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Constraints Needed On Local Government

"The pattern of proposed rate increases around the country is alarming", Roger Kerr, New Zealand Business Roundtable executive director, said today.

"Despite local body election commitments by many candidates to hold rates, rises approaching double digit levels in some major cities are planned. This will hurt exporters and bring forward action by the Reserve Bank to raise interest rates.

"For years rate increases have been running ahead of inflation whereas they should generally be less than the inflation rate. Any increase in the level of rates payable per dollar of rateable property is a real increase and not an inflation adjustment because the rating base increases over time. We do not see central government increasing income tax rates or GST year after year.

"Real increases in rates higher than expected real economic growth (perhaps 2-3 percent in the year ahead) expand local government's share of the economy and squeeze the private sector. The overall welfare of the community is reduced when councils use resources in projects that yield a low return.

"Some councils are shifting the burden of rates away from businesses, which generally remain grossly overcharged. This is welcome. But increases to residential ratepayers could be minimised if councils limited their activities and controlled their spending better.

"Legislation currently before parliament would encourage councils to expand their roles rather than focus on their core business. It also guts the financial management disciplines on councils that were put in place following the model of the Fiscal Responsibility Act. The Local Government Bill is strongly opposed by business organisations which are concerned about its impact on investment and jobs.

"The behaviour of many councils under current legislation suggests there should be stronger checks on their roles and their spending and rating decisions, not weaker ones as the Bill proposes", Mr Kerr concluded.

For further information:

Mr Roger Kerr
Executive Director
New Zealand Business Roundtable

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