Federated Farmers policy analyst Nigel Billings has heard many testimonies over the past 20 years from farmers grappling with rocketing rates bills incurred simply by living too close to town.
“For many it’s been a case that town has simply come closer to them and with that they find themselves on a very uneven playing field rates-wise, compared to a similar farm that may be further away from town.”
Billings has watched inequity in rating calculations grow.
He hopes a Productivity Commission report now being written will address that issue.
“The problem often is that it’s not that the farm is unprofitable, it is simply because of where it is, the rates are making it unprofitable, not the farm operating costs.”
At the heart of the problem is a rates valuation system that assesses properties in a mass appraisal based on their highest and best use.
“ Use becomes second to location. For example, an average size coastal sheep and beef property with subdivision potential may face a rates bill of $50,000. That bill does not reflect an economic sheep and beef unit, it reflects its location and coastal subdivision potential.”
Then there’s the Shania Twain effect where a highly-valued property not necessarily being run as a bread and butter economic farm pushes up the value of all neighbouring bread and butter farms trying to make a cash profit from farming, not from inflated property values.
In 2004 country music singer Shania Twain bought Motutapu and Mt Soho Stations for $21.5 million, regarded at the time as over the odds for operating stations.
The surge in rates has followed rises in rural land values in almost every area of the country
Federated Farmers’ records indicate average council rates in New Zealand jumped 79.7% between June 2007 and June 2017 when the consumer price index for the same period was only 23.1%.
And the inexorable rise in rates isn’t sympathetic to the vagaries in farm cash incomes over that time.
Billings likens it to an income tax on money someone could earn but doesn’t.
“It’s like someone telling you your skills mean you should be earing X amount more and then taxing you on that even though you may be nowhere near earning that amount.”
Before 1998 farmers had a way to dodge the effect inflated valuations had on rates.
The Rating Powers Act, since repealed, specified farms be valued for their use and any increase in value attributable to non-farming use (ie subdivision) could be postponed for three years.
“So, if you were farming, and elected to stay farming and not pick up the extra value by subdividing, you were not liable for that extra rates cost. It was quite equitable and allowed for farms to be farms and pay rates that reflected that.”
The Act was replaced in 2002 by the Local Government Act, making rates postponement an option for councils but few have chosen to use it.
“The ball was really dropped when that provision was lost.”
This loss also coincided with a surge in subdivision development on farms and orchards nationwide.
While urban centres consumed 0.5% of high-class soils between 1990 and 2008, lifestyle blocks have sucked up 10% of that land, to occupy 880,000ha by 2011.
Over 40% of those came after 1998, at an average rate of 5800 a year. In Auckland they have taken over 35% of the region’s high-value land.
Some councils have recognised the inequity of rates valuations.
Billings said Thames-Coromandel District Council has a 0.6 differential on rating for farmland, helping keep expansive coastal properties viable as farms, not holiday blocks. Wairoa has a similar policy for its coastal sheep and beef properties.
“But you have many other councils claiming they cannot fund their growth as they drive farms on the fringe out with $30,000-$40,000 a year rates bills.”
He hopes the Productivity Commission report on rating and councils picks up on the recommendation made in the extensive Shand Report in 2007 that councils make more use of their powers for flexibility in rating so the burden better reflects land use.
“But we will have to wait and see if anything really changes.”
