Policy wonking

There is some furore on our island after the City Council, which rules over us, issued new valuations on island properties. Quite a few were saddled with increases way beyond their perceived value. (Disclosure: ours was not) On average the island property valuation over the last three years has gone up by about 97%, compared to about 42% in the whole of the city council area.
At the last local election, our member on the City Council ran on a claim that independence would be too expensive, that the City "gave" us islanders a lot of subsidies, and that rates would have to go up under an (independent, de-amalgamated) Island council. All baloney of course, as it transpired, with us islanders paying far more in rates to the city than we get back from it and in effect subsidising city dwellers' lifestyles and public transport. And rates will no doubt go up, independence or not. (The Council has yet to strike a rate for this year)
So it was time to put my thinking cap on and write to the local island newspaper about the issues:

Dear Mr Editor,

Since the debates regarding the new property valuations do not show any sign of abating – and one would be justified to dread the coming uproar when the council finally strikes a rate that will make the valuation and current increases look like very small change – I think it a good idea to look at alternatives to property taxes, because they are generally perceived to be inequitable, inefficient and unfair to large groups of residents.
It should concern all of us that many of us islanders perceive the local council as a money-grabbing entity which milks us to finance the lifestyle of city dwellers, resulting in a probable fundamental change of the island population’s sociological composition as the less-wealthy and those on fixed incomes are being rated off the island.
If that is council policy we should at least be told so at the next election so we can make an informed choice as to whether we want to continue to be part of that, or finally decide that we are a viable and vibrant enough community to go it alone and with a welcome mat for all.
So here are A few short Proposals to change the rating system for local government financing.

1. Base the rate on the property’s real value
Since the Council’s property valuation for rating purposes is at best guess work and at worst wishful thinking, the only real world-based value of a property is the last price it sold at (or was built for, or improved with after purchase). All the rest is conjecture and real estate agent hype. So the base of the rating should be the last sale price and remain so until it gets sold again. Inflation could top it up but I see no good reason why that should be so: a house needs maintenance and gets improvements over the years which would be added to the original price and this would increase the ratings value sufficiently by itself. GST, of course, should be abolished on rates since you pay that already when you build your house.
Instead it should be added to house sales, as it is with all other sale goods and services. It would enable central Government to make simple population and needs based remittances to local councils of locally generated GST portions.

2. Base the rate on the property owner’s real stake in the property
If the rating system is based on taxing people’s property wealth, it should at least be based on their real stake in their property. Many properties are not wholly owned by their owners but have a mortgage attached to them. So the owner should only pay rates on the percentage that is freehold, the rest should be charged to the other owner, i.e. the bank or mortgage company. They may in turn have to charge the mortgage holder higher interest rates, but that is in essence no different from including the rate costs in the rent charged by a landlord to his tenants. All landlords should pay normal business taxes, capital gains tax upon sale and GST on rental incomes. GST remittances to local authorities also should take place as under point 1.
The main drawback would be for people owning their property freehold having to pay more than those on 100% mortgages. But then currently there is no link between income and rates, with cash-poor pensioners in expensive homes paying far more than they should anyway.

3. Change the rating system to a local income tax remittance
Abolish the feudal relic of property tax and shift the financing of local services to income generated in the local area. Businesses, landlords and property owners pay normal income tax and GST and Government should allocate a percentage of that tax take to the local area, i.e. 2% of income tax and 1% of GST generated locally, to finance local government activities. Administratively, this is a straightforward procedure. General election campaigns could then focus on this aspect of our lives too rather than leave it to the almost irrelevant and pathetic local election campaigns. This would strengthen two current weak points: fiscal responsibility of local government, and the link between local wealth creation and local spending.
The fiscal responsibility of local government would be jolted as it would need to live within its means replacing current continuous over the top rate increases. Central Government is far more sensitive to public opinion on income tax than local government is on rates (when was the last time any council decreased rates?).

4. Abolish local government and expand local island control over planning
In order to limit spending it will also have to look at what services Central Government has been devolving compulsorily to local government, but which are currently un-budgeted by Government - because they are shifted out of its ambit - and left up to Councils to gouge local ratepayers to fund them. Why do we have local road financing and why isn’t all roading taken care of by Transit New Zealand instead? Why aren’t all libraries branches of the National Library and funded from its national budget? Why aren’t all parks and reserves part of the Department of Conservation? Why aren’t all drains and sewage services built, maintained and run nationally as part of a Department of the Environment? Why isn’t public and private transport a national priority and policy?
Localising all these services is wasteful and inefficient since they require enormous local bureaucracies on different and often conflicting levels, who are not always up to the job, especially when they need to tax a small-ish base.
For Waiheke Island, the community board should get control over local planning and other activities should be handled by central government. The local board should deal direct with Government on tax remittances for the financing of its activities. All this can be done with full transparency and accountability and with sufficient local input into all its plans and proposals.
A 10,000 population base is large enough to warrant this degree of independence.

Yours sincerely,
Grumpy of Surfdale