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Sunday, June 26, 2005

Taxed to Death

I've noticed whenever Labourites talk about taxes they focus on Income Tax and ignore the other kinds such as GST, Petrol Tax and Rates. When you add up ALL the taxes you pay, don't forget rates. It's effectively a property tax. Even if you rent, the rates have to be paid from some portion of your rental income.

So time for a quick look at Rates. What is evil about Rates is the method of calculation. This year my Council proudly proclaims that rates are only going up 7% or so. It should be going up 11%, but they are eating into their reserves to ease the pain. No mention that all of their new multi-million dollar projects that are already running over budget in the first year, with the chances of further rate increases in subsequent years, but I digress.

Not only are they going to increase my rates by more than inflation, but they are likely to increase the property valuation by 20% or more. And therefore, its not a 7% increase we are talking about, isn't it?

That's a bad system. Many pensioners have retired in my area. As the valuations increase, they find it harder to pay rates for a house they have spent a life timing paying off. They are what is known as "asset rich but cash poor". Some may have to sell their home to meet the rates, and look for a lower valued house elsewhere. There are only two things certain in life: death and taxes. For our elderly, one isn't far from the other.

How fair. How egalatarian. How socialistic.

Are you sure you are not being played?

PS: Don't you hate the GST (tax) being added to your rates (tax)?

Posted by ZenTiger | 6/26/2005 08:18:00 PM

21 Comments:

Blogger Paul said...

Council's have the worst of a bad lot. They are paying for the Government's abject failure of leaking homes, having to deal with major flood protection schemes and have had a huge responsibility thrust upon them by the RMA and the Local Government Act 2002. This represents devolution of responsibility which natuurally comes with no central government finacial support. A nice way of transiting cost if you ask me, let the Councils bear the brunt of tax-payer wrath.

I don't work for a Council, but have a lot to do with the professionals that work for them. I see the grief they have to deal with courtesy of central government.

6/26/2005 09:04:00 PM  
Blogger Paul said...

Trust me, the next big impost on rate-payers will be the effect of the dopey Weathertight Home Resolution Service sheeting liability for a systemic problem home to rate-payers everywhere.

Apart from that, isn't the whole rating system due for review. Basing it on property values has the same perverted result of a progressive income tax regieme, those who end up paying the most are the least likely to call upon services. A poll tax for local authorities makes so much sense. Lefties hate the idea because it means that they have to start paying for the true value of the services they consume.

6/26/2005 09:24:00 PM  
Blogger ZenTiger said...

Good points and no doubt worthy of note, but it doesn't change that:

1. Rates as a calculation based on land value hits the retired folk hard.

2. The SUM of taxes need to be recognised by the government when they talk of the tax burden faced by New Zealanders.

3. A GST on rates is a bit of a poke in the eye. It would be nice to get the exact income amount this generates for the Government.

6/26/2005 09:26:00 PM  
Blogger ZenTiger said...

Oops, simultaneous posts. I was referring to your first comment, which you've partly answered with the second!

6/26/2005 09:27:00 PM  
Blogger Whaleoil said...

I Have yet to get a sensible answer from any socialist on why a flat tax rate for everything is unfair. They usually blather on about the rich paying more for some strage reason they can't see that they do...even under a flat tax system.

The rational of all socialists is that they tax the rich because they can. When in actual fact the higher the impost the more cunning the rich get. Just the other day a mate of mine was worrying that his taxable income had now got over $8000.00. Now this guy is seriously loaded...I mean seriously...and he hasn't paid any personal income tax for ever it seems....well he just doesn't earn enough. All the tax system does is load up on those in "employment" ie those with a boss.

6/26/2005 09:38:00 PM  
Blogger Paul said...

Zen, I don't disagree with you at all. I have a few retired family members on the Kapiti Coast. When the insurer (AMI) for Atlas Properties Ltd and a few others tried to sue the KCDC over a flood in Irehaka St in 1998 I ran the claim to trial so that ratepayers weren't exposed to damages for every flood that might happen. We won, and created good case law. More to the point though we kind of halted the "Council-blame-game" for Acts of God that would otherwise ultimately end up on rates bills.

But yes, your post made points that no one could disagree with, tax comes in many forms and I do feel for retired folk who might be as you say "asset rich, cash poor". In terms of intergenerational equity, why should they be paying for a stadium that will certainly outlive them?

6/26/2005 10:05:00 PM  
Blogger Theprophet said...

My rates at the moment - $76.20 per WEEK.I love councils

On the new water tight homes regulations coming in next week, I think.(Paul?)
My builder mates reckon that the council inspectors are all arguing with each other over the meaning of some of the regs already. Lotta fun ( and $$$ ) this is going to be.

Allah protect us

6/26/2005 10:16:00 PM  
Blogger ZenTiger said...

Paul: The rate payers of Kapiti owe you a beer or three. And I shall make it a point to tell less lawyer jokes than usual...

6/26/2005 11:15:00 PM  
Blogger Bernard Woolley said...

Yeah, councils are stuck between a rock and a hard place - especially where they are now expected to provide more and more services that central government used to provide. So, I agree with what most people are saying. The only current positive that I see is that rates will do more and more to suggest to the average kiwi that a house is not an investment - investments generally don't generate expenses, rather they generate income. Rates, insurance and maintenance; and yet the average home won't generate income (as opposed to capital return, but capital return won't pay the expenses either). Kiwis need to stop sinking money into property and start considering other forms of investment - when that happens it will do our national economy a world of good. Perhaps as much as reducing some of the tax burden...

6/26/2005 11:23:00 PM  
Blogger ZenTiger said...

Agreed, a home is not necessarily an investment. But it represents an ideal that you can call a place your "home" and not have it sold from under you by the landlord, or that you improve it, maintain it and take pride in it - and reap the rewards for that effort; or that you can feel a little more secure in paying it off and not worrying about where the rent cheque is going to come from.

Investment is seen as risky. It is best done with some learning and management effort. Putting all your trust in a "diversified fund" still requires you to learn what constitutes diversification.

You might inadvertently invest in a property trust, to find out you get a bonus when your "home" is sold to make way for townhouses!

Whilst you make a good point, I'd hate to think that takes the pressure off to revise the rates system and reduce taxes so Kiwis can think about investment, or simply reducing their mortgage as part of a "rent/interest reduction" scheme.

6/27/2005 12:07:00 AM  
Blogger Adolf Fiinkensein said...

Zen you are wrong in one respect. Increased property values don't lead to increased rates. For rates to actually increase, councils have to put them up. If property values go up by 20% across the board then rates don't change. However if values go up in one suburb but down in another then the repective rates change accordingly. I suggest it is rare for the latter to occur in any one municipality.

6/27/2005 02:12:00 AM  
Blogger Antarctic Lemur said...

I thought rates were tied to GV's of a particular house/suburb? (as you can guess, I don't own any land).

6/27/2005 06:10:00 AM  
Blogger ZenTiger said...

Err, its the GV that they are going to increase this year (or so I thought). So, yeah, my GV goes up and therefore my rates go up.

6/27/2005 08:28:00 AM  
Blogger Errol said...

I thought rates were tied to GV's of a particular house/suburb?

They are, but the 'rates increase' that is referred to is the increase in total rates collected. Councils decide how much they want to collect in rates, then work out the rate per dollar of GV they have to charge.
If everyone's GV moves the same percentage, then the $ rates paid by each property won't change (assuming the total rates collected don't change).
This doesn't actually happen because a) GV changes aren't even, and b) there is a flat charge per property included, in addition to the bit that is worked out as a % of GV.

PS I was involved in doing these calculations for a council 10+ years ago

6/27/2005 08:44:00 AM  
Blogger ZenTiger said...

Errol, I almost follow you. If I've made improvemnts to my house, does that mean my GV will likely go up slightly more than the average GV increase, and therefore my rates increase?

6/27/2005 10:15:00 AM  
Blogger Errol said...

If I've made improvemnts to my house, does that mean my GV will likely go up slightly more than the average GV increase, and therefore my rates increase?

Yes.
Also, if prices in your suburb go up less than the average increase across your council, then your rates will go down.

6/27/2005 10:39:00 AM  
Blogger ZenTiger said...

Curses for buying astutely. Unless of course, I decide to sell and blog from the Gold Coast.

6/27/2005 10:54:00 AM  
Blogger Antarctic Lemur said...

What you need to do Zen, is get your City Council to transfer your street to the nearest suburb which has a lesser 'name' for itself. That should drop your GV, and thus council rates.

I know someone living on the edge of Remuera/Meadowbank who was trying to do that.

6/27/2005 12:58:00 PM  
Blogger ZenTiger said...

Well, I'm just off the coast of Africa (if you ignore the desert in between)

6/27/2005 01:00:00 PM  
Blogger Paul said...

Sorry guys, I have only just caught up with your comments and should have made the effort to participate in them more fully. One point I didn't make was that Central Government has cast very strict rules on local authority rates through the long term community planning process and the annual planning process (I feel collective eyes glazing over!) which requires transparency and significant consultation beyond belief. I just wish central Government would apply those same principles to itself!

There is no way a council could have a contingent $500m fall into its lap and be committed to projects like Cullen has done just this week if the same principles were applied. The AG would not be impressed.

6/27/2005 11:02:00 PM  
Blogger Paul said...

AL, rates are not necessarily tied to GV (or more correctly these days Rating Valuation), but rather to components of it, some Councils rate on land value, ie the value of the dirt under your house, others rate on capital value, ie what you've plonked on top of it. But then it gets even murkier, because if there is a significant CBD then residential ratepayers enjoy a rating differential.

But all of that aside, no Council has a surplus proportionally like Helen’s and her mates, mainly because of the points I make in the post above, they couldn't get away with it.

6/27/2005 11:10:00 PM  

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