Xan Harding, HBRC councillor, says some orchardists, and urban CHB homeowners are set to be among the most affected by the changes. Photo / Warren Buckland
OPINION:
Hawke’s Bay Regional Council is currently consulting on a ground-up review of its Revenue & Financing Policy.
In plain language, this means a full review of how rates and fees are allocated amongst ratepayers.
If it goes ahead as proposed then there will be one clear winner, the pastoral sector, which will see average reductions of anywhere from -24 per cent (Hastings) to -50 per cent (Wairoa).
The losers will primarily be urban and horticultural ratepayers.
Urban rates will go up on average from +8 per cent (Wairoa) to 47 per cent (CHB), with Napier and Hastings urban somewhere in the middle at 11 per cent and 18 per cent respectively.
Horticulture will see rises on average of anywhere from 3 per cent (Wairoa) to 29 per cent (Hastings).
So what is behind these changes and are they reasonable? Like most things to do with rates, the answer is complicated.
Let’s start with the clearest part of the puzzle - land versus capital value. HBRC is proposing to shift from land value (‘LV’) to capital value (‘CV’) for General Rates.
The General Rate is that portion of rates that isn’t targeted to specific groups of landowners (‘Targeted Rate’), or a fixed amount per property (‘Uniform Annual General Charge’).
According to Phillip Jones, one of NZ’s leading ratings consultants who advised HBRC on the review, rates are a “gross form of wealth tax” – ‘gross’ in the sense of being a blunt instrument.
The general proposition is that capital value of a property is a better overall indication of ability to pay than land value and so capital value should be preferred on equity grounds.
Thus the review recommends this change, which would bring HBRC into line with most other regional councils.
The one clear group of winners in changing to the capital value basis for general rating is pastoral farmers.
This is because, on average, most of their property value is tied up in land rather than improvements, so their ratio of CV:LV is quite low.
HBRC has worked out that on average, if a ratepayer’s ratio of CV:LV is less than 1.78, their rates will go down as a result of changing to capital value for the General Rate.
As rating is a zero-sum game, that means that on average, those with a CV:LV ratio above 1.78 will see their rates rise. In practice that means most residential and some horticultural and industrial properties.
HBRC’s consultation document shows that, on average, the proposed change from LV to CV for the General Rate by itself will decrease pastoral rates by -11 per cent (Wairoa) to -20 per cent (Napier).
The zero-sum game that is rates means that other sectors must receive an offsetting increase, with urban ratepayers being the clear losers - on average anywhere from 1 per cent (Hastings) to 16 per cent (CHB) and Napier somewhere in the middle at 5 per cent.
HBRC data shows that the effect on horticulture is more mixed, ranging between an average increase of 1 per cent in Wairoa, to a decrease of 8 per cent in Napier and a decrease of 3 per cent in the horticultural powerhouse of Hastings district.
Recent court rulings on inclusion of plant variety rights in property valuations will likely inflate some orchard values significantly, offsetting the decrease. But Cyclone Gabrielle may drag them back in the other direction.
The LV to CV change accounts for about half of the reductions afforded to pastoral ratepayers.
Beyond that, there are a myriad of other proposed changes, the most significant being to Flood Protection & Control Schemes Rivers and Stream Maintenance, Sustainable Land Management & Biodiversity, Biosecurity, Regional Transport, Regional Economic Development and Freshwater Science Charges.
Comparing the tables provided by HBRC in their consultation document, we can see it is the combined effect of this suite of individual ratings changes that is having the biggest impact on urban and horticultural ratepayers, rather than the CV:LV change.
Underlying the proposed changes are a series of individual judgments workshopped by councillors in the previous triennium, spreading of the costs of programmes more broadly across the community, based on a stronger emphasis that ‘everyone benefits’ from the particular activities.
The experience of Cyclone Gabrielle reminds us that we all share a collective interest in our environment.
But at what point does collective interest turn into inappropriate subsidisation?
Before forming a view on that, we need to consider what those activities are, who exacerbates and who benefits.
Two standout cases are the Sustainable Land Management and Biodiversity functions of HBRC.
The proposal would see around $16 million out of the $20m spend on these activities being met by general rates.
That is out of a total rating pool of about $35m and a total overall annual spend of about $76m (excluding cyclone-related items).
The expenditure is largely focused on assisting pastoral landowners to deal with highly erodible land, promoting good farming practices and pest control.
What else do we know that may be relevant in considering the ratings proposal?
We know that there will be significant additional as-yet unquantified costs to be met shortly by urban and horticultural ratepayers, who will bear the main burden of flood scheme upgrades resulting from Cyclone Gabrielle, from a general post-cyclone reassessment of flood scheme service levels and also from investment in water security.
There are real questions to be asked about whether HBRC’s Revenue & Financing Policy review has got it right.
The public has until January 28 to have a say. Please go to https://www.consultations.nz/hbrc/revenue-and-financing-policy to have yours.
Xan Harding is a councillor for the Hawke’s Bay Regional Council in the Hastings/Heretaunga Ward. He owns a vineyard in Bridge Pa.
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