12.00pm
Reserve Bank Governor Alan Bollard sounded a warning to local government authorities today saying they needed to think of the broader economic implications when increasing rates.
Dr Bollard, speaking at the Local Government New Zealand (LGNZ) conference in Queenstown, said local body rates for households were set to increase by around 4.5 per cent over the year to March 2004.
His comments come as Aucklanders protest over the regions's new direct rating policy which has dealt some ratepayers increases of up to 657 per cent.
A North Shore ratepayers meeting at the weekend called for the Auckland Regional Council to be sacked and replaced by a Crown-appointed commissioner.
Dr Bollard, in an unusual move, warned rate increases could affect inflation.
"Increases like that (4.5 per cent) can boost general inflation both directly and indirectly, especially if other people pass on these cost increases by in turn raising the prices of their goods and services," Dr Bollard said in speech notes to the conference.
He said price increases could require the Reserve Bank to tighten monetary policy, which could slow down the economy.
"At a time when the domestic economy is still strong, especially in the construction and property sectors, local authorities should ensure that they are not unnecessarily adding to price pressures," he said.
Dr Bollard told the conference that local bodies' incomes had been rising steadily in recent years.
"Growth in valuations and the rating base has...brought with it significant growth in local authority revenues.
"Over the past four years annual growth in operating incomes for local authorities has been over 4 per cent and rising. Rates too have been growing at above the rate of inflation for most of the past decade."
Dr Bollard said while local authorities did necessary reinvestment in New Zealand's infrastructure, rates were outstripping inflation.
"Even allowing for these adjustments, local authority rates have significantly outstripped the CPI (Consumer Price Index) over the past decade, rising at a time that other inflation has been falling.
"This has the potential to pass on cost increases throughout the economy generally."
- NZPA
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