Brian Rudman: Tax rebels should target Government

If any long-term good is to come out of the present ratepayer revolt, the pressure should go off the Auckland Regional Council and onto the Government. The ARC's inept first venture into direct rating is only a symptom of the need for a major revolution in the way local government is financed.

Property rates were all very well in the days when, in return, the home owner got basic services such as a weekly visit from the nightcart man and the road outside watered to keep the dust under control.

But what equity is there, for example, in the home owner now having to fund centrally imposed biosecurity regulations and industrial pollution controls as well.

Not that I have any sympathy for the ARC in its present embarrassment. It's only got itself to blame for choosing now to have one of its bursts of ideological purity and abandon the "business differential" from its book of taxation devices.

From time immemorial, local authorities across the Auckland isthmus have cushioned the impact of rates on individual property owners by forcing commercial enterprises to pay more - in some cases, more than nine times - the amount a residential property owner of a similarly valued place would be levied.

The Tory-dominated ARC calls its new taxing model a "simple, equitable rating policy". Simple it might be and politically naive, certainly. But equitable it is not, except on the most superficial textbook level.

The reality is that under the "differential" system, the restaurant owner and the manufacturer is not as hard done by as they like to make out. Sure they are levied at a higher rate, but they can pass on not just the extra, but their total rate bill to their customers through a slight adjustment to their prices. That's after they've claimed 12.5 per cent back from the taxman as a GST refund.

This is an escape clause not available to the widow on a fixed pension now facing a sudden 200 per cent or more increase in her rates.

Martin Lawes, a Takapuna landlord and restaurant owner was reported on Friday as happy his ARC rates had more than halved, from $3600 to $1500. One wonders if he'll share that happiness by dropping his food prices and rents accordingly.

The property-owner revolt over the ARC rates is not just about the effects of the no-differential policy, it's also about yet another increase in the overall rate, a pattern which is dolefully familiar to Auckland ratepayers, whichever local authority is involved.

It's not that our local politicians are spendthrifts. Well not the majority of them anyway. It's more to do with the added responsibilities central government keeps loading onto local government.

Devolution of functions from central to local government continues to grow without any associated funding coming from the Crown. There are increased demands from Government for local government to meet minimum standards in things such as water and air quality. There is growing demand for infrastructure spending.

On average, almost a quarter of local authority spending goes on infrastructure, more than half of that on roads, most of the rest on water and wastewater.

For years, local government has been trying to get access to further income streams. In August last year, the representative pressure group, Local Government New Zealand, greeted incoming Minister of Local Government Chris Carter with a briefing paper which raised the issue, referred to it as a "long-standing grievance" and called for a "commitment to look at alternative funding sources".

"The most appropriate ways of funding local government activity should be explored from first principles, reflecting the nature of the 21st century economy and society. This review would look at issues such as national funding for national benefits of local investment, eg, clean water, tourist facilities, tools available for funding, tax opportunities, and the history of divestment of 'national' services to local control without additional funding."

We're still waiting for such a review.

One long-standing beef is the wide range of Crown-owned or related properties exempt from rates. Everything from Government House, to national parks, hospitals, defence land, university hostels, schools (including integrated schools), theological colleges and other religious buildings. Also exempt is port company and certain Railways Corporation land.

On a broader scale there's the option of revenue sharing with central government for "national" activities. In Britain, for example, approximately 80 per cent of local government revenue comes from central government. In Australia, there's a system of grants. In the United States, some states share a local goods and services tax with local government.

Another option could be a hotel bed tax to fund tourist-related services. Already under consideration is an increase in central government's fuel excise tax to supplement funding of local roads. One report says an extra 8 cents/litre tax on petrol would be sufficient to meet local government expenditure on roading maintenance nationwide.

One thing is certain, the present property-rating system is regressive and unjust, particularly to the single and those on a fixed income. By exacerbating its inequities, the ARC has driven the victims into revolt. But after they've finished with their local tormenters, I hope the protesters identify the real culprits, the central government politicians who have it in their power to provide long-term relief from the present archaic rating system.