Wellington Scoop
Network

Out of kilter – the city council’s “re-balancing” of the rates

Rates+Rebalancing
by Keith Johnson
Although it has been a bit like pulling teeth with a garlic crusher, I have finally managed to obtain a decent series of figures from the Wellington City Council [by way of an Official Information Request] on the impact of its rates rebalancing policy on residential ratepayers.

It will take me some time to fully analyse the figures but I’ll give you a preview.

In 2001-02, the Wellington City Council recorded revenues of $241.7 million with $63.9 million coming from Business Rating [26.4%] and $61.1 million [25.2%] coming from Household Rating. At this time $112.0 million [46.7%] was drawn from ‘Other Sources’ [i.e. fees; profits from council controlled organizations; and central government grants]. The only other strand of income was the Downtown Levy which raised $3.8 million [1.6%].

Projections for 2021-22 forecast revenues of $503.0 million [a doubling over 20 years]. Of the projected total, $180.2 million [35.8%] will be drawn from Household Rating and $129.4 million [25.7%] will be drawn from Business Rating. The additional sources of revenue are expected to consist of $13.4 million [2.7%] from the Downtown Levy; $5.0 million [1%] from Development Contributions and $175 million [34.8%] from ‘Other Sources’.

The expected relative shrinkage of the Other Sources contribution is worth noting.

In 2001-02, the average household ratepayer paid $1,053 per year. This rose to $1,884 in 2012-13. By 2021-22, the figure is likely to stand at $2,250 for per household rate payer.

I leave it to you to decide how far you think this is fair?

For a remedy, see: http://kjohnsonnz.blogspot.co.nz/2013/03/keith-johnson-to-stand-for-wellington.html

6 comments:

  1. Kent Duston, 22. April 2013, 12:54

    Keith – you omitted to note that the rates rebalancing was a deliberate policy under former Mayor Kerry Prendergast. As I recall, it came about because business owners pay about 3x the rates per dollar of capital value as private home owners, and they made the case to the council that it wasn’t fair. Kerry then instituted the rebalancing that you’re complaining about, which as I remember was consulted on as part of the Draft Annual Plan process some years ago. So it’s not like this has come out of the blue.

    The other point to note is that all councils are suffering from a systemic funding problem, largely caused by the underfunding of core infrastructure (such as water and sewerage) in decades past. As you appear to be a relatively mature chap, this means that you’ve benefited in the past from lower rates, which you’re only now having to pay at a higher level to help catch up all the deferred investment.

    Fundamentally, however, the problem is that the traditional property rating system is unsustainable, which the Rates Inquiry pointed out back in 2007. However no government since has been prepared to grasp the nettle and deal with the structural issues, so we are stuck with a broken system. So in my view, arguing about how fair various bits of a fundamentally flawed funding model are is somewhat pointless.

    http://www.dia.govt.nz/diawebsite.nsf/Files/RatesInquiryBackgroundPaper/$file/RatesInquiryBackgroundPaper.pdf

     
  2. Sambo, 24. April 2013, 2:01

    No Kent, there was never any discussion. In a sheer act of petulance and greed, Kerry decided that the rates differential should move, in favour of businesses. The graph displays this, where the business sector’s contribution drops off, and the residential sector swings up.
    Just remember, the business sector gets to claim its share of rates back, as well as depreciation. The homeowner does not – a double whammy, all thanks to Kerry.

     
  3. Kent Duston, 24. April 2013, 21:56

    Sambo – I agree that Kerry simply bulldozed through the changes and there was never really any great debate about the equity of the move, which rather typifies the right wing approach.

    However there are a few nuances in how the numbers actually work. If you’re a business then rates are a pre-tax expense – but that only means they’re cheaper by the marginal tax rate of 30%. So after tax, instead of paying 3x the rates on the same capital value, they’re only paying (roughly) 2x as much as a residential owner. So dollar for dollar, businesses still pay a greater proportion of the rates bill. I don’t really have a view about whether this is an equitable amount or not, but it’s probably a debate worth having.

    And remember also that there are plenty of residential landlords who have the same advantages as businesses, but on the lower residential rate. Landlords can also deduct their rates against pre-tax income, so they’re also getting a discount compared to everyone else – and the numbers are significant; in my neighbourhood, about 65% of the properties are in this category.

    So I agree that Kerry’s “rebalancing” wasn’t consulted on and may not be equitable, but I thought it was worthwhile pointing out that the situation is a bit more complex than Keith is painting it.

     
  4. Bryan Pepperell, 28. April 2013, 18:14

    Having been on Council throughout the entire time that the differential was moved, I can say that it is a much neglected issue. Those who opposed the shift from the beginning and consistently did so to the last time it was moved were myself supported by Councillors Cook , Gill and Ritchie.
    Opposition to the shifting of the rates burden was based on the fact that residential rates are for the most part met out of net income. That is after tax. Furthermore, rates are deductible for business and as a fixed cost must be part of overheads but are also passed on. The shifting of the rates burden was supported by current Mayor Celia Wade Brown and Councillor Pannett as it was when Kerry Prendergast was Mayor. Ms Pannett and Ms Wade-Brown were councillors under the Prendergast watch. When the differential was raised again this year, I once again opposed further shifting and it was withdrawn as an agenda item by the officers.
    Rating and funding has always caused hysteria as the Council has a history of living beyond its means. That may have been manageable while economies were expanding and growth was taking place but as far as I can remember people were always getting caught by the blunt instrument of rates. It all works as long as the ratepayer has income and has been able to absorb the yearly increases. The shifting of the rates burden made it much more difficult for wage and salary earners and was a bonus for the business community. Let’s leave it there for now.
    The way we collect rates needs to be rethought.

     
  5. Michael Gibson, 29. April 2013, 13:19

    Cr Pepperell is right! Plus he is the only Councillor to explain his position. Thank you, Cr Pepperell.
    What on earth were our Green representatives doing?
    I was recently astonished when Cr Pannett trotted out a Green MP to explain to a Council Committee the merits of having developers trample over the rights of local residents but I now understand a lot more since the MP, Gareth Hughes, has just been outed as an inexperienced & foolish youth.
    Greenies, choose your friends! Support Cr Pepperell on getting residential rates lower! And don’t avoid thinking for yourselves when young & inexperienced MPs are so ready to do your dirty work!

     
  6. Kent Duston, 1. May 2013, 11:28

    Brian – It’s useful to know that you’re opposed to the differential, but it would be helpful if you could actually state what you think the fair ratio of residential to business rates should be.

    Given there are many millions of dollars of revenue involved and you’ve been on the Council for many years now, you must have a very clear idea of how much residential rates should fall and how much business rates should rise. Care to share it with us?