Though the 2007 Shand Review of rates looked closely at funding and equity issues and made 96 recommendations intended to make local government financially more sustainable, little has since changed.
Rates still make up about 60 per cent of total local government revenue, one of the highest percentages in the OECD.
The business community supported the current Government's Better Local Government reforms but the missing element has been reform of local government funding or anything like a serious look at the impact of the haphazard rates juggernaut.
So far the Government has ruled out change in this vital area, and it has been oddly publicly dismissive of the need for change.
For farmers this reaction is disappointing. Property value rates demand a particularly heavy contribution from us, regardless of income or our limited access to many council services.
Property values are a poor indicator of a ratepayer's ability to pay, particularly across different property types. It is simply ridiculous that under the current property value approach a farmer can pay many times more than a resident for a public toilet they will use no more often, if not less often.
With the Government unwilling, it is good that Local Government New Zealand is taking the bull by the horns. Its concern is whether existing funding sources are adequate to address current and future demands for services and infrastructure.
Declining populations and ageing infrastructure are key concerns in some areas, while in other areas experiencing strong population growth the question is how to pay for new infrastructure.
It's certainly important to investigate adequacy of funding to meet current and future demand. But a risk from any review of local government funding, especially one led by the sector, is that it becomes a way for councils to lobby for new ways to tax that would be added on to the present property value system rather than replacing it. That would be a shame, and must be avoided.
Current council spending forecasts, which are set out in long-term plans, should be factoring in the future demand for services and infrastructure. I believe that the starting point for the review should be to assume no increases in these spending forecasts and that it should be looking at how to better fund this base-line spending so as to take the pressure off property value-based rates.
This means looking at expanding current alternative funding tools like user charges for 'private goods', getting rid of unjustifiable rating exemptions and getting more transfers from central government, such as the funding assistance rate for local roads and help for councils to take on new or expanded regulatory roles handed down by central government.
It also means taking a fresh look at new funding tools, including options like income tax and GST, which could be implemented as local taxes or through a revenue share with central government that would replace a good deal of the lopsided income from rates on property. Dare I say it, even the dreaded 'poll tax' shouldn't be excluded without a good hard look at the pros and cons.
Hopefully the membership of the review's working group, which includes several representatives from the business community, will ensure that the review looks not only on whether funding is 'adequate' but also on how council spending should best be funded and the distribution of the funding and rating burden.
The working group will be meeting over the next few months and aims to produce a discussion paper before the end of the year.
So watch this space.
Katie Milne is a Federated Farmers Board member.
