Councils could be in line for a billion dollar boost each year should the government agree to return GST on rates.

Of the 78 local authorities representing Aotearoa, many are hiking rates dramatically to tackle their growing debt pile. The average rise for homeowners this year is tipped to sit at about 15%.

Returning the goods and service tax (GST) portion of rates is seen as one way to help ease pressure on councils and ratepayers.

Using 2022 data, economic consulting firm Infometrics estimated that returning rates GST back to councils would cost the government $1.1 billion.

Infometrics chief executive Brad Olsen noted that with the coalition government also scrambling for cash, there may be a reluctance to part with the cash.

“GST collected on rates is around 4.2% of GST collected, and was worth 0.9% of total government revenue in 2022,” said Olsen.

And so far, Local Government Minister Simeon Brown has shown little willingness to give up rates GST, saying he is currently only considering returning some tax collected on new residential builds.

A 2023 ‘Future for Local Government’ panel report noted that council rates have remained at around 2 per cent of GDP for more than a hundred years

Local Government New Zealand (LGNZ) is an umbrella group representing most councils.

It has argued that local authorities are doing much more than a century ago and therefore need new ways to raise cash.

LGNZ President Sam Broughton has called the funding system for local government “broken” and wants new ways to fund council activities.

“Returning GST on rates would be an excellent place to start. We’ve also put an accommodation levy, GST sharing on new builds, mineral royalties, and congestion charging on the table,” said Broughton.

The biggest winner in total cash returned would be the supersized Auckland Council that would stand to gain $317 million.

At the other end of the scale sits the Chatham islands would see an estimated $102,000 come back.

When looking at the amount returned as a share of operating income, Infometrics calculates that Rotorua would get back more than 12%. Other big winners would be Thames-Coromandel, Western Bay of Plenty, Kapiti Coast, and Taupo.

Returning GST is not surprisingly less effective for councils who rely on larger amounts of income not generated by rates.

The report identified Chatham Islands land, Hurunui District, Buller, Tasman and Marlborough as the five councils with least to gain.

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