Roger Gordon: Business rates

THERE is real concern amongst the business community that the new rates regime is going to seriously impact big business in Rotorua.

The issue is not with capital value as business have advocated for a pure capital value system for a number of years. The problem is the 2.2 differential council has imposed on the business sector with the premise that business can afford to pay. I have referred to this in my previous columns.

There are 1953 business ratepayers. Of those 77 properties are owned by Rotorua District Council and the rates are reversed, ie there would be little point in them paying themselves. Another group of properties, around 38, are utilities and distort the analysis. So correcting for the council and utilities, effectively there are 1835 ratepayers.

Of those 462 (25 per cent) go up by more than 10 per cent, 390 (21 per cent) have a capital value of more than $1 million and go up by an average of 8.58 per cent, 1445 (79 per cent) have a capital value of less than $1 million and their rates go down by an average of -7.15 per cent. There is no doubt that this rates regime unfairly targets big business.

In a review of the rates model I have extracted the top 100 businesses that will be charged the largest increase in dollar rates paid. Between these top 100 they will pay nearly $976,805 in extra rates and on average their rates bill will increase by a massive 30.4 per cent. Amongst these top 100 are many of Rotorua's biggest businesses and major employers.

In the forestry sector: Red Stag, Donnelly Sawmills, Tachikawa, Mamaku Sawmilling, PF Olsen. In the tourism sector: Novotel, Ibis, Millennium, Holiday Inn, Quest, Ventura, Skyline Skyrides, Treetops, Polynesian Spa, Rainbow Springs. In the manufacturing sector: Damar, Cryovac, Lockwood, Hume Pine, Hayes, Claymark, Fonterra, Goodman Fielder, Mighty River Power. In the retail sector, Rotorua Central, The Outdoorsman, Placemakers. The complete list of businesses and their rates increases are available on the Chamber's website.

If I take a hypothetical average business from these top 100, the rates would rise by an average $10,000. In today's current climate, margins are being squeezed. Let's assume the net profit margin is 5 per cent, very generous for some companies. To absorb this rates increase and maintain current profitability, the company would have to increase sales by $200,000.

Using the same requirement, sales over these top 100 companies would have to increase by $20 million. For many who are already finding the current climate marginal this will be an impossible task.

In my discussions with business there has been minimal consultation with these major businesses and very little transparency of the impact of this new regime. Inquiries by business to the council in this last week have been advised that the new rates information is not available as the council have yet to make their decision.

Roger Gordon is chief executive of the Rotorua Chamber of Commerce.