Corrected: Councils want tax reshuffle, innovation a long way off

Correction: This story originally had Auckland deputy mayor Penny Hulse as chair of the Local Government NZ working group on funding. The chair was Auckland Council finance & performance committee chair Penny Webster.

Local Government NZ wants the Government to support funding options it’s refused Auckland Council requests for, including fuel tax. And it wants the Government to pay more of the costs when it imposes new requirements on councils.

Auckland Council finance & performance committee chair Penny Webster chaired the working group which conducted the review, and Auckland mayor Len Brown enthusiastically supported its findings. The Property Council also supported the direction.

As far as I can see, it still falls well short of a practical proposal to improve the income stream for public infrastructure expenditure, but it’s a start.

In effect, councils are asking the Government to share more of the tax take with them, and to let councils collect some tax directly.

That’s a reshuffle, not innovative thinking on how to improve the provision of infrastructure, but it’s a reshuffle the Government should already have been at an advanced stage of examining.

One income stream on the list, which there’s been no suggestion councils couldn’t already implement, is to tax the gain from value uplift, for example from rezoning allowing far more intensive development.

Value uplift is a potential earner which has proved complex elsewhere, but it’s only a part of the potential infrastructure-supporting income stream.

Local Government NZ released the results of its year-long funding review yesterday, The 10-point plan, incentivising economic growth & strong local communities. The review recommends alternative funding options for increasing community demands on services & infrastructure and incentives to drive economic growth, including:

  • road user charges, targeted levies and fuel taxes
  • a plan to advance special zones for growth
  • simplifying the rates rebate scheme
  • charges & taxes on visitors
  • reconsidering limits on community amenities funded through development contributions.

The old Auckland City Council looked at a bed tax on tourists, and sensibly opted out of imposing it. It’s a turnstile tax, like airport levies, an unsubtle way of building traveller resentment.

Local Government NZ wants to work with the Government, business & communities to develop the ideas put forward in the hope they can be “put into practice with appropriate speed & urgency.”

A wider public debate would be a better option, incorporating central & local taxes, the philosophy behind uniform rating charges and the justification for raising or lowering them, introduction of the private sector to public infrastructure development and, most important of all, creating new income streams to support future infrastructure.

Local Government NZ said its 10-point plan was designed to “succinctly” outline the case for local government to have access to a broader & improved range of funding tools to help them fund the tasks councils have to deliver for the nation to succeed & prosper. To be succinct it needed to be blunt. Instead, the language walks around a topic, as you can see from the document’s 4 key themes:

  1. An effective partnership between local & central government around shared goals & strategies, pragmatic testing of new ideas and strong incentives for both arms of government to perform
  2. Recognition of the value of the private sector & community by recalibrating relationships with those sectors to incentivise partnerships & the achievement of shared goals
  3. A local government which is open to innovation in service delivery, funding & financing (within an environment of strong fiscal discipline), and
  4. A diverse set of funding tools for New Zealand communities to respond to the different challenges they face, with property rates as a cornerstone supplemented by revenue sources that equip local communities to meet current & future opportunities.

Local Government NZ president Lawrence Yule said in the foreword to the review document: “Local Government NZ recognises that property rates will continue to be the cornerstone of local government funding for the foreseeable future. However, it is also clear that communities require more flexible funding tools to meet current & future challenges.

“For this reason, we consider rates will need to be complemented by a stronger set of incentives & revenue sources that better match the needs of these communities – now & in the future. The aim is not to increase the tax burden but rather to look at the optimum mix of funding tools for local government.”

Councils are calling on central government to help cover costs when it increases requirements on councils. They also want to be able to impose road user charges, targeted levies & fuel tax for locally operated infrastructure. The 10 proposals are:

  1. An agreed priority & action plan to advance “special zones” for growth to test new ideas and drive economic prosperity: a flexible regime to allow innovative ideas & approaches to be trialled in some areas should be considered. Such an approach allows a policy to be tested in a location or region without consequent results affecting the entire country
  2. When new centrally imposed costs are considered (and particularly where national benefit applies) a cost:benefit analysis & agreed cost sharing with central government should be mandatory: local government shares an interest with central government in meeting & exceeding standards, environmental or otherwise, which benefit the nation as a whole. However, the cost of new standards often outstrips local benefit and communities may be required to carry a cost they cannot afford
  3. Mandatory rating exemptions should be removed: although there is considerable economic diversity across local councils, legislation prescribes that specific categories of organisations are exempt from rates. All beneficiaries of council infrastructure & services should pay their fair share and any exemptions should be the responsibility of individual councils and made only after consultation with their communities
  4. The application & administration process of the rates rebate scheme should be simplified to increase uptake: rates rebates are designed to enable low-income households to meet the cost of local authority rates. However, the existing system does not have a high uptake, primarily due to the complexity of the application process
  5. Better guidance is needed to assist councils to make decisions on trade-offs about whether to fund services from prices (user charges) or taxes: local authorities are regularly faced with making difficult choices between affordability & the provision of services – choices made onerous by limited resources. Such guidance & ‘best practice’ can be shared across councils
  6. Road user charges, targeted levies & fuel taxes should be allowed where it is economically efficient: population growth can place extreme pressure on council infrastructure, undermining traditional approaches to funding development & maintenance. Councils facing such challenges need a wider range of tools
  7. Councils should be able to retain a share of any value uplift arising from additional economic activity related to local intervention & investment: we need to provide additional incentives that will encourage councils to invest in growth, whether through investment in new infrastructure & amenities or different planning rules
  8. Local authorities should receive a proportion of any mineral royalties attributed to local activities: some councils are faced with managing the disproportionate impacts of boom & bust activities, such as mining. While the financial benefits of such activities are limited, the community retains responsibility for growth & ongoing maintenance of the resulting infrastructure
  9. Allow councils to levy specific charges & taxes on visitors where economically efficient: some communities make a significant economic contribution to the country as a whole but have to deal with dramatic population changes due to seasonal visitors. Providing services to visitors increases the demand on local infrastructure, which is currently met by residents
  10. Reconsider the decision to limit the range of community amenities funded through development contributions: growing communities have must have the flexibility to ensure continued economic development without unfairly burdening existing residents.

Local Government NZ said: “Our intention in this paper is to highlight funding options that help councils & communities to say ‘yes’ to growth. We look forward to working with central government, business & our communities to develop these ideas and put them into practice with appropriate speed & urgency. Following release of this manifesto, LGNZ will develop a strategic advocacy & implementation plan for its key proposals.”

Links: Local Government NZ funding review
Funding review discussion paper

Earlier story:
3 February 2015: 6-month review produces handful of unlikely local body funding options

Attribution: Local Government NZ review & release, council & Property Council releases.

2 Responses to Corrected: Councils want tax reshuffle, innovation a long way off

  1. David Thornton Wednesday 22 July 2015 at 1.44pm #

    Penny Webster chaired the LGNZ review Bob

    • Bob Dey Wednesday 22 July 2015 at 4.07pm #

      Thanks David. It’s now corrected.

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