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Opinion: Outcry grows as council rates to rise above inflation for years

By Michael Daly of NZPA

Friday 14th July 2006

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The rapidly rising cost of running local government is sparking an outcry, as many councils forecast rate increases well above the expected rate of inflation for years to come.

The realisation that the cost of owning land is set to become increasingly expensive has come as a nasty shock to owners, already staggering under high interest rates and rising fuel costs.

Federated Farmers, long-time opponents of the local government funding system, gave the protest momentum last month when they said local authority rates revenue was to increase on average by around 7% to 8% in each of the next three years.

The forecast was based on an analysis of 83 city, district, and regional council draft long-term community plans.

In the coming year, 30 councils intended to increase rates revenues by more than 10%, with six - four of them regional councils - set to increase by more than 20%.

Vice-president Don Nicholson said councils had a point when they blamed increases on inflation in the construction sector and the imposition by central government of new responsibilities and additional compliance costs.

But some councils were also choosing to increase "soft" spending on largely urban-based social and cultural activities, and picking winners in terms of economic development and tourism promotion.

The farmers body is a long-term campaigner against the current rates system. It considers farmers have to take an unfair portion of the rates burden, while urban residents tended to be the main users and beneficiaries of most council activities.

Commercial interests also weighed in with Business Roundtable executive director Roger Kerr, speaking on behalf of business group the Local Government Forum, calling for urgent changes to the policy environment local government operates under.

The increases were well above both inflation and population growth and were coming at a time when the economy was going to be much weaker than in recent years, Kerr said.

They were also ahead of likely growth in nominal GDP, which implied local government would be taking a larger bite out of the economy at the expense of the productive sector.

"This will reduce growth in national income and living standards," he said.

The ultimate problem was excessive council spending which had been encouraged by legislation.

Too many councils were choosing to become involved in activities well beyond the efficient provision of public goods such as core infrastructure and local regulation, he said.

He was critical of what he considered to be a lack of competent economic evaluations to show whether many public passenger transport projects would be worthwhile from an overall community perspective.

Beyond rates, some councils were also "massively" increasing financial contributions charged on new developments. Combined with excessive restrictions on the supply of land for development, that was pushing up the costs of new sections, homes and commercial property, Kerr said.

Data from Statistics New Zealand shows that for the 12 months ended June 2005 the total council general rate take was up 6.2% on the previous year to $2.6 billion. In the five years up to that point total council general rate income increased 27.2% from $2.05 billion in the year to June 2001.

Water rates, petrol tax and fees and fines were up 7.7% on the year to $176.5 million, and up 18.4% over the five years.

Sales of goods and services were up 8.4% for the year to $947.5 million, and up 30% over the five years.

Government grants and subsidies rose 19% in the year to $661.4 million, and 64.3% on the half-decade.

In comparison, in the year to June 2005, the Consumers Price Index was up 2.8%, and in the previous four June years the annual rate only climbed above 3% once and dropped as low as 1.5% in one year.

Auckland City rate income increased 88% in the 12 years to 2004, Christchurch City 70%, Manukau 32%, North Shore 82% and Wellington 39%.

While farmers, businesses and households may view the rise and rise of council rates, and many other costs, with trepidation, Local Government Minister Mark Burton appears comfortable with the projections.

It was the role of local councils and their communities to make decisions on how to promote the social, economic, environmental and cultural well-being of their districts, he said.

Recent rates increase were largely driven by the need to provide infrastructure.

Draft long term plans showed that in the coming year around $2.97 billion was earmarked by councils for capital spending, he said.

About 70% of this year's capital spending would go on network infrastructure such as roads, drinking water, waste water and waste management.

A further 18% to 20% would be spent on community infrastructure such as libraries, halls and sports amenities.

"This infrastructure development contributes to the health of the economy and the quality of life in our communities," he said.

On the average rate per household a 7.8% increase was about $188 a year or $3.50 a week.

Burton added that around 300,000 New Zealanders were eligible for rates rebates of up to $500 through the Rates Rebate Scheme.

National Party local government spokesman John Carter is less relaxed, criticising what he sees as the Government heaping new costs and legislative responsibilities onto councils.

"Many local authorities have become pseudo tax collectors for Labour," he said.

A snapshot of 29 territorial authorities had shown an average rates rise this year of about 8.4%. The average increase in rates since 1999, when Labour came to power, was 57.5%.

Using council projections, a parliamentary library researcher found ratepayers facing the biggest increases in the eight years to 2014 included those in Christchurch, where rates were set to rise 83%, North Shore, up 94%, Rodney District, up 90%, Taupo District, up 92%, and Tauranga, up 100%.

An indication of whether any changes may be made to the local government funding system could come from a project being carried out by the Government and Local Government New Zealand (LGNZ).

Those involved are looking into whether rates are a sustainable funding source in the long term.

A Department of Internal Affairs spokeswoman said that if the project identified any systemic issues affecting local government funding, possible solutions would be considered.

An area being looked at was whether the Government might make contributions to councils for Crown-owned properties, such as schools, universities, and hospitals, which now had a rates exemption, she said.

The project was due to report in October to a forum of representatives from local and central government.

An analysis by LGNZ put the nationwide mean household rates bill at $1921 in 2004/05, the most recent year for which confirmed figures were available.

Far ahead of any other council was Queenstown-Lakes where the average household had to fork out $3675, with Ashburton having the lowest figure among territorial authorities of $1259. For Auckland the figure was $2186, Christchurch $1374, Manukau $2233, North Shore $2104, Wellington $2520, Hamilton $1834 and Tauranga $1681.

Among regional councils the highest charge per household was $358 in Wellington, while Northland had the lowest with $89. The mean was $240.

Some of the unease about the latest round of rate rises has come about because of the impact on households in the country's largest city, Auckland.

Because of property revaluations and changes in the way the rates burden is shared among different types of property, residential property owners in Auckland are facing an average rate rise of 13.4%.

That is despite the council's overall rate rise being about half that at 6.8%, of which 3.3% is to keep up with inflation.

The Auckland Regional Council has decided on a 4.9% rates increase for 2006/07, with chairman Michael Lee saying it has projected budgets during the next 10 years based on the same level of "moderate" increase.

The increase was needed to fund increasing demands of vital operational and capital expenditure during the next decade, particularly for transport.

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