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Conor Hill: Paying for it

by Conor Hill
There’s no point trying to pretend otherwise: Wellington has some major costs coming up in the next 10 years.

There are two main reasons for this – decades of under-investment in transport and housing, and the unforeseen costs associated with recent earthquakes.

The classic way to pay for these things is to increase rates. I want to look at some alternative ways of paying for our major capital projects – from fixing our library to getting a proper transport system. I support all of the initiatives outlined, but what happens really depends on what kind of council you get.

What we can do

These are initiatives the council can do now, without any need for the government to change legislation.

DEBT

We have nothing to fear but fear itself. Currently the city has an extremely low level of debt. It is below 7% of assets. If Wellington was a house worth 720,000 dollars, we would have a mortgage of 47,600 dollars. We are one of the youngest cities in the country, and by household income the wealthiest by a long margin.

Debt is the cheapest it has ever been. We don’t need to be afraid of increasing our debt by what overall would be a small amount.

AIRPORT STAKE

What is our city doing owning the city’s biggest polluter? The airport and the airlines that operate there are the single biggest source of carbon emissions in Wellington, accounting for roughly 25% of all Wellington’s carbon emissions.

Wellington owns 34% of Wellington airport. 34% gives no control, with the airport even making things very hard to run a bus service to it.

We should look to sell the airport and ring fence the money raised for the provision of new social homes or green transport initiatives.

What we should do

These are initiatives we need to lobby the government to be able to do.

CONGESTION CHARGING

We need to start charging people to use busy roads at peak times. Cars take up a huge amount of road space per person. If we charged drivers who drive in to the cbd from Wellington city between 7 and 9am and used the money to invest in public transport we could get the shift from cars to public transport we need. Our city is constrained and trying to put more people through here with cars won’t work. We have to stop giving away road space for free.

VALUE CAPTURE

Wellington needs a mass transit system, ideally light rail. We’ll all benefit from this, but the people who will benefit the most are the landowners who own land close to where new stations will be.

We need a value capture tax, to ensure the city financially gains from the uplift in values that light rail will bring.

These are some key options. We need to look at some of them, instead of just paying for everything through rates increases.

Conor Hill is a candidate for the Wellington mayoralty.

27 comments:

  1. Henry Filth, 10. September 2019, 4:56

    “We need a value capture tax. . .”
    Is this the one where I get taxed for living close to a bus stop?

     
  2. Mushroom, 10. September 2019, 7:55

    You want to sell an income generating asset and invest that into non income generating infrastructure which will require ongoing maintenance expenditure? At the same time increasing debt when there is less income.

    Congestion charging in Wellington would be a joke. They have it in London where the population is twice the whole of NZ. It’s difficult to avoid passing through Wellington if you are trying to get across town from east to west, even if you don’t want to go into the city itself.

     
  3. Local, 10. September 2019, 8:01

    Or close to a road?!

     
  4. Morris Oxford, 10. September 2019, 8:14

    Taxing Henry for living close to a bus stop isn’t justified when there are so few buses and they don’t keep to a timetable of any sort.
    Conor’s idea of borrowing money while interest rates are so low is an excellent one. He must also get our public transport running again and clobber the councillors who have wrecked our bus system by voting only for new candidates.

     
  5. KB, 10. September 2019, 8:29

    I think the idea of congestion charging is interesting and needs a more detailed examination regarding where and how it could be implemented. Completely agree on the debt angle, we shouldn’t be afraid of raising a large amount of debt for large one time costs, given how cheap it now is to borrow and the council’s current very low level. Also approve of the plan to sell the wellington airport stake.

    A lot of the above will be unpalatable to some, but if it comes with a rate freeze and less congestion, I think many will go for it.

     
  6. Michael Barnett, 10. September 2019, 9:04

    Yes Henry. And why not? If you own a property along a dedicated light rail route and gain the benefit of an increase in the value of your asset, explain to me why you should not be taxed?

     
  7. Mushroom, 10. September 2019, 10:19

    Michael Barnett – so what if the value of Henry’s house MAY increase in value (who decides that anyway?) It doesn’t mean he suddenly has extra cash in hand to afford rate increases. If said properties are rentals you might find the rent increases to cover the rates increase. A worse outcome for those that live there.

     
  8. Rohan Biggs, 10. September 2019, 10:35

    The first priority must be to better control council expenditure rather than defaulting to new taxes.

    Value capture promises to be administratively complex with the valuation profession the key beneficiaries.

    Using debt is only warranted for core infrastructure over which there can be relatively little debate about the council’s role. It should not be used for large discretionary investments that bind the hands of future ratepayers to pay for our nice to haves.

     
  9. Benny, 10. September 2019, 11:24

    Thanks Conor. My two cents: yes to congestion charging, with the caveat that EVs should get it cheaper, or be exempt. I don’t need to explain the goal behind this.

    But … .selling Wellington’s share in the airport is your single worst idea. First, @Mushroom is right, selling a money printer to release cash instantly is quite short sighted, given the destination for this cash won’t generate as much. As a policy to avoid rate increases, I can’t see the logic. But more importantly, the community of Wellington would lose the little influence it still has over the greed-driven private owners of the bigger share. Their appetite to expand in every possible direction is a good indication of where things will head if a third of its management loses common good as a driver. To oppose the runway extension, as you do, we’d better off doing it from the inside, to avoid being in a Shelly Bay situation, where they do what they want with their land. Influence, if not control, on growth is essential to contain its emissions.

    Finally, speaking of the airport: absolutely, it’s the first polluter in Wellington. Who will finally step up and put a cap on its emissions (https://twitter.com/BenoitPette/status/1164339535527854080?s=20)? Or do we turn a blind eye? There are technical and legal tools to impose this, which would set an example to other cities across New Zealand (and the world perhaps) and give the industry a strong signal that clean alternative are now essential if we want to keep flying. Not doing anything is doing nothing about the climate emergency.

     
  10. CC, 10. September 2019, 12:17

    Michael: We already have a ‘value capture tax’ – it is called rates. Obviously, rateable values will increase with the advantages expected of easy access to light rail. Also, the rates returns from high density apartments, as envisaged on such routes, will be massively greater than the return per square metre for a quarter acre suburban spread. This is already the case, even without light rail. It is time that we had the benefits of socialism for the less wealthy, not the more affluent, as would be the insidious outcome of the suggested ‘capture tax’.

     
  11. Casey, 10. September 2019, 13:42

    But, Michael, the increased value of one’s asset doesn’t pay the tax or extra rates, especially if one is on a pension or other fixed income. There are a lot of asset rich/cash poor residents out there living alongside the proposed LTR route.

     
  12. greenwelly, 10. September 2019, 14:05

    @Michael Barnett, Because it’s a double tax on the valuation increase….The current rates system will already impose an additional cost on people whose properties rise due to new transport infrastructure. If a property’s valuation increases more than the city-wide average, that property bears a proportionally higher rates burden.
    Would you discount the increase in regular rates by the specific transport capture levy, or simply slug those residents with a double increase??

     
  13. D.W., 10. September 2019, 16:23

    MB – you will be taxed if your property value goes up because of Light Rail (that’s after the 2 to 3 years of disruption and stress during construction). The tax is called RATES – local government’s ever increasing tax for providing us with ‘services’.

     
  14. Guy M, 10. September 2019, 17:11

    Mushroom – actually, you’re completely wrong. It’s not a joke, and it would be remarkably easy to implement. It’s actually really hard to implement it in London, where there is a whole matrix of tiny roadways threading their way through the city. In Wellington, by comparison, you could probably have just 3 or 4 points and you’d capture all the people from the Hutt (only one roadway in – simple capture) or from Porirua/Kapiti (Centennial Highway, Transmission Gully, and maybe Tawa).

    The clever trick would be to have it time controlled. 7.30am to 8.30am would have a larger congestion charge fee than 5am to 7.29am, for instance. Therefore, incentive to travel outside peak hour (thereby easing congestion) or incentive to take public transport (thereby almost eliminating congestion). Sum total of license plate readers required: 3. (Versus London’s 300+ readers). Really, really simple to implement. Effects noticeable from day 1. Congestion charging in London virtually solved congestion overnight when it was introduced: people did not drive through Central London, or they took Public Transport, and large amounts of money was raised.

    Even if you installed it and set it at a level of free for off-peak, $1 for shoulder, and $2 for peak, you’d start to see results instantly. Raise it to $5 shoulder and $10 peak, and you’ll see people take to the trains and buses with a passion.

     
  15. Hel, 10. September 2019, 19:54

    Selling the shares in the airport to invest in social housing or green transport is the sort of thinking that should raise questions about the suitability of the candidate. Apart from the loss of revenue from the investment in the airport, there is the irrational perspective around emissions. Just because the Council doesn’t own the airport doesn’t change the carbon footprint at all.

     
  16. Michael Barnett, 10. September 2019, 21:14

    It seems I have induced a lot of adverse comment on the idea of a value added tax along a dedicated route for Light Rail should it ever eventuate. I stand by my contention that this would be a valid source of revenue and there is much historical precedent for this. William the Conqueror funded his Kingdom out of land rent and set the basis for taxation during the feudal era. In 1776, Adam Smith argued that in the enterprise economy public revenues and services would best be served by a tax on land. He identified Economic Rent  (the difference between the cost of production and the revenue derived from a value adding enterprise) as a source of revenue that would not distort peoples’ incentive to work, save and invest. Forty years later David Ricardo another prominent economist of his day explained how it worked and also pointed out the fact that landowners enjoyed all the economic benefit of capital gain resulting from public investment in infrastructure for little or no effort on their part. More recently it has been associated with American economist  Henry George, who argued that because the supply of land is fixed and its location value is created by communities and public works, the economic rent of land is the most logical source of public revenue.

    With that I rest my case

     
  17. Andy Foster, 10. September 2019, 22:18

    It’s good to raise issues.
    I agree with Rohan above – first place to go is cutting discretionary spending and being more efficient. Being Mayor helps because you get to introduce the budget. I set out a lot of suggestions in my Wellington.Scoop article.

    Congestion pricing and long stay parking levies are both options for funding and to encourage behaviour change. Having the ability to use them is supported by all Councils in the regions and by Auckland Council. Government is somewhat typically slow to untie the apron strings.

    I might return to the Council’s stake in the airport later – but for now suffice to say Benny and Hel are both correct to raise concerns. Selling the Airport stake would mean losing the dividend stream. The Airport dividend this last year was $13.9 million, so even if you assumed that dividend was going to remain static and assuming Council’s borrowing rate was say 4% (it is actually a shade less) then you’d have to sell the stake for north of $347 million just to stay square. Of course reality is that the dividend is likely to continue to rise over time so the sale value to be all square would need to be probably considerably higher. If sale is proposed, it is not likely that the rationale should be around financial gain.

     
  18. Ms Green, 10. September 2019, 22:27

    Hi Michael. You usually make sense but this ain’t sense.
    We have a tax on land and capital value called rates. By your argument we would tax everybody differently for every small or big piece of infrastructure such as a road or a sewerage system or yes a bus going past or a busstop…Rates are in fact a crude way of taxing for communal infrastructure, of which light rail is but one part, and unlikely to raise the value of a property any more than a train going through Petone or Naenae.

     
  19. Andrew S, 11. September 2019, 8:19

    More taxes are the govt-provided solution to all the problems it creates.
    Problems from selling off earning assets, taking commercial bank loans for infrastructure instead of interest free RB loans, and also their solution for bad financial decisions.

     
  20. Peter Hodge, 11. September 2019, 9:11

    I agree with Conor’s proposals – good practical stuff – with the possible exception of selling the Council’s stake in the airport. Keeping the dividend stream is a good reason for retaining part ownership. On the other hand, part ownership has driven undesirable behaviours, e.g., subsidising an airline to fly here, and advocating for a longer runway (to allow more jets to fly here). There is also the glaring contradiction between the WCC’s declared climate emergency and the impact on emissions and pollution that a busier airport would have.

     
  21. D.W., 11. September 2019, 10:11

    MB – what are rates again and why do the amounts vary, unlike say a Poll Tax? Why should anyone be taxed twice for things they might not even want in the first place like a steel wheeled Light Rail service costing a billion or two – when for most a utilitarian trolley bus a la Bentham would have sufficed. I rest my case too.

     
  22. Dave B, 17. September 2019, 14:25

    All you folk who reckon spending to improve public transport in Wellington is “discretionary”, what is your answer to addressing the growing transport problems of a growing city? i)Do Nothing? – in which case the costs of doing nothing will continue to mount. ii)Build more roads? – it is well-proven that this increases car-dependency, costs us all more in the long-run and worsens the transport problems. iii) Invest in better public transport? – If this is the only way forward which stands a chance of achieving the goals then it is hardly discretionary. We must do it.

     
  23. Ross Clark, 18. September 2019, 23:42

    A regional petrol tax? Set at a high enough level, it would both crimp road demand and provide money for public transport investment.

     
  24. Brendan, 19. September 2019, 7:42

    Petrol prices are high enough and disadvantage less wealthy car commuters. Rail users are wealthy by comparison. Put peak prices up for rail commuters say so their fare covers at least half the cost (operational + capital). Why should the rest of us subsidise wealthy rail commuters?

     
  25. Mathew Biars, 19. September 2019, 7:58

    Only a govt that has failed in the provision of a cheap and efficient public transport system would even suggest more crippling fuel taxes in the wake of a 20% increase.

     
  26. Dave B, 19. September 2019, 13:12

    I notice that NZTA has decided not to charge any toll on Transmission Gully because few would choose to use it if a realistic toll were applied. Why are we subsidizing undesirable mass-commuting by private car?
    Bring on congestion-charging.

     
  27. Ross Clark, 19. September 2019, 20:20

    @DaveB. The usual story: faced with negative externalities from the ‘preferred’ mode (driving), we will support the second choice(s) such as public transport, but we do nothing to price the preferred choice in order to discourage its use. It was ever thus. The point is that higher fuel costs, for whatever reason, discourage peak driving and in particular off-peak driving. Simple!