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RB governor gives local bodies a rates warning

Monday 28th July 2003

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Reserve Bank Governor Alan Bollard has reminded local government throughout New Zealand to think of the broader economic implications when putting up rates and other local body charges.

Bollard told the Local Government New Zealand conference in Queenstown that local body rates for households are set to go up by around 4.5% over the year to March 2004.

"Increases like that can boost general inflation both directly and indirectly, especially if other people pass on these cost increases by in turn raising the prices of their goods and services. All other things equal, these sorts of price increases could require the Reserve Bank to tighten monetary policy, which in turn would hold back the tradable sector on which all local communities sooner or later depend. At a time when the domestic economy is still strong, especially in the construction and property sectors, local authorities should ensure that they are not unnecessarily adding to price pressures."

Bollard said that local bodies’ incomes had been rising steadily in recent years.

"Growth in valuations and the rating base has...brought with it significant growth in local authority revenues. Over the last four years annual growth in operating incomes for local authorities has been over 4% and rising. Rates too have been growing at above the rate of inflation for most of the last decade."

Bollard said he acknowledged that local authorities were reinvesting in New Zealand’s infrastructure, which the economy needed. However, he said "even allowing for these adjustments, local authority rates have significantly outstripped the CPI over the last decade, rising at a time that other inflation has been falling. That has the potential to pass on cost increases throughout the economy generally."

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