Empty shops on Devonport Rd illustrate the struggles in the business sector. Photo / File
A massive hike in commercial rates in Tauranga is "another nail in the financial coffin" for struggling businesses, the Bay of Plenty Property Council says.
Next week, Tauranga City Council is expected to formally adopt an average 10.8 per cent increase in commercial rates, which equates to an additional $470 on the rates bill.
That's compared to 1.1 per cent or $25 for the average residential ratepayer.
The gulf between the figures was because of two changes to Tauranga's rating structure that will shift more of the burden to the commercial sector.
Tauranga has more than 3500 commercial ratepayers and about 55,500 residential ratepayers - about 30 per cent of which will see their rates bill go down because of the shift.
People in the commercial sector have criticised the move as disappointing and badly timed, but mayor Tenby Powell said it will make Tauranga's rating system fairer overall.
Property council president Scott Adams, of development company Carrus, said tenants would continue to struggle post-Covid.
"This is another nail in the financial coffin."
With thousands of businesses run from residential dwellings, he questioned the fairness of the much higher levy on commercial property.
"[The council] insist[s] commercial tenants benefit from council infrastructure more than residential properties, but there is no transparency as to what the current and future benefits are, or what infrastructure is planned."
Matt Cowley, chief executive of the Tauranga Chamber of Commerce, said it was a "bad time" to ask the sector to pay more than the council originally planned in 2018.
He said the council needed to build trust with the business community before embarking on the multibillion-dollar regional investment programme agreed last month to cope with growth.
READ MORE:
• Tauranga City Council passes draft 12.6 per cent rates increase
• Rates rises threaten as Tauranga City Council grapples with growth
• Tauranga rates rises: A suburb-by-suburb breakdown of increases drafted by the Tauranga City Council and Bay of Plenty Regional Council
• Tauranga City Council rates rise revealed: More pain for some than others
"In order to do this council should demonstrate that it can stick to a plan."
Bayleys Tauranga head of commercial Mark Walton said there seemed to be a perception commercial landlords were "rich".
"The reality is the rates cost is passed on to the tenant under the majority of commercial leases, so this will just make things harder for businesses who are already struggling in our city and will be detrimental to future business growth in the region.
"To lay that on to businesses while they are trying to recover from the Covid-19 lockdown is difficult to understand."
Ray White Commercial Tauranga managing director Philip Hunt said a majority of submitters to the council's Annual Plan did not want the rates rise.
"It appears the council does not listen to the ratepayers' concerns."
Rates structure "tinkering" could "put more businesses to the wall" and should have been shelved, he said.
The council has been gradually changing the rates structure since 2018. The move to a 1:1.2 differential was as planned but halving the fixed portion of rates to 10 per cent was faster than originally planned.
Both the structure changes and rates rise had the support of a majority of elected members last week.
Powell defended the decisions.
"The differential decision was made through the current Long-term Plan in 2018, and while the post-Covid timing is very unfortunate, we must move on this to achieve a fairer distribution of rates costs.
"Tauranga has by far the lowest commercial differential at, 1:1.2, among all major metropolitan areas in New Zealand - Wellington is 1:3.2 and Dunedin is 1:2.6."
He used streetscaping and infrastructure renewal projects in the CBD as examples for why businesses should pay more in rates.
"Businesses generally get more amenity as evidenced by the work we have done on Durham St, are doing on Wharf St, and will do on Elizabeth St.
"Coming from a business background, I also know that the GST component of rates bills is refunded and rates are tax-deductible. That gives businesses a significant advantage over other ratepayers."
Tauranga's biggest residential ratepayer backs rating restructure
Rating structure changes have been backed by Tauranga's biggest ratepayer Accessible Properties.
The IHC-owned charity owns 1140 social housing properties in Tauranga and pays $2.2 million in rates a year.
Chief executive Greg Orchard applauded the council halving its Uniform Annual General Charge to 10 per cent.
"Tauranga has significant pockets of deprivation and housing unaffordability. Lower income households struggling to make ends meet tend to also live in homes with lower capital values.
"Higher UAGC's percentages disproportionately disadvantage low-income households who are already struggling to meet housing costs. Both these changes help address affordability and equity issues across the community."
Orchard said some of the poverty was intergenerational, and some reflected a widening income gap in New Zealand.
He said Stats NZ figures showed a 17 per cent increase in the income equality ratio between 1998 and 2015.
Over a similar period (1991 to 2017) median house prices in Tauranga increased 464 per cent and household incomes only increased by 128 per cent.
"Combining these two alarming statistics creates a perfect storm for households on very low incomes, where affordability of housing and its associated costs has become a critical issue."
Phil Green, chairman of the Grace Road and Neighbourhood Residents Association, supported the rates increase, which averaged out to 4.7 per cent.
He said moderate rates increase every year or two would ensure the city's coffers were full enough to manage growth and allow people to budget for them.
Neither zero rate increases nor "frightening people with 12-14 per cent raises" - Tauranga's first draft rise for this year was 12.6 per cent - was helpful.
The parking problem
Owners of two long-standing CBD businesses have slammed the rates rise and urged the council to create more parking.
Glenn Tuck of Broncos Outdoors and Murray Watts of Murray Watts Mansworld - businesses with 74 and 54 years in the CBD respectively - said businesses would bear the brunt of the increase.
Margins in retail were so tight and competitive that there was no room to pass the extra costs on in pricing, so the only option was to absorb it or sell more.
"Any rise is going to hit us in the back pocket," Tuck said.
A former mainstreet chairman, Tuck said he understood the commercial sector should pay more than residential ratepayers, but he didn't understand why the gap was so big.
He said the council bureaucracy was "top-heavy" and it needed to trim its wage bill, as other businesses had.
Both Tuck and Watts appreciated the new council trial of free parking in the CBD, but said it would not address the lack of parking their customers regularly complained about.
Watts said the council was not placing enough emphasis on parking. It was good at taking spaces away but not at putting them back.
"The issue is supply. The demand is there but the supply is not."
Western Bay of Plenty District could have fewer councillors to vote for next election.