New Zealand’s local government rating system is a legacy of the land tax movement of the 1890s, which was inspired by the American writer and activist, Henry George. It is based on the idea that landowners should pay taxes for local improvements that boost land values. If taxes are levied in accordance with land values, it is argued that this results in a fair system for landowners.
To a certain extent then it is probably fair that property owners, who are currently benefiting from a surge in prices, should pay increased rates for municipal services. However, significant increases in rates are unfair on low to middle-income pensioners who are no longer engaged in buying and selling property. Indeed, land value style taxation has long been criticised for being unfair on the elderly with low incomes and relatively valuable homes.
Although some of the rates increase is the fault of city councils, for spending too much money on non-essential services, there have also been unavoidable costs like higher fuel prices and new responsibilities imposed on local government by the state, especially in relation to the RMA.
If the present rating system is to be maintained, there needs to be more rates relief for pensioners. Money for rates relief should come from a capital gains tax levied on property.
Although many politicians have written off a capital gains tax as political suicide, I wonder if they have taken into account that the pool of property owning voters is rapidly declining. An increasing number of younger voters may well be very receptive to a capital gains tax if it is supported by the reserve bank and its benefits are properly explained to voters.
Although capital gains taxes are used in most developed countries I don’t believe New Zealand should adopt a broad capital gains tax that covers all types of capital gains. Such a tax would be a significant disincentive to invest in the country’s stagnating share market.
New Zealand’s relatively equitable rating system could be greatly improved by the addition of a capital gains tax, which would take some of the local Government funding burden off pensioners. This would spread the cost of municipal funding over all tax paying age groups and reduce the current windfall enjoyed by prosperous baby-boomers.
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Local rates are an even bigger problem in the UK on which the NZ system seems to be based. Property consumes nothing people do. Local authorities are there principally to provide services for people so the rate base should be people based. A problem with a poll type tax is the difficulty in collecting it but there are some straighforward and economic ways, here is one. Incorporate it into tax as ACC has been, benefits - cheap to collect, everyone who has income pays it and all local council rates collection services can be abolished releasing many allegedly intelligent people into the productive sector to improve NZs lousy level of productivity. Per capita distribution based on census figures with local politicians having to bid for additional funding and in doing so would automatically resign and offer themselves for re election based on the policy - wow democracy improved to perhaps. Here is another, leave the system as it is, split the rates into the portion for local services and that imposed by central govt, increases for local services in excess of inflation - council resigns and offers itself for re election + ratepayers know who is responsible for what increase, who knows govts may also start to worry the effect of the taxpayer becoming informed of who is doing what and some may even be influenced to vote and even who they vote for - boy this democracy is so appealing to taxpayers. Add to this binding referendums locally for say 3 years and then binding nationally and you start to have a taxpayers democracy beginning.Will it happen in NZ - Im not a bookie but will not be placing any bets on it happening anytime soon.
I agree that non-payment of rates is a big problem - here and in the UK. Local government just isn't as scary to anti-social freeloaders as say, the U.S IRS. Some central govenrmment involvement in collecting taxes for municipal services seems to be necessary.
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