Councils after cash

Local govt funding gaps

COUNCILS are looking at new ways to hit ratepayers in the back pocket in order to solve a looming $7 billion cash crisis.

The options include local income tax, extra GST, water meters, and user-pays charges for other core services such as rubbish collection and sewerage.

‘‘I don’t think anything’s off the table here,’’ Local Government NZ president Lawrence Yule said yesterday as he launched a funding review floating the new options.

‘‘We don’t just want extra money for the sake of it. If we want a first-world level of service, we’re going to have to find a way to pay for it.’’

But ratepayer organisations fear any reforms will only end up hitting them harder. Tom Law, president of the Federation of Wellington Progressive & Residents’ Associations, said he had no problem being charged directly for services, but only if his rates bill fell accordingly.

‘‘That second part of the equation never seems to happen. I’d be quite wild if the base rates carried on skyrocketing and we ended up paying for other things as well.’’

Yule suggested one solution might be to take a cut of the Government’s tax or royalty take on activities such as mining. Central government should help fund services with a national benefit, such as drinking water, sewerage, stormwater and environmental sustainability, he said.

But Prime Minister John Key said the Government would be ‘‘very reluctant’’ to grant local government the power to start imposing new taxes and charges.

‘‘If we opened the floodgates to a whole range of other taxes and ways of funding local government, then the costs could dramatically go up, the services wouldn’t necessarily actually improve and you could see consumers paying a lot more.’’

The discussion on new ways of funding local government has been prompted by rising infrastructure bills in cities, and declining populations in rural areas.

A report by the auditor-general in November found urban councils were struggling to upgrade ageing or non-existent infrastructure, with the funding gap tipped to reach $7 billion by 2020.

Auckland Council needed to invest $300 million each year for three decades in its transport infrastructure alone, creating a $12b funding gap.

Meanwhile, population declines in the provinces were eroding many councils’ rating bases, and made rates based on property values increasingly unaffordable for remaining residents.

LGNZ chief executive Malcolm Alexander said New Zealand councils were outliers internationally for their reliance on property rates. User charges instead allowed residents to pay only for what they used. ‘‘Prices change behaviour. People buy what they value and if they don’t value it, they have a choice.’’

The funding review suggests councils could charge ratepayers for water, rubbish and sewerage services, and levy taxes to keep libraries and parks open.

It says levying local income tax would require councils to replicate the Inland Revenue Department, so a simpler option might be to impose a payroll tax.

Where user charges were unpalatable, in the case of libraries and civil defence, a flat tax could be imposed.

Wellington Mayor Celia Wade-Brown said she was not a big fan of user-pays, with the possible exception of a regional fuel tax to help fund transport projects.

She would prefer to explore ways in which central and local government could work together on funding before looking at new ways to tax people.

‘‘I would’ve liked some more tools, such as a share of GST on growth to help fund projects like the [Wellington] airport runway extension.’’

Inner City Residents’ Association chairwoman Geraldine Murphy said she would like to see more discussion about how central government could help fund councils, especially in matters such as earthquake strengthening.

That had imposed a huge burden on building owners in Wellington when, arguably, there was public benefit from such work. Submissions on LGNZ’s review of funding options close on March 27.