By Sandra Faulkner, Federated Farmers local government spokesperson
At Federated Farmers, we’re all in favour of greater local government spending restraint.
We’re not in favour of so severely straight-jacketing council budget decisions that vital infrastructure upgrades and maintenance are delayed or cancelled.
That might sound like Federated Farmers wants a bob each way on the Government’s proposed 2-4% cap on council rates.
In reality, it reflects the tricky balance between calls for fiscal discipline and the unavoidable cost pressures councils face.
I think all of us, even councils, agree on one thing – that the trajectory of rates hikes is unaffordable for increasing numbers of families and businesses.
But the 2-4% rates cap the Government wants in place by 2029 is a blunt tool that could have unintended consequences.
Exempt from the proposed cap are charges for waste, drinking and stormwater services.
With an estimated network renewal backlog of as much as $47.9 billion because of previous under-investment, the Government knows we have to catch up on this vital work.
Work on other infrastructure particularly vital to rural areas – roading, bridges, drainage, flood protection – is also plagued by significant council (and central government) under-investment in many districts.
When councillors factor in paying interest on rising council debt, never mind soaring costs for contractors and raw materials, a rates cap will create temptation – even necessity – to delay or delete important capital works.
Federated Farmers believes there should be a rates cap exemption for targeted road and infrastructure rates, just as is proposed for three waters charges.
The Government’s thinking is that a rates cap will force councils to prioritise ‘must haves’ and pare back on ‘nice to haves’.
As a generalisation, smaller rural councils probably spend less on nice to haves.
A rates cap, including on district councils already grappling with costs of providing for high numbers of visitors and tourists, could end up cutting into budgets for ‘must haves’.
Faced with a rates cap, councils might also look to offset revenue shortfalls by hiking other charges or selling assets.
Rates are the largest source of income for local authorities, making up on average 57% of total operating revenue.
Other revenue comes from council-owned trading entities like ports and airports, but these tend to be owned by metropolitan councils rather than smaller district councils.
Councils also charge fees for everything from swimming pool entry to parking, building consents and liquor licences. These services are often subsidised by general rates.
To offset a rates cap, these fees could be raised.
Lots of people like the notion of ‘user pays’ – unless they’re a user.
Perhaps farmers would welcome higher council fees for rubbish collection, swimming pools, sports playing surfaces, food outlet inspections and other services they don’t get to use as much as town residents.
But they’re less likely to be happy with fee hikes for compliance inspections, resource consents and dog registration.
There’s a common misconception the rates cap will mean no property owner’s rates bill can increase by more than 4% in any year. But the restriction is on a council’s total revenue from rates.
Just as is the case now, a property owner’s share of total rates is determined by capital (or land) value.
In three-yearly revaluations, if your property value has risen more than the average for the district, you’ll pay more in rates – and vice-versa.
Two other ideas Feds will raise in our submission on the rates cap proposal relate to referenda and benchmarking.
We think councils should need residents’ consent for large spends on commercial facilities and ventures, like stadiums and conference centres.
A referendum would be required, for example, where the spend is greater than $500 per resident.
This would allow councils to provide community well-being services and activities, while restrain them from destroying their balance sheets through risky investments beyond their core purpose.
If we’re serious about driving council costs down, there’s also a case for much improved nationwide benchmarking of council costs.
Armed with detailed information on average costs for road maintenance, playground installation, reserves mowing and so on, councillors could drill down into spending – and challenge officers’ reports.
With council rates bills now one of the biggest household costs – and one of the most prominent lines in a farm’s budget – the rates cap and related issues deserve solid debate in the run-up to the general election.
Federated Farmers will be vocal in the debate, just as we have been in talk of council restructuring and amalgamation, to make sure the rural voice and priorities are prominent.
