Thursday, March 10, 2011

Rating Rotorua

We see that it is the season for draft budgets to be released by local councils and as expected there doesn't appear to be any hint of radical new rationalisation or fiscal restraint.

Under the dramatic headline "Motel job losses likely in airport saga" in the Bay of Plenty Times, we see that the Rotorua District Council have proposed a rates increase that will disproportionately target the business sector that includes a 5.6 per cent increase for their urban commercial residential district sector that happens to contain most of the city's motels.

Rotorua Moteliers Association chairman, Glenn Stafford has spoken out by highlighting that his local industry is already hurting and has called for a change from the current land value system to a capital value rating system.

Unfortunately councils are not often sympathetic to pleas of poverty from the business sector and tend to succumb to the far greater numbers of potential votes from private households that are also having a fiscally difficult time at the moment.

While we are indifferent to the land verses capital rating debate, we acknowledge that most mainstream business groups prefer rating systems to be based on capital values; however a change in the rating system alone will not bring equitable outcomes.

What should business groups be advocating? 

An underlying message that should be communicated to all councils is that a strong private business sector will underpin and sustain the general welfare of communities. In order to achieve this, councils should focus on minimising rates and regulatory burden as businesses are the wealth-creating institutions of society.

The "level playing field" argument that trade associations use in submissions to councils always seems to default to finger pointing at other sectors outside their sphere that are supposedly not pulling their weight. This seems to follow the woolly premise that it is acceptable for a business sector to pay an inequitable tax as long as other sectors share the burden as well. As a logical alternative, Trade Associations should be calling for councils to make a concerted effort to reduce business/private household rate differentials. This would address the anomaly of accommodation businesses charged differing differentials and businesses subsidising private households.

Rates should be based on actual use, not on the perceived ability to pay.

Councils should only fund genuine public goods and services and facilitate the efficient provision of necessary infrastructure. Following this principle would have put into serious question the folly of  the Rotorua District Council's wet-dream of pursuing the status of an international airport for the region. 

Councils should exit from all non-core activities. 

The case for councils subsidising events, tourism promotion, attractions, conference and sports facilities must be supported by rigorous economic analysis that clearly demonstrates net benefits for all ratepayers. 

There should be a concerted effort by councils to move funding of ‘club’ goods, such as swimming pools, recreation centres, libraries, museums, zoos etc to user charges.

Instead of an ad-hoc approach, business groups need to start working together in order to front-up and start demanding less government from local councils or continue to suffer from the burden of council rates continuing to escalate.

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