bolster council revenues in the regions would be good for New Zealand.

Of the taxes and rates collected in this country, too much ends up in Wellington. Two per cent of $50,000 million is $1000 million, and on a per capita basis the Auckland region would get $300-$400 million.

What is being proposed is not a handout or gift from central to local government. It is a fundamental tax reform in which a proportion of income and company taxes and GST is owned by local and regional councils without any obligation to central government in the first place. It just so happens that it would most simply and cost effectively be achieved in this country by the IRD remaining the collection agency.

Auckland has a follow-on issue - which council would have access to the funds?

This brings up the old hoary chestnut of further amalgamation, for which most Aucklanders can see the logic, more so than the armies of politicians and bureaucrats we elect and pay.

Having a broader revenue base that includes a GST and income tax share would transform the way councils are able to respond to the aspirations New Zealanders have for their cities, towns and communities.

In Auckland's case a broader funding base and more simple governance structure are critical to the city developing as a young but competitive and modern city.

The arguments for these changes are cogent and have gone on long enough.

We need MPs and local political leaders who are prepared to stand up and do more than tinker with the current property rating systems.

* Former Auckland City councillor Greg McKeown is a consultant to Heart of the City on CBD and urban issues.