Council sees light on capital values

Waimakariri District Council's switch from land to capital value tax is one step towards a more principled distribution of rates and an overdue piece of good news for farmers in the district. In setting the general rate, councils usually make a choice between land value and capital value.

This choice is critical to controlling who pays how much and for what service.

The land value is an assessed value of the bare land, while capital value is the value of the land plus the improvements to it, such as structures and buildings.

It's no secret Federated Farmers opposes the funding of local government through property value rates.

It believes both land and capital value are narrow asset taxes that penalise land intensive businesses, such as farming, so it actively encourages councils to make intelligent use of the rating tools available.

Capital value is a more equit- able rating basis because it includes the value of improvements on the land.

Most other businesses havevery low land value in compari- son to the capital investment they require to generate an income.

Using capital value means rates costs tend to be more evenly spread across all rate- able properties.

This is why a 2007 inquiry into Local Government Funding recommended a country wide rating system based on capital value, for apportioning the general rates take.

It is also why the Local Government Commission re- cently recommended a capital value-based rating system be adopted if Nelson City Council and the Tasman District should merge.

The effect on the Waimakariri District farmer's rates bill will vary depending on the capital value of each property relative to the land value.

Those properties with sig- nificant capital developments, for example a developed dairy property, will see less re- duction in their rates than those on less capital intensive land, such as a predominantly dry land property.

Prior to the change to capital value, central business dis- trict works, services, promotions and economic development costs were largely funded by targeted rates. This is where funding was provided by those operations who stood to directly benefit from council spending. This is an equitable way to fund activities and meets the intention of the Local Government Act 2002.

Why should farmers and residential ratepayers pay to promote the business interests of commercial operations? They shouldn't. It is unfortunate the council felt it had to continue to compensate others for the change by compromising on its use of targeted rates. Practically, reductions in targeted rates have a minor impact compared with the positive changes to the general rate from the move to capital value.

It is important to recognise the proposal to change to a capital value basis was made despite a large number of submissions against it. The right decision required councillors to stand firm on equitable rating principles, with support from the district's farmers. They stood firm.