Soaring rates: How others spread the rates burden

Soaring bills have fuelled calls to broaden the sources of council funding. Federated Farmers wants a royal commission into the financing of local government and Auckland Mayor Dick Hubbard says the Government should hand back GST on rates to councils and start paying rates on Crown-owned properties.

But the Government counters that it has increased funding in the past five years from 8 per cent to 12 per cent of council incomes.

Overseas, Governments tend to be more supportive but often because they've devolved services such as education and health to local government.

Although many countries use rates, they rely more on central government grants and a diverse array of local taxes, none of which make local government any cheaper.

The scope of local authority functions varies considerably internationally: education is a local government responsibility in Britain and many other European countries; health is decentralised in Sweden, Denmark and Norway.

In the United States, local property tax revenue is often used to finance public services such as schools, police protection and sanitation. Some states permit taxing of personal property as well as real estate.

Most Western European countries tax local businesses. In Spain, personal income tax contributes a third of local government revenue and fuel taxes are another source.

Each system has variations. Many European countries use "equalisation" schemes to shift the burden between local and central government and reduce variations between areas.

Those undergoing high growth or with high investment needs get extra help. Some countries also set upper and lower limits on how much local government can raise.

New Zealand has no such limitations - the ballot box every three years is the final arbiter. But the introduction of 10-year plans has heightened consciousness of local government spending by forecasting to ratepayers what is to come.

Mike Reid, governance manager for Local Government NZ, says capping regimes used overseas result in councils cutting essential investment - then blaming the Government. It is estimated that each year, councils in New South Wales under-invest in infrastructure by $800 million.

"In terms of more central government funding, we would like some but not at the cost of a loss of autonomy."

Denmark

Two tiers of local government: 275 municipalities (city and town councils) and 14 counties.

Municipalities average around 20,000 people and are responsible for: education, health services, social services, water supply, waste disposal, electricity, local roads, town planning and sports facilities. Counties are responsible for tertiary education, environmental protection, road network maintenance, culture, regional planning and economic development.

Local income tax (20 per cent for municipalities and 10 per cent for counties) provides more than 90 per cent of locally raised revenue, the rest coming from property taxes.

The Government also provides state grants and transfers, with municipalities receiving 12 per cent of national corporate tax receipts. Grants are weighted according to local growth needs and social data.

There are limitations on the amount of rate increase.

Finland

Municipalities are the only local government tier. Responsibilities include environment, town planning, housing, public transport, road network maintenance, fire fighting and emergency services and electricity.

Local income tax provides 43 per cent of local government revenue needs and property tax (based on land value) just under 4 per cent of locally raised revenue.

Much of the rest comes from Government grants and a slice of the national corporate tax take. Grants are allocated according to population and expenditure needs.

France

Three local government layers include municipalities, departments and regions. Municipalities are responsible for primary schools, childcare, local roads, urban transport, water supply, sewerage, waste collection and town planning.

Departments look after social welfare, secondary schools, departmental road networks and funding rural facilities.

Sources of local revenue include property taxes (based on rental value for residents), corporate property tax, business tax (based on value of fixed assets), tax on real estate transactions; household waste disposal tax; vehicle tax (for regions).

The state reimburses VAT paid by municipalities on capital expenditure and provides operating grants.

Italy

Three tiers (municipalities, provinces and regions). Municipal responsibilities include primary and vocational schools, police, road network maintenance, local public transport, housing, sewerage and waste disposal, town planning.

Revenue sources include: surtax on national income tax, limited to 0.5 per cent over a three-year period; property tax based on land registry value of land and buildings; regional goods and services tax (set at 4.25 per cent); municipal taxes on advertising and billboards, electricity consumption, household waste; provincial taxes on driver's insurance and car purchases and operating grants to municipalities and provinces.

United States

State government services include highway construction, prisons, tertiary education, parks, policing and social services.

Local government runs schools, local roads, airports, public transport, local parks and social services.

State revenue sources include taxes on personal and corporate income, goods and services, fuel and inheritance. Local government relies heavily on property taxes.

The Federal Government maintains significant control over state and local activities through a competitive grants process.

The tax that broke the Iron Lady

The poll tax turned out to be a disaster in Britain. Not only did people riot in the early 1990s rather than pay the per person charge which replaced property rates, it also brought about the downfall of the Conservative Party Prime Minister, Margaret Thatcher.

An estimated 4 million people refused to pay - the country eventually wrote off around $5 billion in lost revenue.

The poll tax was intended to be a fairer way of charging people. Why should a single person or a couple living in a house pay as much or more as a family of five or a group of adults living in the house next door?

But suddenly poor families struggling on low wages in rented accommodation had to pay for five or six people while the wealthier paid much less.

Tenants in Britain's squalid council blocks were especially outraged and rebelled. Huge numbers of people were sent summonses for non-payment, bailiffs were sent around and some people jailed.

Eventually, the system was ditched in favour of the council tax, a return to a property tax with properties divided into income bands.

Even so, only a third of council income is raised this way. The rest comes from central government grants.

Problems persist with protests from pensioners and people on low incomes struggling to pay the property tax.

If homes were revalued - properties have not been revalued since the late 1980s - rates could go sky high and the spectre of riots would again loom. An inquiry into a better system is ongoing.

- AGENCIES