Herald on Sunday Editorial: Rates a heavy burden to bear

Many people are facing massive rates increases. Photo / Christine Cornege

Council rates are generally seen as less objectionable than the taxes levied in Wellington. The bumper sticker saying "Don't steal: the Government hates competition" never generated a local-body equivalent. That's probably because ratepayers have a more direct, day-to-day experience of what their rates buy: a decline in health services may take time to become apparent, but if the rubbish doesn't get collected, the news is around the neighbourhood by nightfall.

But rates are different from other taxes because they are always rising. Income tax does not increase each year by a percentage higher than the rate of inflation, yet that is precisely what happens in local government.

The Auckland Council this week struck its rates for the year from July at 3.6 per cent, more than twice the 1.6 per cent rate of inflation for the last calendar year. Increases of almost 5 per cent for each of the next nine years are foreshadowed. Hamiltonians face similar rises.

These pale into insignificance when compared with the tribulations of the people of Mangawhai, who are looking at 31 per cent hikes, largely because of cost blowouts on a wastewater scheme. But in Auckland, the amalgamation of eight councils into one has changed the landscape. The different rating systems are being merged into a single formula based on capital value and using new property valuations.

For many, this means a massive rates increase and the burden is landing disproportionately on ratepayers of modest means. Good sense and common humanity demand that the infrastructural and running costs of a city should be borne mainly according to ability to pay. The National-led Government's cuts in the top marginal income tax rates, which this newspaper opposed, at least had a theoretical basis even if it remains deeply contested: the so-called "trickle-down" theory holds that, if lower taxes encourage the growth of business entrepreneurship, everyone benefits.

But rates don't work the same way. The capital value of property is, to be sure, a blunt instrument for measuring wealth but there is a substantial correlation between the value of the home you live in and how much money you have. And where manifest anomalies occur, there are review systems to remedy injustices. The alternative "poll" tax on individuals is both impossible to enforce and politically perilous, as leaders from King Richard II to Margaret Thatcher learned to their cost.

Households already experiencing financial distress are being placed under intolerable pressure by rates rises that substantially exceed the rate of inflation. People face the real prospect of losing their homes because they can't pay the rates bill. In our survey last week of the tightening household budgets, rates were cited as a significant burden by more than two-thirds of people.

The plain message is that all councils need to exercise extreme restraint. To its credit, the Auckland Council has indicated its interest in exploring partnership funding options, which put a cap and conditions on public contributions to new projects. Len Brown has also suggested that some non-strategic assets could be sold.

But finding more money must go hand in hand with spending less of it. This is not a time for massive visions, such as the inner-city rail loop, whose cost-benefit value seems optimistic. In a climate when we are all being told to tighten our belts, councils must do the same when they are charged with spending money that many people can ill afford to give them.