Local Government Funding
Modern local government is broadly empowered in terms of its role and responsibilities yet is restricted to a narrow, archaic funding base made up of property value rates and per property charges.
Property value rates bear no relationship to either a farmer's relative ability to pay, or use of a service. Rates, therefore, prevent communities from truly assessing the costs and benefits of council activities. For farmers, this means a heavy tax on their key asset, land, to pay for all manner of community services many of which they rarely, if ever, use and have very little say over.
Rating policy is vital to the achievement of community outcomes and the community's ability to assess the value of council activities and ensure that councils are focused on their needs. Therefore, at a local level Federated Farmers submits each year to 65-70 councils' draft annual and long-term plans, focusing on improving council rating systems and reducing the rates burden on farms. This local experience has given Federated Farmers a unique perspective on local government funding issues which was invaluable to its interaction with the 2007 Independent Inquiry into Local Government Rates.
The Federation made a comprehensive submission to the Rates Inquiry and although we did not agree with all of its 96 recommendations, we agreed with the Inquiry's goal of significantly reducing property value rates as a proportion of local government revenue. Unfortunately, few of the Inquiry's recommendations have been implemented and the proportion of rates to total revenue has increased from 56.8 percent in December 2007 to 61.4 percent in June 2011.
This reliance on rates to fund local government is high by international standards and the increasing trend is unsustainable. Central government can assist in reducing this overreliance by providing more revenue from petrol taxes and road user charges to fund local roads and committing funding if it is imposing increased roles, responsibilities and costs on councils.
The burden of rates is also uneven and is not helped by the large number of exemptions that exist, including Department of Conservation land. These exemptions should be reduced to make rates broader based, easing the burden on current ratepayers.
Councils also need a clearer steer from the government that income redistribution activities should solely be the preserve of central government. Councils have no way of knowing ratepayers' incomes, so the rating system and spending policies should not be used to redistribute income.
There is a lot councils can do to improve their rating systems under current legislation.
Federated Farmers Wants
- Government to commit to reduce the reliance on rates to fund local government
- Government to provide more revenue from petrol taxes and road user charges to ensure that local roads, like state highways, are funded according to road use rather than property value
- Government to commit funding to councils if it is imposing increased roles, responsibilities and costs on councils
- Government to reduce rating exemptions on land, including Department of Conservation land
- Government to issue a clear policy direction that central government retains all responsibility for income redistribution and that this is not a role for councils.
Spokesperson
Federated Farmers Local Government spokesperson is borad member David Rose, you can contact him at drose@fedfarm.org.nz.
