Abstract
In New Zealand, councils have a number of different tools to achieve an equitable allocation of rates. Despite increasing debate between councils and ratepayers over funding policy, affordability and the impact on rates, there is limited academic discussion about councils' funding policies and in particular the principles that inform council decision making in respect to rates. This thesis argues that councils choose between two competing principles in exercising their discretion about rates. One principle is that rates should be set on the basis of the ratepayer’s perceived ability to pay for council provided activities (with the value of ratepayer’s property used as a proxy for ability to pay). The other principle is that rates should be based on an assessment of the benefit each ratepayer can be assumed to receive from that activity, or the amount to which that ratepayer creates a need for the particular council activity.
These principles are considered in respect to local government in New Zealand, particularly what local government is designed or intended to do, including the division of responsibilities between central and local government, and what funding tools councils have available. The thesis then looks at the two equity principles ‘ability to pay’ and ‘benefit received’ and their relevance to the wider context of taxation, before discussing the relevance of these equity principles in New Zealand’s specific local government context. This thesis uses case studies of councils in Otago and Southland to demonstrate how these principles are applied, and how use of different rating tools reflects these principles, within the theoretical framework. It is concluded that both principles are relevant and necessary equity considerations for local government funding decisions depending on the characteristics of each activity. In particular, ‘benefit received’ is identified as an important consideration in the process of decision making and ‘ability to pay’ an important component in regarding the incidence of rating decisions. Property value based rates can be an appropriate measure of allocation on the basis of either ‘benefit received’ or ‘ability to pay’, depending on the nature of the activity being funded.