Michael Barnett and Alasdair Thompson: Rates business differential discriminatory and unfair

COMMENT

Rates should be fair and equitable to all people, which is why the Auckland Regional Council's return to a rating system with a differential against business is undemocratic, discriminatory and archaic.

Writing in the Herald, David Thornton tried to make out that business was somehow not part of the community. He argued there was a community of interested ratepayers and this other group called "business" and it was the role of business to be a cash cow for the best interests of the rest of the community.

This ignores the fact that business is an integrated part of the community. Its participants generate jobs, create wealth, including tax revenue and rates, and share in the benefits with all others.

While business owners might need staff to achieve their vision, employees will also be seeking rewards, such as worthwhile careers, salaries or some other benefits. The healthy business-community relationship is not "them" versus "us" but is mutually beneficial.

More than ever, people live their lives through their careers in ways that often embrace family relationships and recreation. With more than 90 per cent of Auckland businesses being small or medium-sized, perhaps a quarter of the region's registered businesses are now home-based. But under the ARC's proposal, home-based businesses escape the differential net.

So not only is the regional council driving an artificial wedge between residential and business communities but it is creating a distortion within the business community - some businesses will have to pay a differential, others won't.

Surely in the interests of equity and fairness, Mr Thornton should be urging the council to collaborate with Inland Revenue or Telecom to identify home businesses and force them to pay the increased contribution. Clearly, this is stupid and impractical.

The impact of a differential on businesses in different areas also shows how unfair it is. A small and arguably vulnerable business on Waiheke Island faces the highest rate increase under the formula, yet probably has lower turnover and profit than its mainland counterpart, and arguably a lower-quality service from the ARC.

About 45 per cent of Auckland's 100,000 businesses employ fewer than five people, and most owners earn no more than the average wage. Many of these businesses' owners will also be paying residential rates.

Certainly, those who receive additional benefits should pay for them. In the case of business, they already are paying more but whether they are receiving any extra benefit is arguable.

Mr Thornton overlooks the fact that businesses,, which make up just 5 per cent of all ratepayers, already pay nearly 17 per cent of ARC rates.

They pay more because commercial properties typically have a higher capital value and, therefore, produce a higher rate, even though arguably they are getting at best the same service as the lower-rated residential property-owner.

Claims of a tax advantage and benefits from transport improvements do not stand up to scrutiny.

Indeed, it was the demolition of these arguments that encouraged the ARC last year to reject differential rating.

By having both a business differential and capital rating system, the council is breaking new ground that creates a hugely unfair distortion. None of the other regional councils with capital-based rating also have a differential - it cannot be justified.

The idea that businesses should pay a differential because they benefit most from traffic decongestion is another red herring.

First, decongestion would benefit everyone. Secondly, the decongestion likely to result from the differential revenue would be so small as to be inconsequential.

Perhaps the most telling argument against the ARC's decision to reinstate a differential has been put forward by the council itself. In its own draft plan, it says "there is no clear justification for a differential".

The ARC studied this last year and consequently proposed capital-value rating without a business differential.

The seven out of 13 councillors who voted for a differential did so against the expert advice of their own officers and in the face of a small, but arguably important, group of their most valued constituents - the small to medium-sized businesses that are the engine-room of Auckland's economy.

The ARC must admit and fix this huge mistake. There is still time.

* Alasdair Thompson is the chief executive of the Employers and Manufacturers Association Northern, and Michael Barnett is the chief executive of the Auckland Chamber of Commerce. They are responding to David Thornton's view that the ARC's policy change was the correct reaction to a huge public protest.