Commercial Ratepayers are not a Cash Cow
by Julie White, Chief Executive of Hospitality New Zealand
Funding and financing have long been a hot topic in local government.
The Productivity Commission’s review into local government funding and financing presented some strong ideas on how to tackle the most pressing issues and the reported shortfall – namely making better use of available tools – but unfortunately seems to have ended up in the bottom drawers or dust-gathering shelves of government departments and local councils around New Zealand.
In the latest round of long-term plans, we were disturbed to see the level of rating hikes around the country, pointing to the fact that local government accounting has clearly fallen short in many regions, now needing to gather more revenue from ratepayers to meet operational costs, almost invariably citing COVID and rising costs as the justification for high increases. This was especially concerning given the reliance of some councils on a business differential placed on commercial ratepayers to keep residential rates lower.
For councils that employ a differential, proposed rates increases for commercial businesses can be eye-wateringly high. Wellington City Council’s differential of 3.25 pushed proposed commercial increases to 44%, while Timaru District Council proposed an additional increase to the differential, which could push their commercial rates to a 45.7% increase.
One member based in Timaru illustrated their rates increases like this: if a cup of coffee currently costs $4.50, the residential rates increase would leave residents paying $4.97. Meanwhile, the commercial rates increase would push the cost of a cup of coffee for businesses to $6.71. For this Commercial Ratepayers are not a Cash Cow member to cover their 2020/21 rates bill, they have to sell 12,176 coffees annually. To cover their rates increase for 2021/22, they would need to sell 17,716 coffees.
Another concerning trend is opaque and arbitrary ‘cost recovery’ exercises for things like alcohol, outdoor dining areas and footpath sandwich board licenses.
Alcohol licensing fees in Wellington went up 85% without justification or a willingness to share what costs are being recovered through this increase. The lack of transparency was disturbing and prompted many submitters to remind Wellington City Council that they are required to comply with Local Government Act principles of conducting its business ‘in an open, transparent, and democratically accountable manner.’
Combining these increasing costs with the haphazard policy approach Central Government is currently taking, small businesses are facing death by a million cuts.
The local government cash grab is incredibly frustrating for our members around the country. Our engagement with councils around the country through the LTP process, or on industry specific issues, has been nothing short of exasperating in cases where we are told about the hard times of COVID, covering staff costs and the ever-rising cost of doing business.
When meeting with one local councillor, we commented that councils need to make better use of the available tools such as balance sheets to better fund shortfalls rather than looking to ratepayers to cover such costs. The reply – without a trace of irony - was that this particular council was facing increasing costs, having to self-insure assets because insurance costs had sky-rocketed, and were finding it challenging to make ends meet.
Businesses in general, and our members specifically, are facing rising costs and an increasingly challenging operating environment every day. Businesses are not the cash cow local government seems to think they are, and some are on the brink of calling it a day due to ongoing pressures.
For hospitality, our thin margins are being stretched even further when councils come to our businesses wanting more. We are tired of having Economics 101 discussions with local government, and we don’t have the luxury of a customer base that has no option but to pay us – 44% increases are not easily passed on to consumers.
We understand there is a need for local government. We understand they play a key role in helping New Zealand run effectively. But New Zealand needs and deserves more rigor around how revenue is gathered, more transparency on what it’s being used for (especially during the consultation process), and stronger benefit being demonstrated to all ratepayers to justify the ongoing increase of rates and fees.
In short, we need councils to be more business-like in the way they conduct themselves. Most ratepayers – and certainly the business community – do not have confidence that councils are making every effort to cut costs or be business-like in the way they manage assets, debt or a changing economic environment.
Because if things continue the way they are, there may be significantly fewer commercial ratepayers across the country.
-Originally published in the Local Government Forum newsletter July 2021 www.localgovtforum.org.nz
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