Reduced services, delayed infrastructure repairs and sports grounds with outdated facilities were just a few of the possible negatives New Zealand ratepayers could face under a proposed system to cap local authority rates rises, a meeting of local authority leaders has been told.
A New South Wales mayor warned New Zealand local authority leaders about the risks of a rates cap system at a meeting in Wellington on Thursday.
Sue Heins, mayor of the Northern Beaches Council in New South Wales, spoke at a Local Government New Zealand meeting, attended by mayors and councillors from across New Zealand.
Northern Beaches Council and other councils in New South Wales have had a rates capping system in place for 40 years.
Minister of Local Government Simon Watts had stated his intention to advance rate cap policy discussions before the end of the year.
"We committed to take policy decisions to introduce rates caps in our quarter four action plan," he said on Thursday. "Once Cabinet decisions have been made, I can make further announcements."
Rates capping was a government policy that limited the percentage local government rates could be increased each year, often to a figure tied to inflation.
North Sydney in a 'dire strait'
Wellington Mayor Andrew Little, and mayors across Wairarapa, have expressed concern about the impact of introducing the system in New Zealand.
Heins described how councils with such caps struggled to effectively and efficiently raise sufficient funds to maintain proper service levels and repair ageing infrastructure, especially when costs were rising rapidly.
She said anything that needed repairing would be the first casualty of a council’s limited ability to raise extra funds with speed and efficiency.
"North Sydney are in that dire strait right now," she said.
"Where the choice was between fixing a collapsing seawall or a safety issue in one of their community centres because their lighting has failed.
"Which one is the most unsafe? Those are the decisions you start making when you are reducing your services."
If the council needed to raise extra funds above their annual "rate peg" an SRV, or special rate variation, needed to be applied for. The process to raise an SRV took about three years.
The proposed new policy in New Zealand comes as local authorities grapple with the competing demands of fixing old and failing infrastructure, especially water and roading, and keeping rate rises affordable. Double digit percentage rates rises across New Zealand have been common.
"Ratepayers are facing huge increases in their rates, during a cost-of-living crisis," Watts said.
"They can’t afford to continually see the degree of rates increases that are well above inflation and population growth.
"We have been investigating the use of a rates capping system in other jurisdictions like New South Wales. In doing so, we wanted to know what the experiences of their system have been, for councils and ratepayers, and find out what had worked well and what hadn’t."
He said a rates capping system for New Zealand would need to ensure councils could pay for core infrastructure, while not restricting things like housing growth.
Increases amid cost-of-living pressures 'unfair'
Little, in Wellington, and Wairarapa mayors have all sounded a note of caution about the proposed policy.
"I understand the concern expressed by many residents and the Government about the level of rates increases in recent years,” Little said.
“In the current environment of cost-of-living pressures and low pay increases, they are unfair. It’s important councils budget and spend to fit the economic conditions of the day, and always act responsibly with the services and projects they commit to.
"But, a rates cap for local government has the potential to undermine accountability to residents and ratepayers. Mayors and councillors are responsible for making the financial decisions that reflect the aspirations and needs of their residents, and need to exercise judgement about what are prudent financial decisions and priorities for their regions."
South Wairarapa District Council Mayor Fran Wilde, also a former Wellington mayor, said councils generally shared the Government’s desire to keep rates down.
"However, many – including South Wairarapa – are now in catch up mode following many years of low rates increases that failed to provide for the infrastructure deficit now apparent," she said.
"Hopefully the Government will understand this after having seen the impact of the Australian hard rates cap, which had negative consequences for key infrastructure investment and other important council work."
Wilde said a nuanced approach rather than a hard rates cap would be preferable.
"One issue I urge the Government to consider is revenue sharing with local government," she said.
'Other additional funding mechanisms'
Masterton District Council Mayor Bex Johnson said all councillors were keenly aware of the impact of rising rates on the community, and on household budgets in particular.
"Each year, there is a self-imposed cap on expenditure made collectively by the council," she said.
"But the reality is that the vast majority of funding for councils comes from rates.
"Capping rates in the face of ongoing increases in the cost of maintaining and upgrading essential infrastructure runs the risk of that work being deferred, which we have seen cause serious problems in other areas.
"If a rates cap was imposed, there would need to be other additional funding mechanisms put in place that councils could access."
Johnson said costs were often unexpected, like damage remediation for severe weather events.
"Central government would also need to set up an Infrastructure funding pool whereby councils with affordability issues could apply for support for big ticket items that have an intergenerational long term benefit to communities, such as water storage and community facilities."
Carterton Mayor Steve Cretney said he wanted to wait and see what the specific details of a rates cap system might be.
"I'm not in favour of councils being forced into rates capping, which may limit our ability to complete important infrastructure renewals," he said.
Last year the New South Wales Government published a report on the ability of local governments to fund infrastructure and services. One of the recommendations was that the NSW government redesign the local government rating system.
By Sue Teodoro, Local Democracy Reporter
LDR is local body journalism co-funded by RNZ and NZ On Air.
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