Many consider that rates are a charge for services and facilities provided by councils and, with respect to residential ratepayers, we should each bear close to an equal burden - a poll "tax".
However, this method of charging rates is not provided for in our rating laws.
These laws do not suggest (directly or indirectly), that rates are a tax (and to which presumably, taxation principles might apply). Instead, the Local Government Act 2002 and its companion Local Government (Rating) Act 2002, sets out the need for a rate to be levied and prescribes a somewhat restricted (and I would argue, anachronistic) set of rules to determine how this is to be done (a system that is largely based on property values).
There is also no provision in rating legislation for councils to apply "ability to pay" concepts in allocating the rates impost, or to apply other welfare type concepts to their exercise.
Welfare considerations are the province of Central Government alone which it applies via a wide range of benefits and assistance packages (including with respect to property costs, accommodation supplements and rates rebates).
In my 2008 submissions I suggested to council that before tinkering with the system in place, it should set out as part of its rating policy, just what principles it wishes to apply when levying rates.
These rating principles should be significantly more than the simple use of the word "fair" (and such like) given that on its own, the word means absolutely nothing.
These rating principles would set out the degree by which fairness is to be based on incomes, property assets owned (what about their mortgages?), the number of persons residing in each rating unit, the age of ratepayers, the types of ratepayers (individuals, families, apartment occupiers, retailers, manufacturers, farmers, tourism business) etc.
However, if fairness is a function of the "ability to pay" principle (based on incomes), then council does not have the tools to consider this (such criteria are not specifically provided for in our rating laws and of course, councils do not hold, or have access to, information about the incomes of ratepayers and their families). Further, CV is not a measure of "ability to pay". In the words of the report of the Shand Committee:
One might reasonably conclude that there is a broad relationship between rates based on property values and ability to pay. There is, however, an important caveat: these relationships are far from perfect (emphasis added). Consequently, the use of property values to set rates can result in horizontal inequity, because some households on similar incomes own properties of markedly different value and, therefore, pay quite different rates and vertical inequity, because some households with markedly different incomes own properties of similar values, and hence pay similar rates.
In demonstration of this issue, in my 2008 submissions I quoted a "Letter to the Editor" published in the Daily Post at the time, in which the correspondent said, when commenting on a likely 25 per cent increase in rates with the then proposed introduction of CV rating:
"Fact: We are a retired couple in our mid seventies, living in our own home. We have saved throughout our lives to have a nice home in retirement. Our house is above the average Rotorua value but not excessively. We have one car. Our main income is National Superannuation.
"Comparison: In our street lives a family of five. Three adults in full time work, one beneficiary and one child. Their land value is the same as ours but they live in a lower quality home. They own three cars. Their rates do not change. However, compared to us they have three incomes and one benefit; sewerage [use] two time ours; water [use] two or three times ours; rubbish [creation] two times ours; road use five to six times ours. How on earth can you consider that this situation is fair?"
To date, as far as I am aware, council has not taken up my suggestion to include credible principles within its rating policy.
These comments refer to the matter of residential rates only. There are significantly more complex issues to consider when trying to apply the principle of fairness to business, farmers, community groups, utilities providers and other groupings.
So before council again promotes a change to CV, it should first spell out in detail its rating principles and be sure that it has the ability to apply those principles.
If it can't (and I suggest that this will be so, especially if it wishes to hold to an "ability to pay" principle), then it should give this intended review a miss and save us ratepayers further unnecessary costs. Should the day come when Parliament provides councils with better rating tools then, by all means, review the system in order to achieve an allocation result that will satisfy the rating principles that we, the ratepayers, agree with.
Otherwise, tinkering around with CV and Land Value (LV) based systems will do little more than (in the words of the Shand Committee) apply the two equity principles in a "far from perfect" manner.
A change to CV would simply create winners and losers - not fairness!
