Rates rises raising ire

A Federated Farmers survey found that rural property rates have increased by an average of 12.5% in the last year.

The survey was self-selecting so was more likely to reflect the views of people with higher rates rises, but even so that is a very high figure when inflation was less than 3% in the same period.

A good deal of the problem is that rates are based on property values which are often unrelated to a farm’s earning capacity.

“Two farms, both under Maori trusts, face $100,000 rates bills this year. Another North Island farm, also run by a Maori trust, is staring down the barrel of a 50 percent rates increase just because it farms a coastal property that could be sold or subdivided. It pays rates based on the ‘potential’ value of the land rather than its current and future economic use as a farm.

A change to a greater proportion of rates from a uniform general charge and more user-pays might help reduce rural rates but the problem is greater than who pays for what.

Initiatives by successive central governments have passed more responsibilities on to local authorities without them passing on any extra funding. That has placed a greater burden on ratepayers.

The power of general competence granted to councils has also added to costs as they’ve got involved in more activities which have to be funded, at least in part, from rates.

Then there’s the question which Fairfacts Media raised of computers in libraries competing with private enterprise.

The Oamaru Library has recently installed computers. Online research capabilities are compatible with a library but email, Skype, TradeMe,  and other web-based features will be in direct competition with internet cafes.

The amalgamation of councils in Auckland will almost certainly not be the last. Rationalisation ought to reduce some costs, but that by itself won’t address the fundamental problems caused by property-based ratings system where how much you pay is not necessarily related to what services you receive.

5 Responses to Rates rises raising ire

  1. PaulL says:

    Your position on rates being a percentage of property value depends on your philosophical position on taxes.

    If you subscribe to the logic behind our tax system – that those with more wealth should pay more tax – then it makes sense to tax property value. In fact, rates on property value are one of the few taxes that will be paid by someone with a large amount of assets but low income. Which is a situation that might describe a lot of farmers.

    If you disagree with property taxes, there are a couple of potential logic paths:
    1. Progressive tax systems are bad, we should have user charges. I have some sympathy with this view, but I don’t think it is practical in our current political system – we will clearly have a progressive system for the forseeable future

    2. You like progressive taxes, but you think they should apply only to income, not to wealth. Or, potentially, only to realised wealth (so you don’t pay taxes unless you sell that multi-million dollar farm). I can understand why farmers might feel this way, as many of them pay little tax at all, and so rates might feel like an unreasonably impost. My personal view is that wealth taxes are more defensible/fair than income taxes

    Which is the argument that you’re putting forward?

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  2. homepaddock says:

    Paul – one of the problems with property taxes is that they are on unrealised value. People get charged more because they could sell their land for a large sum of money although they are able to earn only a small proportion of that theoretical value from it.

    However, the greater concern is that year on year rates have been increasing well above the rate of inflation and that isn’t sustainable. If the overall rates burden was less people would be less concerned about paying their share of it.

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  3. gravedodger says:

    The whole fairness and sustainability of the current rates problem is a direct result of the expansion of the delegated power that has accrued to local government of matters that are properly the responsibility of central government .
    Central government can fund by a system of consumption and income taxes and some limited cost recovery from userpays charges whereas local government can only raise their income from rates on property and userpays cost recovery. All attempts at any kind of citizens resident tax will fail as they are too hard to collect and will always be unpopular with the so called citizens.
    For example I can see no valid reason for the provision of local government pensioner housing when we have the monolithic government housing NZ running a parallel service.
    Rates are an easy and enforceable option for local govt funding as they are are recoverable from the asset base but unfortunately there is no recognition of the ability to pay for those who for health, family or any other reason want to continue living where rising property values through no action of theirs compromise the ability to pay.
    The recent reversal, hopefully long term, of the totally unreasonable and financially stupid rent reviews of highcountry leases incorporating asthetic and ammenity values in the setting of property based fees revealed the basic inequality of the system.

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  4. PaulL says:

    Mr Dodger and Ms Homepaddock, I do agree that councils are taking far more rates than they should, and that they are largely doing it by stealth.

    That is separate from a discussion about how we decide who pays for how much of the rates.

    I agree that increases in property value are often unrealised, but flipside is that I find it hard to justify increased tax on the fabled apprentice spray painter so that someone who’s living in $1 million of asset can stay living in that house. When that person passes on, someone will get that house. Surely they can draw down on the value somehow?

    I understand the problems it causes for someone who lives in a house that, through no fault of their own, is now worth a lot of money. But hell, that’s a problem I’d like to have, and there are plenty of solutions to it including reverse mortgages, family trusts and a variety of other mechanisms.

    When we tax people heavily on income, and ignore those who have a lot of wealth but little income, we discourage income v’s wealth. It encourages people to own assets that are delivering capital gains as opposed to assets that produce income for the individual, and therefore for the country. In short, I see that as a counter productive way to organise taxes.

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  5. Red Rosa says:

    Please note –

    “The survey was self-selecting so was more likely to reflect the views of people with higher rates rises…”

    Well, well.

    Let’s get this in perspective. Most Canterbury dairy farms rates are around 10% of their fertilizer bills. Sheep and beef maybe a bit more.

    Lincoln Dairy and MWNZ have the figures. Sometimes rates don’t even get a seperate mention, they are lumped in with insurance or whatever.

    And if ever ‘user-pays’ was applied to roads (and Maurice Williamson suggested this many moons ago) then remote S&B farms would face rates bills 2*, 3* or even more.

    Feds really should stop whingeing on this one. Sure, some very valuable properties pay big rates bills. They want to shunt the burden onto the rest of us.

    Good idea?

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