Funding relief, but not for spend-ups
Is help on the way? With Budget 2024 just weeks away from being unveiled, it’s not just households that are anticipating some promised tax relief to be delivered. Despite the coalition agreement committing to tax reductions taking effect from July 1, it’s an open question whether the Government will stagger its planned relief programme over several years, given the Crown accounts have seriously deteriorated since the pre-election forecasts.
However, Finance Minister Nicola Willis has repeatedly maintained that her first Budget will contain “meaningful tax reductions to provide cost-of-living relief to New Zealanders”. If the Government is to dodge a winter of deep discontent, the court of public opinion will need sound convincing that the promised relief is indeed meaningful.
Meanwhile, Local Government New Zealand (LGNZ) is continuing to wage its tax relief campaign for councils. LGNZ president and Selwyn mayor Sam Broughton is urging the Government to address the “broken” funding system, by complementing the “unsustainable” reliability on rates with additional revenue streams.
Like Broughton, Christchurch Mayor Phil Mauger has been advocating for the Government to return a portion of GST collected on rates to councils. As The Press reported last week, Christchurch City Council rates will collect $88m million in GST this financial year, with an additional $14m dredged from Environment Canterbury’s city ratepayer base.
Infometrics has calculated that more than $1.1 billion in rates-derived GST was generated nationwide in 2022. Mauger is now wanting the Government to consider returning 50% of those GST proceeds to councils. For Christchurch, that would amount to $44m, which is the funding equivalent of a 7% annual rates increase.
Pleasingly, Mauger’s motivation is not to lavish any such GST windfall on a council spending binge, but to deploy the GST returns to blunt rates rises. Fellow mayors like Auckland’s Wayne Brown have also been agitating for a similar return-to-sender GST funding pipeline.
Well-intentioned as this may be, it is all wishful thinking. Not only would such a remittance regime blow a billion-dollar hole in the annual Crown accounts, but the coalition has never exhibited any appetite for this. And it’s increasingly apparent that Local Government Minister Simeon Brown is all but ruling out any such move.
“Sharing GST on rates is not under active consideration,” Brown tells me.
However, tax relief for local government may well be on the way in Budget 2024, in the form of incentivising councils to accelerate housing supply. The National/ ACT coalition agreement explicitly commits the Government to consider sharing a portion of GST collected on new residential builds with councils as an option for incentivising housing growth.
Brown is indicating that further details on the “Build for Growth” policy, which is being led by Housing Minister Chris Bishop, are pending.
ACT’s election campaign policy envisaged returning 50% of the GST revenue from new housing back to councils, to enable them to fund the infrastructure services new housing developments require. ACT estimated the policy could cost up to $1b, annually. But given the profound fiscal challenges confronting the Finance Minister, she’s unlikely to open the purse strings that wide. The devil will be in the detail as to the qualifying threshold for GST revenue rewards. For example, will a council have to exceed their five-year-average in new build numbers to qualify for the spoils?
Beyond GST sharing, LGNZ is also gunning for additional funding tools like congestion charging, mineral royalties and an accommodation levy. I certainly favour the latter.
Also being formulated is the strategic framework for the Government’s muchvaunted city and regional deals that will supposedly help councils deliver key infrastructure projects. But no matter what new funding mechanisms councils can add to their arsenal, there is the risk that new revenue streams could lead to ill-disciplined and accelerated council spending – rather than rates restraint.
The Local Government Minister is clearly weary of this. Simeon Brown argues that like most households, central government is having to prioritise the must-haves over the nice-to-haves.
“I expect local councils to adopt a similar approach,” says Brown.
Going forward, I believe any deployment in additional revenue streams or funding tools for local government should come with strings attached, compelling councils to maintain an affordable rates track.