The GST component of rate bills nationally soared to $1.1 billion in the last analysis of data from councils around the country in 2022, by economics consultancy firm Infometrics.
Principal economist Brad Olsen said that figure will only increase this year as councils sign off on annual plans tackling pricey infrastructure deficits.
"We feel charging GST on rates is still appropriate because councils do supply goods and services. But we come back to the fact that a lot of councils are struggling to provide those services because their only significant source of income is rates."
Grey District Council paid $3m in GST; Westland $2.3m; Buller $2.4m; and the West Coast Regional Council $1.2m.
This year, the regional council figure would be more than $1.8m — a sum that could have filled some gnarly financial potholes, chairman Peter Haddock said.
"We’ve got ratepayers struggling to come up with their share for stopbanks in Franz Josef — if even part of the GST could come back to us it would help, but we could do a lot with $1.8."
Westland District Mayor Helen Lash said her council would be handing the government $3.3m in GST that year.
Getting the money back would be a game changer for the district’s ratepayers, she said.
"We would use it for core services.
Instead, councils are being invited to bid for a share of the government’s new $1.2b regional infrastructure fund.
Local Government NZ former chairman Stuart Crosby said the history of who paid for what when it came to infrastructure was instructive, and often forgotten.
Now a Bay of Plenty regional councillor, his memories of the changes go back to 1986, when he first stood for election.
Before the 1989 local government reforms, the government made large capital grants to councils for water works, roading and other activities, and catchment boards, responsible for flood protection, were subsidised by up to 70%.
"It was critical funding. But all that went after 1989, except for transport, and it’s taken more than 30 years to catch up."
The quid pro quo for funding infrastructure was that government entities did not pay rates, Mr Crosby said.
But as the subsidies disappeared, the government retained its rate-free status.
"The tradeoff, back in the day, was that government departments didn’t pay rates or development fees on new schools and hospitals and very low service rates on existing buildings.
"That was in recognition of the infrastructure subsidies, but that all stopped and now we have these problems we see with water and so on and they still don’t pay rates."
The rebate of GST would be a first step in resolving the gap.
But the question of whether government departments should now be paying rates should also be revisited, he said.
The counter-argument has been that the Coast’s vast areas of mountain and native forest receive no council services and cost councils nothing.
But that did not bear scrutiny, Mr Crosby said.
"Water comes off that land into rivers the councils have to manage, so whether its Doc or developed land, those lands have an impact and they should be rated to make a contribution to the protection that’s needed downstream for homes and businesses."
The likelihood of the government becoming a ratepayer was not overly high, he conceded.
The government has previously signalled it would consider sharing a portion of GST collected on new residential builds with councils, but not the sharing of GST on rates.
In a statement to LDR, Local Government Minister Simeon Brown said sharing GST on council rate takes was not under consideration.
"It has been long-standing policy to exempt government buildings such as school and hospitals from paying rates and this is not something the government is planning on changing."
The government was considering sharing a portion of GST collected on new housing builds, to encourage growth, he said.
• LDR is local body journalism co-funded by RNZ and NZ On Air.
By Lois Williams
