1 May 2007

New Zealand Chambers of Commerce Submission to the Local Government Rates Inquiry

Councils should not impose additional costs on businesses that do not reflect the benefit received and overall local government spending should be controlled. These were the key messages in a submission made by the New Zealand Chambers of Commerce (NZCCI) to the Local Government Rating Inquiry established by the government late last year.

“Differential rates should not be used to shift the burden of rates onto businesses and other groups that are poorly represented at the ballot box. Councils should be required to substantiate the benefits to businesses before applying business differentials,” said Wellington Regional Chamber Chief Executive Charles Finny on behalf of NZCCI.

“The business sector pays about half of the country’s total rates bill but consumes a relatively small proportion of council services. Businesses are often charged more than residential ratepayers under the dubious grounds that they benefit more from council services but this is seldom substantiated.

“It is not in councils’ interests to shift the rates burden onto business. Businesses provide employment, pay wages, produce goods and services, and determine the depth of the rating base. If businesses are ill-treated by council rating they are liable to relocate, close down or contract. The single most helpful thing councils can do to keep businesses in their area and attract new businesses is to constrain the rates burden and certainly not put the distribution disproportionately on businesses vis a vis residential properties.

As well as concerns about the distribution of rates, the submission criticised the growth in rates as local government expenditure has increased.

“Local government is an important institution and some councils have done some very good things to enhance the living standards of their citizens but the activities of some councils extend well beyond their proper role. Councils should focus on their core business and steer away from activities best performed by the private sector.

“Rates have grown rapidly in recent years as the size of local government has expanded. Because local government has a monopoly in the provision of many of its services and because much of its income is guaranteed by legislation, many of its services are inefficiently delivered and/or overpriced. Increased use of benchmarking across councils would enable ratepayers to better assess council performance and allow best practices to come to the fore.

“Increased use of debt by some councils to fund projects would also ease the rating burden. Councils generally are not highly geared. In aggregate, ratepayers’ equity amounts to 94% of total assets. Increased debt to fund projects would spread the cost across future generations of ratepayers who will benefit from them,” Mr Finny concluded.

ENDS

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