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(Photo: Getty Images).
(Photo: Getty Images).

AucklandNovember 21, 2017

A tale of property, rates and bullshit

(Photo: Getty Images).
(Photo: Getty Images).

Auckland Council has released the city’s new property valuations and some people who should know better have taken the chance to say all sorts of stupid things. Simon Wilson sets them straight.

Jo Holmes from the Auckland Ratepayers’ Alliance was on RNZ’s Morning Report today saying that Aucklanders will be paying “thousands of dollars” more in rates because of the new property valuations. Chamber of Commerce boss Michael Barnett joined her to complain that property valuations lead to “a progressive wealth tax”. And both of them repeatedly said we pay more in rates but we have nothing to show for it.

All of those things are wrong, and here’s why.

First, looking at the relationship between rates and property valuations, it helps to think of rates as a pie.

The size of the pie is determined by council. It factors in its other sources of income (investment returns, charges for some services, etc), and what it expects to spend running the city. This year, the rates pie grew by 2.5%, which was what mayor Phil Goff promised would be the maximum average annual increase in this term of council. We can assume it will rise 2.5% next year and the year after as well.

The size of the pie is not determined by property valuations.

The share of that pie you pay for, however, is determined largely by the value of your property. It’s calculated as a proportion of the value of all property. When property is revalued – which happens every three years – that proportion is likely to change.

In the new valuations, Auckland properties have risen by an average of 46%. If the value of your property has risen by more than that, you will pay a slightly higher proportion of the total, and therefore your rates will probably go up by more than 2.5%. If the value of your property has risen by less, your rates will probably rise by less than 2.5%. (You can check the new and old valuations on your property here.)

I’ve said “probably” because other factors may also affect your rates. Currently, for example, there’s a special transport levy built into the rates, which council has to decide to cancel or continue with. But it should be clear: if your property value has risen by 46%, or anything like that, you should not fear a rates shock next year.

Auckland Chamber of Commerce’s Michael Barnett and the Auckland Ratepayers’ Alliance Jo Holmes.

So what about the nonsense?

Early in the interview, Michael Barnett made an accurate and important point. He said, “If you’re over that 46% [average increase] you’re likely to have an adjustment in your rates.” That is, only some people will be paying more.

But the point was lost in the kerfuffle, as Jo Holmes, speaking for the Auckland Ratepayers’ Alliance, got stuck in. She told interviewer Guyon Espiner: “We want council to keep rates as low as possible. The ratepayers are already really hard hit in the pocket. This will mean inevitably that rates will rise, the dollar rate will rise quite considerably … Unfortunately, the council will get a lot of extra money but we never see any extra benefit in services.”

Taking her points one by one:

  • Everyone wants to “keep rates as low as possible”. The debate is about what services council should provide and what they should cost.
  • Ratepayers are not “really hard hit”: as mentioned above, rates went up just 2.5% this year and the council seems committed to that ceiling.
  • New property valuations do not make it “inevitable” that rates will rise, as explained above.
  • The dollar rate will not rise “considerably”. More on this curious claim below.
  • The council will not get “a lot of extra money”. Property owners, on the other hand, will – when they sell their properties. They are the winners in this whole exercise.
  • It’s complete nonsense that we “never see any extra benefit in services”. The council has a busy programme of new services, responding to community demand, ranging from making the roads safer for all users to fixing the flood-prone stormwater systems, providing summer entertainments to renovating the seawall by the historic Ferry Building.

Holmes then said: “Council has made an active decision to spend huge volumes of money on all kinds of projects of dubious value to the ratepayer, that’s my, ah, you know, that’s the general opinion across Auckland … Of course, council will always try and raise extra revenue to spend spend spend spend, but it’s the ratepayer who always ends up paying.”

So, unpicking that:

  • You can’t really have it both ways. Either the council is not providing extra services or it is.
  • “The general opinion across Auckland”, as expressed in the council election, does not align with hers at all. In most parts of the city voters decisively rejected the super-low rates approach of the Ratepayers’ Alliance.
  • The council doesn’t “always try and raise extra revenue” so it can “spend spend spend spend”: Goff’s 2.5% pledge is moderate and has led to real hardship in many parts of council. Just ask the Auckland Art Gallery, whose budget has been slashed.
  • But yes, she’s right, the ratepayer ends up paying. That’s what being a ratepayer means: you pay rates. It’s a tautology posing as a complaint.

Then came Holmes’ most egregious statement. Espiner asked her why anyone would complain about a rates rise of “a few hundred dollars”.

“Well no,” she said, “it’s not a few hundred extra dollars on the average rate. I think we’re talking in the thousands here.” She seemed to be saying your rates will rise by the same percentage as your property value.

  • Utterly untrue. Rises in property valuations are distributed on a normal bell curve, meaning that most of us are grouped near the average and the new valuations will not cause any noticeable change to our rates.

In fact, it’s only for some of those with the highest average increase in property valuations – 64% on Waiheke Island – that the increase could stretch even to the hundreds. If that’s you, console yourself with the memory that three years ago you had one of the city’s lowest increases, of only 10%. Your rates quite possibly went down.

To his credit, Michael Barnett of the Chamber of Commerce challenged Holmes on this point. “I think there are probably a couple of points you need to correct,” he said. “And the first one is that the pie doesn’t change considerably. So the amount of money that the councils collect as a result of this isn’t a hell of a lot more.”

Very true. Unfortunately, Barnett then seemed to forget he had said that, and went back to his own main complaint – that rates rises are unfair on the wealthy.

His argument was that if you pay more in rates, you should get more in services. Rates go up but “there is no corresponding increase in benefit, no corresponding increase in services to you. To my mind it is simply a progressive wealth tax.”

Well spotted. We do have a progressive tax system in New Zealand: the greater your income, the higher proportion you pay in tax. That applies to property values, but it doesn’t apply directly to increases in those values, as explained above.

Houses in Auckland. Photo: Getty Images

Later, he tried again: “What it means is if your house is worth more [more than 46% more, presumably] it goes up in value, then you will pay more rates and that’s the unfairness of it … Yes, we need to invest, but let’s do it transparently, let’s do it equitably … Just because I’m rich and you’re poor doesn’t mean there’s a difference in services or quality of services provided … If there’s a need for more money, more investment, be transparent, be fair, be equitable.”

It wasn’t clear what he meant. That when rates go up they should do so in dollar terms, the same for everyone? That would introduce a massive transfer of wealth to the wealthy.

Espiner asked him how the rates system should change. “I’m not sure,” he said.

Holmes got the last word. “[Council] services are definitely, definitely going down and they’re blowing out their budget right left and centre because they will not get their spending under control, and they will not get their bureaucrats under control, and it’s always the ratepayer who ends up paying.”

We’re coming up to 10-year budget time: the council will receive a draft from the mayor later this month and it will go out for public consultation in February and March next year. Mayor Phil Goff has told me they will be able to fund only two-thirds of the spending programmes council officers initially proposed. So here’s a prediction: the 10-year budget will not be about “blowouts”, but will be stuffed full of desperate council attempts to cut costs without cutting services.

The debate will not be about profligacy. It will be about how to retain essential services and how to build a better city with not enough money. Yes, we have a budget crisis. But not in the way Holmes insists. Her approach is both inflammatory and irrelevant.

Keep going!