Transfer rates burden to farms

Following my previous discussion on the move to capital value and the imposition of differentials on the various sectors of ratepayer groups to manage rates allocation, let me explore the impact of differentials a little more.

Since the establishment of Rotorua District from the amalgamation of the Rotorua City and County in 1979, the council has historically applied a differential to land values. These can be positive or negative. For example, the differential applied to business in this model is 2.2, increasing the level of rates payable, whereas there is a rural general differential of 0.85, effectively reducing the level of rates paid.

Remember, the major impact of the differential is on the general rate. Added to that are the various targeted rates.

Under a land value system of rates in Rotorua the impact of the differentials results in the following:

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  Residential ratepayers hold 55.3 per cent of the land stock by value and would pay 61.4 per cent of rates.
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  Farming ratepayers hold 33.4 per cent of the land stock value and would pay 13.2 per cent of rates.
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  Business ratepayers hold 11.3 per cent of the land stock value and would pay 25.4 per cent of rates.
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  Under a move to capital value, as recommended in this Long Term Plan:
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  Residential ratepayers now hold 59.1 per cent of the capital stock by value and would pay 61.1 per cent of rates.
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  Farming ratepayers hold 23.2 per cent of the capital stock value and would pay 11.4 per cent of rates.
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  Business ratepayers hold 17.7 per cent of the capital stock value and would pay 27.5 per cent of rates.
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  The impact of this move to capital value results in the following increases and decreases across the three main sectors.
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  Residential sector rates go up by 2.8 per cent.
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  Business rates go up by 11.7 per cent.
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  Farming sector rates go down by 10.9 per cent.

I see no rationale to justify farming sector rates being reduced. Overall, the returns on most sectors of the farming industry have been strong in the past couple of years.

The impact on our larger businesses, however, is substantial. A survey of a number of business ratepayers shows major hotel rates go up by 14 per cent, major attractions by 24 per cent, forestry and wood processing up 52.3 per cent and manufacturing 61 per cent.

Surely this is biting the hand that will feed economic growth? So, what is the solution?

I believe it comes in two parts. Move some of the burden of increase from business to farming. Reduce the business differential to 1.9 and introduce a farming differential of 1.2. Effectively, and using a very simple model, this would result in residential going up by 2.8 per cent, business by 3.2 per cent and farming by 3.3 per cent. This is a far more equitable allocation of the rates.

The second part of the solution is to address differentials.

A recommendation of the 2007 Local Government Rates Inquiry was that business rate differentials should be abolished.

In tandem with this change to capital value rates, the council should make a commitment to progressively remove differentials across the next five years, as per the accompanying table.

Application of a transition period for the removal of differentials would see an adjustment in the base rate of just over $1 million per year and would be about the same as the council is projecting to save from its Lean initiatives.

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