City hall ponders tax tactics
As cities grow, local authorities will have to find new ways to tax residents to pay for infrastructure development such as roads, rail and water pipes, a report finds.
The Productivity Commission’s Better Urban Planning report suggests a list of ‘‘fair’’ ways councils could raise funding from homeowners and businesses.
Those who benefit most from new infrastructure would pay most of its costs.
The commission’s suggestions including ‘‘value capture’’ taxes, allowing councils to tax the increases in the value of property resulting from improved infrastructure in an area, such as a new train line making an area a more desirable place to live.
The upgrade of Auckland’s western train line and stations made some suburbs more attractive places for commuters to live.
Land values in those suburbs rose by an estimated $667 million, broadly matching the $620m cost of the rail developments.
Local property owners were not taxed on those ‘‘windfall’’ gains, but in the future homeowners in an area where a council builds new infrastructure might be, whether they want to use it, or not.
Even a rezoning that allows denser developments could result in a land value uplift locals could be taxed on.
‘‘Increases in land values generated by public action such as rezoning or investments in infrastructure directly benefit private landowners,’’ the commission said.
However, targeted rates can be hard on homeowners with low incomes, like many superannuitants, or families with young children.
‘‘Instances could arise where landowners have substantial increases in land values but lack funds/earnings to pay the targeted rate,’’ the commission said.
There are legal barriers to councils charging more user-pays fees, such as congestion charges on roads.
The commission wants the law changed to make it easier for councils to adopt user-pays charging, saying the current laws ‘‘unnecessarily limit the revenue sources of local authorities’’.
Over 40 per cent of councils would like to introduce more userpays mechanisms.
Water consumption and road use are two of the largest infrastructure services local authorities provide, but New Zealand lags when it comes to charging for them, the commission said.
The United Kingdom has congestion charges in London and Durham, and charges on some motorways as well as on many bridges and tunnels, and tunnels on other roads.
In Victoria, Australia, urban water businesses charge their customers for water by volume.
But charges for water were rare in New Zealand, the commission said. Such changes could hit lowerincome people hard, and the commission said it was essential with road tolls to ensure alternative routes or public transport, was available.
At the moment, much infrastructure for new developments is paid for by development contributions from developers.
But the commission said councils should be able to use targeted rates as an alternative.
This would enable the costs to be shared between the developers and other local ratepayers who benefit from the new infrastructure.
The commission suggests calculating homeowners’ share of their council’s rates on unimproved land values, rather than the conventional capital value, which includes land and buildings.
In any change there will be winners and losers, including people on lower incomes living in modest homes who find their rates going up because of rising land value, perhaps as a result of rezoning.
But, the commission said: ‘‘Both land value and capital value are strongly associated with income, and some national evidence shows that the relationship between land values and income is stronger.’’