Former Tukituki MP Anna Lorck recently posted on Facebook that the Regional Council’s new rating proposals are “daylight robbery”. While it is great to see the level of interest in the proposals, and some concern is understandable, this comment is well off the mark.

In fact, as I see it, there is no daylight robbery involved at all. On their own, not a cent more of ratepayer money would be taken under the proposed changes.  The proposals are about who pays for Council services, not what those services are, or how much is ultimately levied through rates to fund them. That is an issue for the Long-Term Plan being consulted on later this year, not this rates review.

Broady speaking, the rates review aims to simplify the system and better target the rate burden to those sectors and parts of the region that most benefit from, or place demand on, Council services. With that in mind, the biggest changes are as to how we would fund services like flood protection and drainage, possum and broader animal and plant pest control, farm and catchment environmental management, public transport, and water quality monitoring, as all explained in the consultation document on the Council website

We are also considering a capital value based general rate, to make the system overall more equitable, stable and fair. 

Martin Williams HBRC Councillor

But beyond that, as I see it, the rates review is about ensuring our overall financial strategy is both resilient and durable, better equipping the Council to meet the many unavoidable and undeniable challenges ahead. This broader context to the review, the first one completed in such a comprehensive way by the Council for nearly 20 years, is critical to understand why the changes proposed are so important to both the Council and region.

First, the reality is the overall rating burden facing the region is very unlikely to decrease anytime soon, certainly absent some major government reform of the scale and nature of 3 Waters, that would actually take work and responsibility off Councils. 

Local Government New Zealand reports that most Councils this year will be presenting double digit rate increases, noting that overall tax revenue available to Councils remains at 2% of GDP, and has done so for over 50 years, despite the ever-increasing responsibilities placed on local authorities over that period. Beyond that, the infrastructure deficit in New Zealand is at chronic levels, over $200 Billion to 2050 as estimated by Te Waihanga (the Infrastructure Commission), and with much of this deficit falling within the local government domain (transport, 3 waters in particular).

Without a circuit breaker, such as receiving back the $1 billion dollars taken through GST on rates by Wellington (as proposed by the Future of Local Government review Panel last year), all ratepayers nationwide can  expect significant annual rate hikes as the new normal; in a world where at least since I have been a Councillor (2019), there is no ‘BAU’, but instead a continuous sequence of chaos through drought, flood and pestilence.

This leads to my second point about context. In case anyone needed reminding, Cyclone Gabrielle, the Napier floods and the 2020 drought before that are the immediate backstory here, within a region (country and global economy) otherwise seriously affected by the COVID 19 pandemic. It’s not just our orchards and farms that have suffered through all of this, it is our whole infrastructure system (roading, bridges and flood protection) and environment, with millions of tonnes of sediment smothering the beds of our streams, rivers and the sea, and the cyclone wiping out years of hard work improving habitat and water quality through fencing and riparian planting. 

On top of all of that, we now need to figure out how to fund the $44m Council share of the circa $250m in new flood protection works required to keep our Category 2 communities reasonably safe so they can rebuild their houses. This is the biggest infrastructure programme ever rolled out by the Council, and needs to be completed at lightening pace.

It can be no surprise that the Council is under financial pressure as a result of these recent events alone. But I need to stress, amidst all of this, we are not sitting on our hands and simply letting the world happen to us. 

As part of our overall financial strategy, we are in the process of diversifying and expanding the asset base on our balance sheet to generate greater returns, enabling more of our activities to be funded from investment returns over time. This will provide  greater capacity to withstand ‘future shock’ like the Cyclone or a major earthquake, restore reserves depleted through Cyclone Gabrielle and the COVID pandemic, and ultimately reduce the rates burden as a whole. 

This part of the wider strategy is being launched through a reset of our investment company, with greater autonomy including newly appointed independent directors, enabling an unashamedly more commercially driven focus to investment with the longer-term view in mind.

Under our Land for Life programme, we are also looking at innovative ways to meet the profound challenge presented by highly erodible land in the face of increasingly severe weather events, through a model whereby certified farm plans would enable access to private sector and philanthropic funding. The programme canpotentially revegetate and restore up to 100,000 ha of our most severely erodible and marginal farm land, but at nominal cost to the ratepayer. We would be enabler and coordinator, but not the funding agency in this model. 

We will also continue to  negotiate central government funding for specific projects, as with our water security programme, the raising of the stopbank at Taradale by nearly a metre in 2022 (saving the region from an even bigger disaster last February), and the package negotiated with Government for regional recovery, with over $400 million of crown funding  allocated to roading, bridges and new stopbanks. Any ‘regional deal’ for Hawke’s Bay of the kind being proposed by the new Government would undoubtedly be focused on recovery, and seek to lean on the $1.2Billion regional infrastructure fund announced as part of the coalition agreements.

It is in this wider context that our proposal is being consulted on, for that part of our overall activities that will need to continue being funded by rates. 

From the public commentary I have read to date on the rates review, there is an understandable degree of interest and concern about the proposed change from a land to capital value based general rate. 

In fact however, the biggest impacts of our proposal would not actually stem from this  change to the way the general rate is levied, but instead from the changes proposed to our targeted rates for public transport and flood protection, and the shift of  all of our sustainable land management and biodiversity funding to the general rate (whereas 25% of this activity was previously funded by rural land owners). 

The proposed shift to capital value for the general rate sits alongside these changes. The assumption here is that capital value is a better measure of ability to pay rates, as it better reflects the capacity to earn from investments made in the land being rated. This goes back to where I started about durability, and specifically, to consider how different types of ratepayers can withstand future increases in rates under the system being proposed.

Broady speaking, a move to capital value tilts the burden away from pastoral farmers towards more intensively developed land like commercial, residential and some horticultural activities (wineries in particular).

As things stand, pastoral farmers face the greatest rates increase in dollar terms for any percentage increase, as the total bill is driven by land area rather than buildings or other fixed plant assets. For the average farmer, even a small percentage rate increase can mean a major change to the rates bill (in the hundreds, even thousands) whereas for a homeowner in Napier or Hastings, it might only be a few dollars. The rates review is generally positive for farmers, leading to reductions in rates payable for the current level of overall rating.

On the other hand, over half of our current rates burden is met by residential property owners, and this wouldn’t change under the proposals (the share would be about 57% overall). This makes sense, as there are many more urban ratepayers than rural, and so a greater pool of ratepayers are able to share the load. 

We are very mindful however that even the relatively small rate increases for residential activities that would result from our proposals (in dollar terms), can create real affordability issues for some homeowners and parts of our communities, facing costs of living pressures and who may not have high incomes despite having high capital property values. The same might apply to some commercial property owners. We want to hear more about these types of impacts through submissions on the proposals, before any final decisions are made.

By and large, owners of horticultural land would pay less under the capital value system for the general rate, than with the other changes proposed to the targeted rates for flood protection and sustainable land management, but leaving the general rate based on land value.

While there will always be winners and losers in any review of this kind, my expectation is that the changes to our rating system will mean our communities as a whole are better placed to bear future increases in rates, to respond to the increasingly difficult context we face as a Council. While this might seem cynical – i.e. setting up the system to it can better withstand future rate increases – the fact is we can’t avoid the many serious and increasingly complex challenges ahead; pretend or wish they would go away. At the end of the day, the piper will need to be paid.

Simply put, the rates review should be viewed as part of the overall financial strategy needed to help us confront and respond to, what unavoidably lies ahead.

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5 Comments

  1. The fact that the HBRC council has been working on these proposals for more than 12 months and with recent media commentaries from the Chair and other councillors supporting the proposal to move to a capital value base, suggests that the public consultation process is just a charade. “Un fait accompli”.

    Martin suggests that ” The assumption here is that capital value is a better measure of ability to pay rates, as it better reflects the capacity to earn from investments made in the land being rated.”

    Where is the evidence for that ?

    We live in a relatively high value house on 4 ha of land that cannot be subdivided. The land has no earnings potential [at least for us] with potential contractors declaring it too small. And, we have been on a fixed income, in retirement, for 20 years. How do you measure our ability to pay increased rates?

  2. MARTIN WILLIAMS,
    A lot of your article is full of crap:
    Your quote: “We are very mindful however that even the relatively small rate increases for residential activities that would result from our proposals (in dollar terms), can create real affordability issues for some homeowners and parts of our communities, facing costs of living pressures and who may not have high incomes despite having high capital property values.”
    First Point: I have a property that QV has, over-valued (in my opinion), and high-handedly refused to adjust.
    2ndly: Your proposed policy, & we are in the category now of high value property, on a pension & no hope of returning an investment from our urban property.
    3rdly: I asked HBRC to forwarded me the rates assessment under your proposed policy to see if my increase was going up by “a few dollars”, as you quote, and the result is as follows:
    Current: $675 pa
    Proposed: $1,147 pa
    INCREASE: $472 pa
    THAT IS DAYLIGHT ROBBERY

  3. Useful commentary from Martin as ever. But I need to pull him up on a couple of things.
    Firstly, his incorrect assertion that the proportion of rates burden falling to residential property owners isn’t changing – in fact, the latest data provided to Councillors indicates that the burden falling on residential ratepayers would actually increase from 49.3% to 57.3%, an increase in real terms of 16%.
    Secondly, I’m not sure why he has chosen to single out wineries as particularly affected by the proposed change to CV for GR, when this applies equally to packhouses and orchards growing licenced varieties where that licence becomes part of the CV.
    The same new Council data shows that overall the horticulture sector will be paying 27% more and the pastoral sector 34% less.
    Whilst the Council process to get to this proposal has been thorough & in-depth, there are real questions about whether the overall balance is right, particular taking into account what the rates are actually being spent on – especially for Sustainable Land Management, Biodiversity & Biosecurity where the expenditure is overwhelmingly in the pastoral sector and proposed changes will see most of this going to General Rate. Based on latest regional CV data, this will mean the pastoral sector only paying about 14% of the cost of these rurally-focused services, with the rest of the community picking up the other 86%.

  4. Useful commentary from Cr. Williams as ever. But I do need to correct him on a couple of important points.
    Firstly, his assertion that residential ratepayers currently bear about 57% of the rates burden is incorrect. The real figure is 49.3% currently, according to new summary data provided to Councilors last week. So the increase to 57% equates to a 16% increase in the residential ratepayer burden.
    Secondly, I’m not sure why he has singled out wineries as being particularly affected by the change to CV for General Rates, when there are a great many more packhouses and orchards with licenced plant variety rights that will be impacted to a similar degree.
    That same new data on the overall rates burden shows that under the new proposal, pastoral ratepayers will only be paying 14.1% of the total General Rate. That means that the rest of the community will be picking up around 86% of the bill for activities funded in this manner. That includes the big-ticket items of Sustainable Land Management and Biodiversity, totalling $15m of General Rate, out of a total rates bill of around $41m. Considering that most of that $15m goes into the pastoral sector, it leaves serious questions to be answered about whether Council has got the balance right.

  5. From HBRC Councillor Ian Harding:
    Useful commentary from Cr. Williams as ever. But I do need to correct him on a couple of important points.

    Firstly, his assertion that residential ratepayers currently bear about 57% of the rates burden is incorrect. The real figure is 49.3% currently, according to new summary data provided to Councilors last week. So the increase to 57% equates to a 16% increase in the residential ratepayer burden.

    Secondly, I’m not sure why he has singled out wineries as being particularly affected by the change to CV for General Rates, when there are a great many more packhouses and orchards with licenced plant variety rights that will be impacted to a similar degree.

    That same new data on the overall rates burden shows that under the new proposal, pastoral ratepayers will only be paying 14.1% of the total General Rate. That means that the rest of the community will be picking up around 86% of the bill for activities funded in this manner. That includes the big-ticket items of Sustainable Land Management and Biodiversity, totalling $15m of General Rate, out of a total rates bill of around $41m. Considering that most of that $15m goes into the pastoral sector, it leaves serious questions to be answered about whether Council has got the balance right.

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