How rates are set - Whanganui and Horizons councils explain their process

Rates are hard to explain, Horizons chairwoman Rachel Keedwell says. Photo / File

If there's one thing that gets people het up it's local authority rates. There's no "one size fits all" approach as councils can rate on land or capital value and for different services. Reporter Laurel Stowell talks to Horizons Regional Council and Whanganui District Council about how they set rates.

When rates are set some of the charges are adjusted according to the most recent property valuation - and that makes for unexpected ups and downs.

Whanganui District Council will collect $73 million in rates this year, and Horizons Regional Council $47 million. Their assessments are out now.

Whanganui residents have to pay their Horizons Regional Council rates by September 25. Some who expected a 1 per cent rate rise - the average across the region - have found their increase is a lot more than that, Whanganui Horizons councillor David Cotton said.

Whanganui had its three-yearly valuation by Quotable Value in 2019. It found the average value of a Whanganui house had increased 56 per cent in the preceding three years, while land value had increased 93 per cent.

That has impacted rates. Horizons Regional Council rates increased at least 10 per cent for Whanganui property owners, Cotton said, and he thinks ratepayers should have been warned. He's hearing from people, especially Castlecliff residents, whose regional council rates increased 20 or 30 per cent.

Whanganui's Horizons rates could have been better explained, councillor David Cotton says. Photo / File

Manawatū and Horowhenua also had revaluations in 2019, and their Horizons rates increased too.

Palmerston North had its valuation in 2018. Horizons chairwoman Rachel Keedwell had a 15 per cent rate increase the year after that. This year she has a 7 per cent decrease.

You could compare Horizons' rates with the air in a balloon, Horizons chief executive Michael McCartney said. There is only 1 per cent more air in the balloon this year than last year but the balloon is squashed in a different way, so those who paid less last year pay more this year.

"There's no easy way to put that across to people," Keedwell said.

"It's very complicated. There's no headline or sound bite."

The increases in value mean some Whanganui District Council ratepayers have higher rates too. Rates increased an average 7.5 per cent for Aramoho, 6.1 per cent for Whanganui East and 5 per cent for Gonville.

For Castlecliff, a suburb where valuations increased a lot, the council rate increase was an average 4.8 per cent.

At the other end of the spectrum, St John's Hill rates decreased an average 3.6 per cent, commercial rates decreased 1.6 per cent and rural rates decreased 2.4 per cent.

Cotton, Whanganui mayor Hamish McDouall and Horizons chief financial officer Adrian Smith agree that setting rates is complex.

"Rates are confusing," Cotton said.

"It gets so confusing that even councillors and officers struggle to explain it."

Whanganui mayor Hamish McDouall says the way rates are set is complex. Photo / File

McDouall said the way rates are set is governed by the Local Government (Rating) Act 2002, "a very straight-jacketing thing".

The act says no more than 30 per cent of rates can be gained from Uniform Annual General Charges (UAGCs) - charges that are exactly the same for each property. For a district council those are for things like libraries and the Sarjeant Gallery.

In the 2020-21 year 21.1 per cent of Whanganui's rates will be from a UAGC of $700.

Horizons has a UAGC of $46 per property. It is used for "all the stuff that underpins the operational base", including governance. It is one of a series of uniform charges that Horizons sets.

Each of its ratepayers pays the same amount for the Sustainable Land Use Initiative (SLUI) - $38.56 this year - for example.

Whanganui also has a set of uniform charges - for roading resilience, debt retirement and earthquake strengthening, for example. Earthquake strengthening is $47.60 this year.

Whanganui has a general rate as well, which forms 28 per cent of its rates take and is spent on things like information centres, cemeteries, civil defence and swimming pools.

Horizons has a general rate too, but it makes up only 5 per cent of the rates take. This year return from investments has covered that and ratepayers are being charged nothing.

Rates are a tax, but unlike income tax they are not based on the payer's income. Instead they are based on either the value of their land (LV) or the value of their land plus improvements such as buildings. That's known as capital value (CV).

"The equity in somebody's property is meant to reflect their ability to pay," McDouall said.

Councils charge rates for a whole lot of their services. They can choose for themselves whether LV or CV is used as a basis for the charges. Their choices are reviewed every three years in their long-term plans.

The Whanganui council uses capital value to charge for things like roading and footpaths and stormwater disposal. Horizons uses capital value to charge for all its services except those that cost the same amount to every payer.

It has always done so, McCartney said, but that is something that could be changed in its long-term plan.

Whanganui uses land value to calculate the amount it charges in its general rate.

"There's a clear philosophy behind that, but it's really complex," McDouall said.

UAGCs are the same for every property owner, regardless of their ability to pay - $46 per property for Horizons this year, $700 for Whanganui. They are a regressive tax, McDouall said, because they cost low income people a higher percentage of their income.

"You can play around a little bit with it when there are alterations in values, with certain suburbs getting massive percentage rises. We have done that this year somewhat."

Cotton said he feels for the hypothetical retired couple in the expensive house on St John's Hill. They will pay Horizons more because their property has a high capital value - but they may not receive many services directly and if they are living on pensions their ability to pay will be stretched.

"We are rating those people out of their homes," he said.

Local authorities also get money from user fees and grants. Horizons has targeted rates paid only by people in particular areas who use a particular service - for example, protection from flooding in Whanganui, and control of old man's beard in Rangitīkei.

Each person in those targeted areas pays the same amount, though they might pay more for services like weed control if they own more than 4ha of land.

Local authorities would like to have sources of funding other than rates, McDouall said. Auckland has a "bed tax", for example.

"If we did have different vehicles to pay for the services we provide it would be fantastic, but the government has never entertained that," he said.

Both councils offer rates rebates for low income people. A rebate of up to $655 is possible for those earning less than $26,150 a year. However, if people's income exceeds that amount they could still be entitled to a rebate depending on the total costs of their rates and the number of dependants.

People in difficulty need to contact their council and either arrange for a rebate or set up a repayment programme.

Horizons rates are due by September 25, with a penalty incurred if they aren't paid by October 25.

The first instalment of Whanganui District Council's 2020-21 rates was due on August 26.