Far North District Mayor Moko Tepania wants the GST collected on rates returned to the council, with new research showing that doing so meant the district’s proposed 16.5 per cent rates rise would become less than 3 per cent.
Far North District Mayor Moko Tepania wants the GST collected on rates returned to the council, with new research showing that doing so meant the district’s proposed 16.5 per cent rates rise would become less than 3 per cent.
If the GST on rates were returned to the Far North District Council instead of into Government coffers, the impending huge rates rise of 16.5 per cent would be reduced to just 2.6 per cent, Mayor Moko Tepania says.
Returning GST on rates to councils would pour an extra $40.27 million a year to Northland’s councils, including $13.92m a year to the Far North District Council, new research shows. But the Government has already ruled out the idea of giving back the GST to councils.
Local authorities have started a push to get the Government to pay rates on government buildings in council areas and to return the 15 per cent GST imposed on council rates back to the council.
The charge is led by Auckland and former Far North Mayor Wayne Brown and the Local Government Association, but Prime Minister Christopher Luxon has ruled out the idea.
With Auckland Council struggling to pay its way, Brown called taking the GST on rates a “tax on a tax”.
The Government does not have to pay rates on its buildings, including hospitals and schools. If it did, and the Government gave the GST back, Brown said the city would benefit by more than $400m a year — more than enough to cover the city’s annual deficit.
But Luxon said he would not be granting the council’s wishes.
“There’s a very good conversation to have between central and local government about how we jointly fund what we call city and regional deals — importantly, how we actually incentivise councils to participate in housing growth in particular. And we’re open for mechanisms that may see that there is funding that goes to councils in order to do that.”
However, new research from economic consultants Infometrics has found that returning the GST from rates to councils nationally would give them an extra $1.1 billion.
Infometrics chief executive and principal economist Brad Olsen says returning GST on rates to councils would pour an extra $40.27 million a year into Northland.
This money would then be available for local councils to help fund the services and investments being made nationwide, Infometrics chief executive and principal economist Brad Olsen said.
In Northland, this would mean an extra $40.27m a year going back to the three district councils and Northland Regional Council (NRC).
It would mean an extra $13.92m a year for the Far North District Council; $15.05m to Whangārei District Council; $5.6m to Kaipara District Council; and $5.7 million to the NRC.
FNDC has a rates take of $92.79m and an operating income of $134.1m, and the GST component on the rates equates to about 10.46 per cent of that operating income.
Tepania is right behind the push to get the GST back from rates, saying it would mean this year’s record-high rates rise would be far lower if the money were given to the council.
“As mayor of the Far North I am in huge support in seeing the GST paid in rates returned to us and is supported sector-wide through Local Government New Zealand,” Tepania said.
“In the Far North, $1m equates to around a 1 per cent rates increase, so $13.92m would enable us to drop our proposed rates increases by 13.92 per cent. This would go far in enabling us to continue our levels of service and address the affordability challenges that our communities face with increasing costs.”
Olsen said conversations had occurred, and continued to occur, about the local government funding system, but so far there hadn’t been enough analysis to help inform public discussion on the topic.
“Our analysis provides a breakdown of the potential value of GST charged on rates for each council in the country, how it would add to current levels of funding and spending, and the effect on central government finances too,” he said.
Infometrics analysis shows that in 2022, central government collected about $1.1b in GST from rates. That figure ranged from $317m from Auckland rates, to about $100,000 in the Chatham Islands.
“In total, 29 of the 78 councils across New Zealand would receive more than $10m if GST on rates was returned to councils,” Olsen said.
“Rates should still be charged GST, as councils are providing goods and services for local residents, ratepayers, and others. But given constant discussion about the need to fund local government differently, perhaps GST on rates should be collected and then returned to local councils.
“Nevertheless, central government finances are under pressure too. Our analysis quantifies that part of the equation too, finding that the GST collected on rates is around 4.2 per cent of GST collected, and was worth 0.9 per cent of total government revenue in 2022.”
Local Government New Zealand president Sam Broughton said despite councils’ ever-increasing responsibilities, local government’s share of overall tax revenue had remained at 2 per cent of GDP for the past 50 years.
“It’s no secret that the funding system for local government is broken. Relying so heavily on rates is unsustainable,” Broughton said.
“We need a range of levers to address the funding and financing challenges in front of us. Returning GST on rates would be an excellent place to start. We’ve also put an accommodation levy, GST sharing on new builds, mineral royalties, and congestion charging on the table.”
