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First Reading Of Local Govt (Rating) Bill - Lee

Hon Sandra Lee
Minister of Local Government
15 August 2001


I move that the Local Government (Rating) Bill now be read a first time.
At the appropriate time, I intend to move that the Bill be referred to the Local Government and Environment committee with an instruction that the committee present its final report on or before 15 November 2001.

This Bill is the second component of a major overhaul of the legislative framework under which local authorities operate.

The first was the Local Electoral Act enacted earlier this year, and the third component will be a replacement for the Local Government Act 1974 ¡V the key statute that specifies the purposes, powers, frameworks and accountabilities for local authorities.
Mr Speaker, these legislative provisions taken together will replace more than 1,000 pages of primary legislation with much slimmer provisions, possibly filling as few as one third of the current number of pages.

The Local Government (Rating) Bill replaces the Rating Powers Act 1988 with updated and streamlined rating powers.

The current Act contains 214 sections spread over 119 pages. The Bill will replace that with 144 clauses spread over 60 pages ¡V a much smaller and simpler piece of legislation.

However, it is not just the size of the current Act that is problematic. It is also what the current Act says and the way it says it.

The current Rating Powers Act has sections that are virtually unchanged since the 1925 Rating Act. For councils and ratepayers, 1925 was an entirely different world. Most home-owners had a large section, with more than enough room for their apple and lemon trees, a vegetable garden and a clothesline.
In 2001 councils have a wider range of ratepayers and a much greater range of tenure and title arrangements exist. Properties these days range from infill housing to high-rise inner city apartments, from corner dairies to huge shopping malls. The role of local government was much simpler in 1925, and this was reflected in rating powers. What a different world we live in today. And yet much of the structure and prescription in the 1988 Act dates back to 1925.

I believe this 2001 Bill represents a vast improvement in simplicity and clarity of expression, even though it continues to deal with matters that are, by their very nature, complex and technical.

I would like to outline briefly the background to this Bill.

Local authority requests for a review of the 1988 Act began almost as soon as it was enacted.

The Act predates the introduction of annual plans and annual reports in 1989, as well as additional financial management documentation required since 1996.

The previous government in 1998 began a review of the ways that local authorities could raise funds. A public consultation programme was undertaken, which has provided input for the completion of this review. The Department of Internal Affairs has worked extensively with Local Government New Zealand and the Society of Local Government Managers. The constructive relationship developed with local government managers and elected members on the sector working party on this project has proved valuable in throwing up hard questions requiring solutions and in providing practical ¡§reality checks¡¨.

The initial work undertaken on the Funding Powers project and the Local Government Act review last year showed the critical importance of the decision processes that councils use to decide how to fund their activities. The government decided that these processes should be dealt with as a part of the Review of the Local Government Act 1974.
That limited the scope of this review to the coercive powers local authorities require for revenue purposes ¡V in other words ¡§rates¡¨.

There are three main purposes of the Bill:
„h To provide local authorities with flexible powers to set, assess and collect rates;
„h To ensure that rates reflect decisions made in a transparent and consultative manner, and
„h To provide for processes and information to ensure that ratepayers can identify and understand their liability for rates.

The key provisions of the Bill concern who is liable to pay rates, what land is rateable, what kind of rates may be set, and how those rates are set.

Liability for rates hinges on the definition of a liable unit.
The Court of Appeal recently ruled that separately rateable property, under the existing legislation, should be based on an ownership/title approach. The Bill seeks to preserve this concept, but to provide greater certainty and direction for it.

Hard cases will still need to be determined by the Valuer-General under the Rating Valuations Act.

I have asked my officials in the Department of Internal Affairs to work with the Valuer-General¡¦s office and local government sector representatives to investigate a more complete definition of rating units for consideration by the select committee.

The other initiative to bring greater certainty and stability to rating liability is that, as a general rule, legal liability for rates will belong to the owner of the rating unit.

This proposal to move to owner liability for rates has been adopted as a practical way of providing clarity and certainty concerning rating liability, and to avoid local authorities having to keep track of changes in tenancy arrangements.

The Bill recognises that some existing leases are based on tenants being liable for rates, and will preclude owners from recovering additional costs from tenants until rents are next reviewed. The Bill provides for long-term tenants of rating units to remain liable while this situation remains.
Simple notification requirements are intended to minimise the compliance costs of administering these provisions for local authorities, landlords and tenants.
The move to owner liability should lower on-going transaction costs for councils, and for the business sector overall.

At the end of the day, the Select Committee will review these provisions in light of public submissions.

The Government is certainly open to changing the Bill if it can be demonstrated that an alternative approach will provide a better solution.

General rates on the value of rateable property will continue as the main way local authorities obtain funding from the community as a whole. Local authorities will retain the power to deal with anomalies arising from valuation based general rates by differential rating and/or uniform annual general charges.
The statutory limits on the revenue from general rates will be removed.

Differential rates will no longer have to be adopted through a special order process. The current special order requirements predate annual plan and funding policy requirements under the Local Government Act.
Two consultation procedures on essentially the same proposal are a considerable waste of time and resources. The Bill provides simply for differential rating to be permitted where a local authority¡¦s annual plan anticipates it.

The Local Government Act consultation procedures on funding decisions will be reviewed in the context of that Act. But in the meantime the Select Committee may wish to consider if it is desirable for current consultation processes under the Local Government Act to be enhanced or augmented where they apply to differential rating proposals.

There will still be a 30% cap on rates revenue from Uniform Annual General Charges and Uniform Annual Charges.

A new bit of ¡§jargon¡¨ is the targeted rate ¡V this will have essentially the same purpose as a separate rate.

It is a rate for a specific function or activity.

This will include all the existing options for separate rates and charges, such as uniform charges per property or per separately used part of a property, valuation and area based rates, metered water supply, etc.

Regional Councils will have the same range of rating tools as territorial authorities and will generally follow the same procedures. This is not predetermining the outcome of the Local Government Act Review.

All local authorities will have a new generic power to remit, or postpone rates for any lawful purpose. This must be done in accordance with public policies. It is proposed that the existing remission powers will continue in force for an extra year to allow councils time to consider, consult and adopt policies.

The current power to remit or postpone rates on Maori freehold land will be carried forward into the new legislation. However, these powers will also be required to be exercised in accordance with a publicly adopted policy.

The adoption of such a policy will be discretionary.
But local authorities will be required to consider whether to adopt such a policy having regard to criteria to be specified in the Local Government Act. Those criteria must be considered in relation to the content of a policy if one is adopted.

Existing categories of rating exemptions will remain, including the special rating treatment of Defence land. Exempt properties will remain liable for targeted rates for water supply, sewage disposal and refuse collection services if these are provided. They can also be charged user charges, outside the rating regime, for other services.
Council owned land which has a mandatory 50% remission on it will become exempt. The text of the new Bill removes other mandatory 50% remissions from recreation and public access land owned by societies and groups ¡V the rating of these properties will become a matter of local council discretion.

Mr Speaker, it is desirable that this Bill be enacted by 20 December this year. I acknowledge that this is a tight timetable. This leaves a period of three months for the Select Committee process.
The consultation on the Local Government Act review has shown that there is intense interest in this Bill, particularly from within the local government sector. In light of this, if an extension is necessary it will be considered but the government has given a commitment to enact this Bill by year's end. This commitment was made at the most recent Central Government/Local Government Forum, and we will endeavour to uphold our commitment.

It is not proposed that the Bill come into force until 1st July 2003. This will enable local authorities to produce updated valuation rolls, which provide a basis for setting rates and establishing liability for rates.

Mr Speaker, I move that this Bill be referred to the Local Government and Environment committee, with an instruction that the committee present its final report on or before 15 November 2001.


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