New Zealand: The Local Government Rating Inquiry – What’s Happening?

Local authority rates were placed in the spotlight during the latter half of 2006, as the Long Term Council Community Plan (LTCCP) planning process revealed the likelihood of steadily rising rates almost nationwide, and the issue of rating Maori land became highly publicised.

In response, the Minister for Local Government set up an independent inquiry into the funding of local government on 1 November 2006 (Inquiry). The relatively broad task of the three-person panel that will conduct the Inquiry is expressed in the Inquiry’s terms of reference:

‘To provide an independent assessment of New Zealand’s local government rating system and identify options to enhance rates as a funding tool for local authorities’.

Part of the Inquiry involves the consideration of public submissions on matters raised in the recently released publication The Local Government Rates Inquiry: Background information for interested parties (available online at www.ratesinquiry. govt.nz). Submissions are now being received and must be lodged by 4.00pm on 30 April 2007.

The RI Paper was released on 15 February 2007. In the foreword, Chair of the Inquiry Panel David Shand describes the scope of the Inquiry as the consideration of how to improve local government funding through rates, alternative revenue sources and possible new revenue sources. The drivers of local government expenditure will also be considered. Earlier studies, such as the three produced by the Joint Central Government/Local Authority Funding Project Team, will be used to inform the Inquiry, although new research may still be commissioned.

It is clear from the terms of reference that the Inquiry will not be a ‘ground up’ review of the purpose, structure and autonomy of the local government system. The issues that will be the focus of the Inquiry’s investigation are set out in the RI Paper as follows:

• The current levels of rates and rates increases, and getting the most value from the spending of rating revenue. The LTCCP process, particularly the development of financial policies, has been identified as particularly important for public participation and for publicising the use of rates.
• The Inquiry appears to be conscious that appreciation of the factors contributing to the costs of local authorities, particularly infrastructure, will be essential for tailoring appropriate revenue solutions. Asset management planning is to be scrutinised in this context. The costs of meeting the requirements of new legislation and regulatory requirements are also recognised.
• Comment is also sought on the efficacy of the available rating tools, and any anomalies or inequities in these tools or barriers to their use. There appears to be a vote of confidence for targeted rates as they transfer costs directly to the appropriate users.
• Development contributions are certainly at issue, and it is noted they could be better used than at present in order to recoup infrastructure costs (eg to ensure inter-generational equity). The paper appears to contemplate firming up the process for requiring development contributions and other revenue mechanisms. This would potentially make them less vulnerable to legal challenge.
• Information is also sought concerning the factors which cause and contribute to unaffordability of rates(eg what groups of the population are most affected and why). This research will then feed into a review and assessment of the Rates Rebate Scheme and other assistance packages.
• Rating issues for land registered under Te Ture Whenua Maori Act 1993. This includes re-consideration of the basis of valuing Maori land, rates affordability and possible grounds for exemption from rates.
• All exemptions from liability for rates will be fully reviewed, including evaluation of the principles behind each exemption. The current statutory provisions will be assessed for clarity, as will the impacts of removal or addition of exemptions.
• While the possibility of using alternative tax bases for local government funding is not embraced wholeheartedly, it is acknowledged as an option. Comment is sought on the broader issue of the principles behind revenue sources for local government, including rates and it is possible that a proposed alternative tax could be assessed.

As a general observation, there are several topics in the RI Paper that concentrate on mechanisms to ensure costs are directly passed to the appropriate consumer, whether through development contributions, targeted rates, or a tourism tax that enables small communities to meet seasonal demands.

It is also important to note there are areas that have been identified for a thorough review, such as rates relief schemes, rating of Maori freehold land, rates exemptions and possibly user charges and fees. As a result, the Inquiry’s recommendations could possibly suggest dramatic changes to the current schemes, so parties interested in these areas should ensure their participation at this stage.

In January, LGNZ and SOLGM submitted a discussion paper to the Inquiry (LGNZ Paper) ‘to help the inquiry with the preparation of its own framing paper’.

As a general rule, the majority of the issues contained in the LGNZ Paper have been included in the RI Paper, though with different emphasis. Some issues that have not been specifically included (though which may still be raised obliquely through different topics) include:

• Revision of central government funding methods for local government projects.
• The possibility of exempting local authorities from disclosure and signature requirements under the Securities Act.
• Valuation averaging for calculation of rates.

The LGNZ Paper also makes it clear that many of the costs of local government now and into the future relate to infrastructure construction and associated ongoing costs (depreciation and maintenance) and that this is a major factor contributing to rates increases.

The Inquiry will hold a number of public meetings and hui throughout March and April. Submissions on the issues raised by the RI Paper are to be made by 30 April 2007. It is planned that all submissions will be placed on the ratesinquiry website, so there will be an opportunity to see where popular public opinion lies for some of the above issues.

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