Rosebank Advocates June 2018, by Dr Grant Hewison

Reducing the Business Rates Differential

Together, with other business associations across Auckland the RBA has always had, a focus on making sure the voice of business is heard when Auckland Council sets its rates.
Auckland Council has wide discretion about how it sets rates. This includes the ability to set rates using a differential rating system that applies a different rate depending on the way the land being rated is used.

The system first classifies a property as either a base differential (usually a normal residential property) and then may apply a business differential (or a difference in the rates) to land used for commercial or industrial purposes.

When Auckland Council was formed, businesses were contributing 34% of the overall rates even though their properties only made up 17% of Auckland’s total property value, and so the Council decided to slowly reduce the share paid by business from 34% to 25.8% by 2022/23 because the Council considered the difference was too high. At that time, Auckland businesses paid around $150 million more than they should have been. The idea was to gradually reduce business property rates from 32.8 per cent of all rates to 25.8 per cent over 10 years through successive Long Term Plans.

However, because of the 2014 revaluation, which saw business properties increase by less than residential homes, Council changed this, to reduce the adjustment more slowly to instead reach 25.8% by 2036/37. In later Plans, the reduction was ‘paused’.

The reasons Auckland Council gives for applying a business differential is generally that business ratepayers make more use of Council services like transport and stormwater than residential ratepayers, are better able to afford rates as they can claim back GST and that rates can be claimed against income tax. Together with other business associations across Auckland, the RBA has always argued that these reasons do not make sense, especially when applied to small businesses.

“We do not accept the view that a business differential should be applied to rates especially for reasons that “businesses are better able to manage additional costs than residential properties” or because “businesses can claim back GST and expense rates against tax.” These reasons do not justify the business differential, particularly for small businesses who make up most businesses in Auckland. The Shand Report on Funding Local Government recommended against rating differentials.”

In the latest Long Term Plan Council has agreed to resume the Long-term Differential Strategy from 2018/2019 to gradually reduce the business sector share of general rates to 25.8 per cent by 2037/2038.

At the Whau Local Board level, a Local Board decision to input into the 10-year Budget 2018-2028 considered the Long-term Differential Strategy.

Member C Farmer moved and Member T Matafai seconded a motion: That the Whau Local Board: a) request further reductions in the share of general rates paid by businesses be paused until more evidence is provided as to the relative benefits of council spending for owners of residential properties compared to business property owners.

A division was called for, voting on which was as follows: For Member C Farmer and Member T Matafai. Against: Member D Battersby, Member D Macdonald, Chairperson T Mulholland, and Member D Whitley. Consequently the motion was declared LOST by 2 votes to 4.

Together with other business associations across Auckland, the RBA needs to remain vigilant on making sure the voice of business is heard when Auckland Council sets its rates. One of the more important issues is ensuring that the Long-term Differential Strategy continues to be gradually reduced so that the business sector share of general rates reduces to 25.8 per cent by 2037/2038.