Steve Baron: Growing tax unfair on ratepayers

Time for change: Rates (really property tax) are fundamentally unfair, and it’s time for a more equitable system of funding local government.

Six years ago, I wrote an article stating that the average ratepayer in Whanganui paid $36 a week in rates, as their contribution to funding the Whanganui District Council and all the services and facilities it provides to the good people of the district.

Reading through the recently published 2018-2028 long-term plan, I see this figure has risen to $51 per week — and I thought $36 was expensive. This is in Whanganui, one of the most affordable places to own property in New Zealand.

So, my question to Prime Minister Jacinda Ardern, Finance Minister Grant Robertson and our MPs is: How can it possibly be fair that only those who own property pay rates to fund local council services when everyone in the community actually consumes these services?

I say it cannot possibly be fair in any way, shape or form — this is an unjust and outdated system of taxation that needs to be changed because property owners, especially the retired, cannot afford to continue paying for everything.

For a starter, government departments do not pay rates, even though they have a substantial property holding and even though the government insists that the Goods & Services Tax (GST) be added to rates — a tax on a tax, no less.

Churches and various clubs (who often occupy council land) do not pay rates, even though some of them undoubtedly have substantial bank accounts and/or incomes. Adding to that, based on past census reports, around 33 per cent of the population live in rental accommodation and do not pay rates.

Now I realise that statement is very unpopular among tenants, but the fact is that tenants do not pay council rates.

They will, of course, argue that they do because their rent goes to a landlord who then pays rates. However, what a landlord does with the rent they collect is their business.
For example, if a landlord uses the rent they collect to buy methamphetamine, will the tenant claim responsibility for supporting this illegal habit? Of course not.

The argument that tenants pay rates through their rent is spurious. I can tell you that, as a landlord, there were times when council rates increased but I had to drop my rents because of an over-supply of rental properties. It was not possible to pass on this rate increase. So who paid for it? Me, the landlord.

A further injustice in the rating system is that those who own more expensive properties pay more than those who own less expensive properties, even though they often use fewer council services, and even though their income may be less than others.

For example, an elderly person on a fixed income who has lived in their home for a long period and for which the value has risen appreciably can often pay more rates than a working couple with three children who consume far more services.

Our current system places a huge burden on residents who own property, and this growing burden needs to be spread among everyone who uses council services and facilities.

Rates will continue to increase as councils need to fund maintenance of aging infrastructure. They are also continuously burdened by central government, which places more expectations on local councils but never wants to fund them.

As I said back in 2012, property tax (rates) is a bad tax. It is a regressive tax that is not linked to the income of the person paying it, their ability to pay, nor by the amount of services they consume. Rates are fundamentally unfair.

Central government needs to devise and implement a new system. It might not be an easy ask, but what more appropriate time than now when the government has appointed Sir Michael Cullen to review the country's tax system?

■Steve Baron is a Whanganui-based political commentator, author and Founder of Better Democracy NZ. He holds degrees economics and political science.