Key Takeaways
- The proposed rates cap in Tauranga, New Zealand, would limit annual rates increases to between 5% and 11% from 2028 to 2034.
- The cap would have a significant impact on Tauranga ratepayers’ bills, with potential consequences for council services and infrastructure.
- Public consultation will be held to help the community understand the implications of paying lower rates and the compromises that would need to be made.
- Options for reducing rates include cutting planned capital expenditure, adjusting water service revenue expectations, selling council assets, and increasing charges for public services and facilities.
- The rates cap could tighten councils’ financial flexibility, create underinvestment risks, and increase reliance on debt.
Introduction to the Rates Cap
The Tauranga City Council is considering a rates cap, which would limit annual rates increases to between 5% and 11% from 2028 to 2034. This cap would have a significant impact on Tauranga ratepayers’ bills, with potential consequences for council services and infrastructure. The council has agreed to hold public consultation to help the community understand the implications of paying lower rates and the compromises that would need to be made. According to Tauranga Mayor Mahé Drysdale, the consultation would bring to light what the community would be open to living without and the compromises they would be willing to make to achieve the rates cap.
Public Consultation and Community Engagement
The public consultation is a crucial step in the process, as it will help the council understand the community’s priorities and concerns. The council’s preliminary draft budget for the next year outlines four key cost drivers: rising depreciation due to significant asset growth, finance costs associated with additional debt, operating costs for new assets, and water activity surpluses to meet Local Water Done Well legislative requirements. Drysdale said options for reducing rates included cutting planned capital expenditure, adjusting the council’s water service revenue expectations, selling some council assets, and increasing the charges for using some public services and facilities. The consultation will provide an opportunity for the community to weigh in on these options and suggest alternative solutions.
Implications of the Rates Cap
A S&P Global Ratings report noted that the proposed national rates cap could tighten councils’ financial flexibility, create underinvestment risks, increase reliance on debt, potentially trigger credit downgrades, and leave little room to restore service cuts later. A Tauranga City Council staff report said the impact of low rates on council services would be ongoing, as the cap would not readily enable higher spending at a later date. This highlights the need for careful consideration and planning to ensure that the rates cap does not compromise the council’s ability to provide essential services and infrastructure.
Reducing Rates and Council Services
At a recent meeting, the council discussed ways to reduce the rates requirement for the $306 million civic precinct project Te Manawataki o Te Papa. The options included using surplus parking income, asset sales, and airport revenue. The council decided to prioritize the use of any profit from potential asset sales to offset new debt and rates-funded interest associated with Te Manawataki o Te Papa, and to seek more philanthropic support for the project. Pāpāmoa councillor Steve Morris supported the rates cap, saying it limited the amount of new debt the council could take on for non-core infrastructure. Morris noted that the commission increased rates by 43% during its tenure, but did not meaningfully address the infrastructure deficit.
Value for Money and Council Services
Morris emphasized the need for the council to look inward at operational expenditure and outward in terms of services. He acknowledged that some cuts and increases to user-pays may not be palatable, but stressed the importance of hearing from the community during consultation. The rates cap could have significant implications for council services, and it is essential to ensure that any reductions in rates do not compromise the quality and availability of these services. The council must balance the need to reduce rates with the need to maintain and improve essential services and infrastructure.
Legislation and Implementation
The rates cap would be based on a model with a target range for annual rates increases using long-term economic indicators such as inflation at the lower end, and GDP growth at the higher end. Councils would not be able to increase rates beyond the upper end of the range, unless they had permission from a regulator appointed by central government. Permission would only be granted in extreme circumstances, such as a natural disaster, and councils would need to show how they would return to the target range. The cap would apply to all sources of rates – general rates, targeted rates, and uniform annual charges – but would exclude water charges and other non-rates revenue such as fees and charges.
Conclusion and Next Steps
In conclusion, the proposed rates cap in Tauranga has significant implications for ratepayers, council services, and infrastructure. The public consultation will provide an opportunity for the community to engage with the council and provide feedback on the proposed rates cap. The council must carefully consider the options for reducing rates and ensure that any reductions do not compromise essential services and infrastructure. The rates cap is expected to come into force in 2028, and the council must begin planning and preparing for its implementation. By working together, the council and the community can ensure that the rates cap is implemented in a way that benefits everyone.