Government tax on a tax brutal for Councils

Sam Broughton, President of LGNZ wants GST on rates returned to councils
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The argument for either scrapping GST on rates or having the GST on rates returned to councils is alive and well. This year most councils in the country are imposing significant rates increases and the GST component which is effectively a tax on a tax is adding to the burden.

Local Government New Zealand is again swinging behind a chorus of Mayors around New Zealand asking the Government for all GST on rates to be returned to councils. This is a funding lever LGNZ has heard and advocated for over many years.

Based on 2022-2023 rates, the Government collected $1.04 billion in GST on rates.

“Councils’ share of overall tax revenue has remained at 2% of GDP for the last 50 years, despite our ever-increasing responsibilities,” LGNZ President Sam Broughton says.

“It’s no secret that the funding system for local government is broken. Rates account for more than half council funding, and relying so heavily on rates alone is unsustainable.

“We need a range of levers to address the funding and financing challenges in front of us. Alongside returning GST on rates, we’ve also put an accommodation levy, GST sharing on new builds, congestion charging and tourist levies on the table.

“With homeowners facing average rates rises of 15%, it is important that the Government gives councils more levers to sustainably fund our cities and towns. Returning the GST from rates is an excellent place to start,” says Mr Broughton.

Kāpiti Councillor Sophie Handford, chair of the Kāpiti Strategy, operations, and Finance committee, says we need to seriously consider a transformed funding model for local government.

“Starting through opening the door for a more meaningful and mana-enhancing relationship between central and local government feels like an ideal place to start,” says Cr Handford.

She says across both layers of leadership, there should be a common focus on doing best by our communities, and ensuring every dollar spent has benefits for those now and into the future.

“Let’s keep this front of mind, and ensure our flow of funds follows this; which would see GST on rates returned.”