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Rates Increases - Questions and Answers
1. What is the purpose of local government? Local government provides for community well-being and enables democratic local decision-making and action on behalf of local communities to promote their social, environmental, economic and cultural well-being. 2. Why do we have central and local government? Central government deals with issues relevant to New Zealand and its people as a nation. Local government allows locally elected representatives to make decisions for their communities recognising not all areas are the same, nor have the same issues. The need for councils to publicly set rates each year and for people to have a say in how that money gets spent in their communities are key parts of our democratic system of local government. 3. What are rates? Rates are the key source of income for local authorities. They are a type of tax applied to property owners, using a formula based on the value of their property. 4. What do rates pay for? Rates pay for a huge range of infrastructure and services crucial to the quality of life expected by New Zealanders. See www.localcouncils.govt.nz 5. Why are rates increasing? Rates have risen an average of nine percent this year. This includes commercial and residential properties. Infrastructure provision has been the main reason for rates increases in the past few years and for projected increases over the next 10 years. Many other factors contribute, varying from one area to another, but including:
Draft Long-Term Council Community Plans (LTCCPs) show around $27.4 billion in capital works “on the books” for councils over the next 10 years compared to $13 billion in the 10 years to 2004. These capital projects will also have ongoing operating costs, depreciation, maintenance and repairs. 6. What do LTCCPs have to do with rates? The release of the first LTCCPs this year has highlighted projected rates increases in many areas of the country. The plans outline councils’ intentions for the next 10 years, taking into account community wishes following wider community consultation than ever before. They earmark around $9.5 billion for capital expenditure in the next three years and $27.4 billion in the next 10. In the next 10 years 71 percent of capital spending will be on basic infrastructural services like stormwater, water supplies, waste management roading and transport. Between 18 and 20 percent will be spent on community infrastructure, libraries, stadiums and the like. Some council decisions resulting from the LTCCP process will increase operational spending, and this will in turn impact on rates. LTCCPs are reviewed every three years. The process is an important opportunity for people to make submissions on the things their council plans to do. 7. What’s behind the bulge in councils’ capital investment? There are a number of factors including:
8. What is the long-term projection for rates increases? LTCCPs indicate the average level of rates increase in the next 10 years will be 56 percent. Average rate figures include the rates for commercial properties so the average increase for householders may be less. 9. Is it fair that today’s ratepayers should pay for past under-investment? It may seem unfair, but wherever it comes from, additional funding is necessary to avoid things like a declining environment, longer delays on the roads and reduced library services. 10. What is central government doing to help local government financially? Central government funding has been the fastest growing source of local government funding in recent years. In the year to June 2005 central government funded councils to the tune of $660 million – more than 13 percent of their income. This compares to central government funding of $398.7, or 10.6 percent of local authority revenue in the year to June 2000. This is an increase of about 65 percent – twice the level of rates increases in the same period (Source: Statistics New Zealand). These figures do not include Government funding for drinking water, tourism infrastructure and transport announced in the past year. These are significant – for example the 2006/7 National Land Transport Programme includes some $129 million in new funding for local government road construction and maintenance. A Government programme to ease the impact to low income ratepayers of the cost of local government activities is the Rates Rebate Scheme, which was significantly enhanced this year. 11. What is the Rates Rebate Scheme? Up to 300,000 lower income ratepayers are eligible for the enhanced Rates Rebate Scheme announced by Government in July 2006. The enhanced scheme increases rates rebates from $200 to $500, and raises the threshold for those who quality from $7,500 to $20,000. The additional income allowance for dependants has also risen, from $156 to $500. 12. What should ratepayers do if they cannot afford their rates? People who are having difficulty paying their rates should talk to their council. They may qualify for the Rates Rebate Scheme and in certain circumstances councils may remit or postpone rates. 13. What should ratepayers do if they are unhappy about their rates? There are many ways ratepayers who want to “do something about rates increases” can get involved. The Local Government Act requires councils to make information available on intended services and their cost, and to consult before making final decisions. During LTCCP development and review councils and communities have an informed debate about the quantity, quality and cost of services council provides. People can also make a submission on the annual plan, attend council meetings, vote for candidates whose views they agree with or stand for council in the local body elections. 14. What extra value are the rates increases providing? Council services will differ depending on the community outcomes agreed during their LTCCP process and the particular needs of that community (e.g. flood control). In recent years local government activity has resulted in generally cleaner drinking water; longer opening hours for services such as libraries; upgraded children’s playgrounds; major new facilities such as recreation centres and stadiums; and better roads. Growth also impacts on rates with 60% of some councils’ capital programmes servicing growth. Ratepayers can look at their council’s long-term plan, talk to a councillor or a council staff member to find out exactly what their rates are used for. 15. Are councils doing too much? Councils face a difficult task in balancing the provision of basic services and community wishes expressed in the planning process against the need to keep rates as low as possible. People can influence how much councils do by attending council meetings, making submissions on annual plans and other proposals and having their say during the LTCCP process. 16. Can people be confident councils take real notice of what they say? People need to get involved in local government decision-making processes with constructive suggestions rather than simply saying, “rates are too high”. Councils start with a working plan in mind, but are legally obliged to approach consultation with an open mind and willingness to amend or abandon that plan. However, at the end of the day councils are elected by the community to make decisions on its behalf. People can influence this by voting in local body elections. 17. What is central government doing to address concerns about rates increases? The Local Government Funding Project is a joint project between the Department of Internal Affairs and Local Government New Zealand to see if rates are a sustainable funding source over the long-term. The project is due to report back before the end of 2006. 18. Has Government pushed costs onto local government with new requirements and increased standards? Many changes to legislation introduced in recent times were requested in whole or part by local government. Others were in direct response to public concerns around issues such as leaky buildings and dog attacks. Many of the changes do not appear to impose any costs on local government. Some new legislation requires or empowers councils to undertake particular functions. These functions are usually regulatory in nature and costs can be recovered on a user pays basis (such as licence and inspection fees). Other legislation such as prostitution reform is not mandatory but a matter for local choice. The main change in regulatory standards in recent years is drinking water standards. Government funding and technical assistance of about $150 million is available for implementing these standards. 19. Why are rates based on property values? A property tax system gives local government a source of revenue independent of central government’s tax base. This means central and local government have clear and separate accountabilities to tax and ratepayers. In the year to June 2006, some 65 percent of rates were set using property values as a base. Local authorities have two sets of rating powers – the general rate and targeted rates. A general rate is used to fund those activities where the local authority has decided that all ratepayers should meet the cost. By law local authorities have only two general rating tools – the uniform annual general charge (a flat dollar charge per property or separately used/inhabited part of a property), and rates based on property value (although there are three different valuation bases available – land, capital and annual). A targeted rate is used to fund those activities where the local authority considers the cost should be met by particular groups of ratepayers, or that there is some other benefit in funding these outside the general rate. Typically these powers are used for activities such as water, waste management, sewage disposal schemes and the like. There are 13 different rating tools available for targeted rates including property value, land area and the number of connections to infrastructure. Local authorities can also legally meter water consumption. Local authorities also have wide powers to remit and postpone rates. In addition, they can fund activities from fees and user charges (such as funding refuse through rubbish bag charges and tip fees) and development contributions. 20. Are other funding options being considered? The Local Government Funding Project is looking into the nature and scope of rates affordability issues, and options to address any such issues identified. 21. Why is there GST on rates? GST is a tax based on consumption of goods and services. Rates are the price paid for consumption of services provided by local authorities, so rates are eligible for GST. While rates are a tax, so-called ‘tax on tax’ situations are not uncommon - for example petrol, alcohol and tobacco prices and the few goods still subject to import duties. Exempting some services from GST and not others creates extra administration costs and inequitable situations. For example, why should ratepayers whose water is provided by a company such as Metrowater have to pay GST if ratepayers across the border in Waitakere whose water is delivered by the council do not? Exempting rates from GST would also provide competitive advantages for local authority-owned services over other services, for example a local authority conference centre over privately owned facilities. 22. Why do council forecasts have to include inflation? Council LTCCPs have to include an allowance for the impact of future price changes. This provides ratepayers with a better idea of future costs of a particular service than a forecast without inflation. If a price increases 2.5% a year, then by year 10 forecasts without an inflation allowance would underestimate an activity’s true cost by 28 percent. 23. Why do councils have to fund depreciation? Funding of depreciation was introduced in 1996 changes to local government legislation as part of a package of measures designed to improve how local authorities manage and account for infrastructure. Along with asset management plans, depreciation ensures local authorities keep track of their assets’ condition and maintain them to deliver on service levels agreed with the community. Recognising depreciation acknowledges an asset’s use and that funding is needed for its future use. This is like people who set aside money for future replacement of major appliances. They are likely to be in a better financial position at the end of the year than people who don’t. It is also good business practice to operate reserves for the replacement of major assets. |
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Last updated: 17/07/2009 |
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