David Seymour: Auckland Council needs to stop and take a breath

The average UAGC across the previous eight Auckland councils accounted for 18 per cent of rates revenue. Photo / NZME.

A few weeks ago Auckland Council voted by a narrow majority to impose grotesquely large rate increases on thousands of Auckland's ratepayers. The increases are staggering: 126,000 households will face increases of 10 per cent or more, 25,000 of 20 per cent or more, and almost 4000 of more than 40 per cent.

Has the council lost its collective mind? Even if this were justified - which it is not - you would at least expect a transition to a new rating structure.

But the mayor didn't want to "tinker around the edges". The council voted to implement this in one brutal blow. Late last week the fightback started. An angry council meeting has led to some of these decisions being brought back for review.

The increased pressure on rates is largely due to three factors: setting the Uniform Annual General Charge (UAGC) at far too low a share of rates revenue; not having a gradual transition to a property value basis for rating; and a surge in council spending.

The idea of having a UAGC is that while capital values give a rough idea of capacity to pay, they are a poor indicator of a household's use of council resources. Where possible, it should be users of council-provided services who pay.

The average UAGC across the previous eight Auckland councils accounted for 18 per cent of rates revenue. By law it can go as high as 30 per cent, which would reduce the unfair burden placed on households with higher property values.

A higher UAGC would be much fairer for the retired couple or widow living in a house that over time has become valuable, but whose income is now not at all large. Their use of council resources is low, yet the council intends to hit them hard.

The council plan sees the UAGC fall to 12 per cent of rates revenue. It is shameful.

The second aggravating factor is the decision to not have a transitional period to determining rates predominantly on property values. Fairness would mandate that these changes be phased in.

For now, the large cost increases are focused on a subset of Auckland households. But in future everybody will pay, due to what is perhaps our biggest challenge - the council's spending surge.

Grandiose spending plans are driving projected rate rises of 4-5 per cent a year to 2022. The draft annual plan has capital expenditure running at more than 10 per cent a year from 2017 to 2020.

The council's debt level is set to nearly triple in just 10 years, rising from $4.8 billion to $12.5 billion by 2022. And who could possibly believe there won't be cost-overruns pushing this even higher?

What happens if interest rates rise more than expected?

Last month, international ratings agency Standard & Poor's put Auckland Council's 'AA' long-term credit rating on negative watch because of concerns about rising debt.

And remember, the rating is only 'AA' because ratepayers are on the hook for whatever might happen.

When you're in a hole, you should stop digging. This council is instead digging all the more furiously.

Auckland's problems are entirely manageable. We just need some commonsense, fairness, and a degree of realism about our options.

Councils exist to provide a limited range of core services. This council's diverse objectives indicate it is straying far beyond these core functions, to ratepayers' cost.

David Seymour is MP for Epsom and leader of the Act Party.