Explaining the Rates Proposal

It is incredibly difficult to propose a 25.5% rates increase. However, after major cuts to staff ($7 million in total), infrastructure and services scaled back (over 100 million) and many worthy projects not in the draft budget, this is where things are at. 

There are a couple of things to keep in mind with rates. Capital costs, such as investments in roading and buildings are intergenerational investments and, compared with day-to-day operating costs, have relatively less impact on rates. 

Let's use a 2km cycleway as an example, potentially providing a safe avenue for children to get to school, costing approximately $10 million each year for 3 years. Assuming a 51% subsidy from Waka Kotahi, the cost to Council would be $4.9 million per year. Council borrows from the Local Government Funding Authority at a relatively low interest rate, to pay for capital projects. A $4.9 million increase in debt has an annual $230,000 increase in interest repayments. This interest cost would require a 0.1% rates increase.

By comparison, if Council was to include new operating costs of $4.9 million each year, which might be used to pay people to collect rubbish, clean up weeds or fix potholes, this would result in a 2% rates increase. Operating costs should be funded by revenue (rates, fees or charges) and shouldn’t be funded by debt. If we have to use debt to fund everyday costs then we are not balancing our books. 

The proposed rates increase is primarily driven by increased operating costs including, this year in particular, inflation, interest and depreciation (totalling $58 million). We can reduce our interest costs by cutting capital projects. We would have to cut sizeable amounts for this to have a significant impact on rates. And we have already done this, primarily from our transport budget. 

Further cuts to our capital projects would concern me, because we have a considerable infrastructure deficit in Hamilton and New Zealand. We are simply not investing enough in infrastructure to provide for a growing city. I am sure that none of us want a congested, grid locked city, or a city that cannnot provide enough housing. We already have a housing crisis. 

I am open to more gradual increases in rates, but I want people to understand that this will mean borrowing to cover the deficit and related interest costs and not balancing our books for longer. In other words, this will cost more in the long run (but it will ease the burden initially).

I know that there are people in our community who can’t afford to pay more rates. Pensioners on fixed incomes, for example, may struggle with increased rates. And some landlords, perhaps the majority, will pass on the rates increases to renters. However, I do remind all of us that our rates, relative to other cities, are some of the lowest in the country. Even with a 25.5% increase, our rates (using median sale price) would still be lower than Tauranga, Waikato District (Ngāruawāhia), Waipā District (Cambridge), Wellington and Auckland (as examples). This is just to provide some context.

For people on low incomes, we do have a rates rebate scheme. It is currently under subscribed. It is there to provide some relief. Ensuring this scheme is accessible is important. Forms and the required information can seem overwhelming, and I think we can do better to ensure that people can access the support they need.