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Saturday
Dec032016

'Land v. Capital' - Let The Debate Begin!

One of the critical issues with which our Council will need to grapple as it enters into the LTP planning round in 2018 is the vexed question of Capital v. Land  value for the purpose of establishing  rating levels within the District.

I say vexed, because there have in the past been certain councillors who have made it their principal raison d’etre  to resist until the last man standing any suggestion of moving from the current land value system that has applied since the advent of our Council.

I experienced this resistance when I was on Council, and I certainly observed the absolute refusal to even consider the matter demonstrated over the last six years, though to his credit Glenn Leach always privately indicated to me his support for capital value. I think he simply felt that discussion of change would result in revolt amongst his conservative colleagues who were determined to retain land value, and I believe that Keith Johnston was influential in steering Council in this direction.

Change to capital was very nearly adopted in 2009, but organised resistance was mounted by Federated Farmers that clearly caused the switch by Dirk Sieling at the critical moment that resulted in the motion being lost. I have no idea how Mayor Goudie will jump in the matter, but I suspect that her innate sense of fairness will come to the fore - she has 'form' in that regard.

The arguments are often misunderstood, and as we observed in 2009, obfuscated and twisted to favour the status quo when it is simply an equity issue – nothing more, nothing less, especially when we are facing rapidly increasing house values.

The issue is complicated by the adoption by Government of a control measure preventing councils from raising a disproportionate percentage of rates through valuation, commonly referred to as the Uniform Annual General Charge (UAGC) - a standard and equal fee applying to every rating unit while the General Rate, and Works & Services (Residential) are based on land valuation.

Only the relatively minor Stormwater and Transportation & Building Control charges relate to capital value. In our case, the total amount of rates raised by all standard charges in addition to UAGC, including wastewater, water, solid waste, works etc. is 83% of total rates, while those raised by way of valuation - either land or capital, is an outrageously low 17% - this is what urgently needs reviewing as advocated in this post.

Rating systems here and elsewhere are based solely on averaging the totality of value, whether it be land, or capital (land + landed assets) over the entire District.  The total rate requirement is then applied to each property accordingly to the formula adopted firstly in the LTP, and then annually - that is how the current 83% and 17% was arrived at. 

The overall rating requirement here is a high 70% of the total revenue required by Council - high because we have virtually no investments, unlike some councils that have airports, ports and  power company investments from which they draw substantial income - watch carefully over the next few months as Wellington Regional Council Chair Chris Laidlaw endeavours to persuade Government that it needs to ‘step-in’ to replace the considerable income it received from Centreport. With $600m worth of damage and nine months ‘down-time)’) his rate-payers are about to discover the real cost of the earthquake through their rates. I don’t fancy his chances.

Our rates are accordingly high by comparison with other comparable councils, and even higher as a proportion of income for lower income individuals.  This is where capital value acts as a leveller - a crude, but efficient means by which to reduce the burden on those at the bottom - limited only by Central Government interference in regard to UAGC, and Concil intransigence.

The simple fact of the matter is that well over 70% of New Zealand councils now use capital value in establishing rates, and this has increased year on year over the last ten years to the point where it is simply councils dominated by high net-worth individuals - often farmers, that are resisting change.

It is unfortunate that the issue seldom comes up during election campaigns as it seems highly likely that if the majority of the population knew precisely what the effect of change would be on their individual rates there would be a strong movement towards supporting candidates who support capital value, and who have the courage of their convictions. That such seldom occurs is because those who benefit from the current land based system use superior resources to suggest that “little old ladies living on their own” would be the ones to suffer – the usual scare tactics.  

Of course, this is a simplistic, but an effective and emotive argument. The fact is that every Council has the ability to lessen the burden of this and similar sectors through special provisions such as those already in place to benefit  low income individuals – several hundred of whom take advantage of same every year through a simple declaration process. And staged introduction over several years will certainly ease the burden for 'High Asset/Low Cash' rate-payers – admittedly, mainly elderly, often single female.

Why is it that so many councils have swung away from land value?  – simply because they recognise that capital value moves the burden of rates gently, but firmly in the direction of those who can afford  to pay – call it 'socialism by stealth' if you wish, but the fact is by far the majority of people living in this countryhave demonstrated that they regard it as fair, and prefer it to the land value system when given the choice, and the  relevant facts.

Moves to capital from land are invariably a divisive issue with those occupying higher value property resisting the move at every step. That is why there has been a dearth of information in favour of capital – observers are often bamboozled by the arguments put forward by those who are likely to be adversely affected, and who tend to make the most noise during public consultation. .

I am too old to care about labels, and have always supported capital value, often being subject to derision and contempt for doing so, but it really is the only principled stand that a councillor can take, and I sincerely hope that ours recognise this when they sit down in due course to nut out the changes that will be necessary during the next round.

As stated earlier, there is no reason why the change cannot be staged in order to soften the blow – probably no greater effect than a hundred dollars or so per rating unit annually, though higher on especially high value properties, but the lowering by a similar amount at the other end of the scale will be disproportionately felt by those who are struggling.

The vast majority in the middle range should feel little or no effect whatsoever, and our extremely competent  Finance Team would have no difficulty in calculating the effects. High net-worth individuals will always squeal when faced with any increase in rates arising through capital value, and their constant argument is that everyone should be paying exactly the same for the same services – wastewater, water, garbage, roads and storm-water as examples – thus their wish to see the UAGC limit set as high as possible, as decreed by Government.

But this completely overlooks the inevitably greater service enjoyed as of right by those occupying homes in superior suburbs simply through the osmotic processes applied by councils responding to those making the loudest noise, and that is certainly the case in this District. Just contemplate for a moment the additional services and facilities provided by our Council in Pauanui and  Whangamata, and in Whitianga where millions of dollars are being, and will be spent resisting the inroads of the sea.  These are often unaccounted for – simply provided, in order to prevent even louder noise.

I could show doubters any number of examples of the application of this process. The comparative cost of the capital and operating cost of the Eastern Seaboard Wastewater Scheme, as against  the simple pond schemes that operates in Thames and Coromandel is a high level example of this process in action, but there are many others – particularly in regard to roads and sub-divisions where favourable development contribution deals have been arranged.

It is quite easy to get bogged down in pointless argument over who gets what and respective value for money obtained by each and every rating unit within the District, but the fact remains that equity is not served by a system that rewards those whose asset values are increasing by the day disproportionately to those of others who are paying almost the same rates based on land value, and the high UAGC.

This is unfair, and it needs to be corrected without any further delay – 2018 sounds like a good year to achieve the change in order to bring this District into the 21st Century, and achieve rating equity for all its residents similar to that adopted elsewhere.

I would certainly like to see the discussion initiated – it will take time to resolve, and it will stir up passion and public consultation like we have seldom seen other than during the mining debate, but in the end, it will be worth it, Councillors would have achieved something they can be proud of,  if only they can put vested interests aside.

 

 

 

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