www.keithrankin.co.nz/kra00motat.html

Dialogue, NZ Herald, 20 Mar 2000
 

Early this month, the "Motat Act" was passed into law, obliging each constituent council within greater Auckland to contribute to the running and development of Auckland City's Museum of Transport and Technology

The new Motat funding regime follows template already set for the War Memorial Museum, and may be adopted more widely.

While pleased that the future of Motat has been secured, I question the assumption that the Motat Act is equitable, and worry about some of its implications.

A truly equitable form of regional funding should leave households of similar economic status all paying the same rates for the same services. The Motat Act, on the other hand, is going to aggravate inequalities between, say, Auckland and Manukau ratepayers.

The scenario embodied in the Motat Act sees Auckland City ratepayers paying 44 per cent of the levy, Manukau ratepayers 18 per cent, North Shore ratepayers 17 per cent, and others 21 per cent. The alternative was Auckland City paying close to 100 per cent.

Rates are a proportional tax, not a service fee. They are levied on households in proportion to their ability to pay. (A fee, unlike a tax, is charged as a fixed amount to all users.) The money raised is used by city and district councils to buy services on behalf of their residents.

To provide the same levels of services, the Manukau and Waitakere councils must levy the same average rate per household as the Auckland and North Shore councils, despite their property values being much lower on average.

Thus households in less affluent cities pay higher rates (or enjoy fewer services or lower quality services) than persons of similar economic status who happen to live in the more affluent Auckland and North Shore.

If we want to retain a decentralised local government structure - and there are many reasons to favour local self-determination over centralism - we have to accept such inequalities.

However, there remains a moral onus for the more affluent councils, whose residents pay lower rates, to provide regional facilities. A philanthropic approach to public finance on the part of Auckland and North Shore represents a solution to the problem of intra-regional inequity.

An equitable local solution to Motat's cash problem would have been for the Auckland City Council to take full responsibility for Motat, while requesting an appropriate "donation" from the North Shore City Council.

Unfortunately, it is a sign of our times that each council is trying to pare its spending to the bone, and plays zero-sum games with other councils as a part of that process. The consequent lack of willingness by the affluent to support an efficient regionwide public economy makes us all the poorer.

Funding Motat as a gift from Auckland City to the Auckland region is both more equitable and incurs fewer transaction costs (for example, negotiation and administration costs) than the funding regime mandated by the Motat Act.

An alternative way to achieve equity within Auckland is Sir Geoffrey Palmer's proposal to replace Auckland's seven councils with a Greater Auckland Council, which would then ensure equitable rating across the whole of greater Auckland. Sir Geoffrey's plan also envisages a council able to raise revenue in addition to rates.

This proposal scares me because it would represent the beginning of a regime of reducing national taxation and replacing it with regional taxation. A national system of regional taxation would reduce the extent to which Auckland taxes support the rest of New Zealand.

The Auckland tax subsidy to the rest of New Zealand is a direct parallel to any gift or subsidy paid by Auckland City to the Auckland region. Likewise, a generalised application of the Palmer proposal would be a national equivalent of a general application of the Motat Act.

The same issue reappears when looking at New Zealand's relationship with Australia. Australia (like Auckland City and North Shore combined) insists that New Zealand (analogous to Manukau) makes its share of defence contribution and pays a share of Australia's welfare bill. Once again, the relatively rich levy the relatively poor, increasing the income gap between Australians and New Zealanders.

At present, poorer communities are making unacknowledged gifts to richer communities at the local, national and international levels. Workers from Manukau City commute to Auckland, creating rateable wealth for Auckland City. Otago graduates create wealth in Auckland.

Human capital, trained and educated at considerable expense in New Zealand, generates revenue for Sydney and Canberra. New Zealand gets nothing from Canberra except invoices.

It is right (that is, efficient and equitable) that richer jurisdictions - whether on a local, national or international scale should make gifts or subsidies for the benefit of their regions. That represents a flow of public funds from richer to poorer jurisdictions, which partly counters the drain of human capital from poorer to richer locations.

The Motat Act, on the other hand, defines equity in a worrying new way. The achievement of equity between councils creates greater inequality between households.

The principles behind the Motat Act represent fiscal arm-twisting of poorer communities by richer ones. It is equitable and efficient for the rich to give, not to take.
 

letters, NZ Herald, 27 Mar 2000
 

Finally, someone talking sense about regional funding Keith Rankin on March 20. The Motat Act is an even bigger con than Mr Rankin suggests.

The Auckland Museum and Motat might seem a burden on Auckland City ratepayers, but they also stimulate a vast amount of economic activity, from which Auckland City businesses and residents receive almost the entire benefit.

The same is true of all the other institutions proposed for regional funding: the Observatory, the Art Gallery Auckland City Library, the Auckland Theatre Company (for goodness' sake!). Suggestions have been made that Manukau City should help to fund Auckland's civic parades.

Auckland City ratepayers are evidently developing an insatiable urge for funding their own pleasures at the expense of their poorer neighbours. And their shabby and venal attitudes are being pandered to by certain politicians for short-term political gain.

Quite apart from equity issues, such attitudes can only make regional cooperation on more substantial matters, such as public transport and waste disposal, more difficult.

letters, NZ Herald, 27 Mar 2000
 

In an recent article, Keith Rankin referred to rates as a proportional tax ... levied on households in proportion to their ability to pay." That is not correct. Rates are a levy on the value of a piece of land, not on the income of its owner. This is because rates are a relic of when land was virtually the only source of wealth. Its value was then proportional to the income of its owner. A tax on the value of land - rates - was therefore also an income tax.

Now, for the owners of residential land at least, land ownership is generally not a source of income. So any land tax is not, and cannot be, proportional to its owner's ability to pay. Rates have long since lost their economic rationale and are retained only as an inequitable, but convenient, relic.

letters, NZ Herald, 28 Mar 2000
 

Auckland economist Keith Rankin (Dialogue page, March 20) suggests the "affluent" North Shore should pay half the cost of Motat. He claims people living in the Auckland City and North Shore council areas should fund the total cost of the museum because they are more affluent than people in other parts of Auckland.

Mr Rankin joins a long list of people who are ill-informed about the North Shore. Statistics New Zealand figures show 47 per cent of people aged 15 and over on the Shore earn less than $20,000 a year.

The other main point is that Motat has 180,000 visitors a year and they come from all over the Auckland region. A Motat survey shows that, of all visitors, 30 per cent are from the Auckland City Council area, 21 per cent from Manukau, 19 per cent from Waitakere City, 12 per cent from North Shore City and 3 per cent each from the Papakura, Franklin and Rodney council areas.

Obviously some very rich people live on the Shore but there is also significant poverty, as shown by a sharp rise in certain infectious diseases linked with overcrowded living conditions. In 1997, eight whooping cough cases on the Shore were brought to the attention of health officials and in 1998 there were five. But the number of cases skyrocketed to 58 last year.

letter, NZ Herald, 10 Apr 2000
 

Alliance MP Grant Gillon is wrong to claim that I suggested North Shore pay half of the cost of Motat In my March 20 article, I argued that Auckland City should have recognised its privileged position within the region and funded the Motat subsidy as a gift to the region. I also noted that North Shore City is affluent relative to, for example, Manukau City, and that therefore a contribution to Motat from North Shore would have been appropriate.

Mr Gillon is right to note that there is poverty in North Shore City, as indeed there is in Auckland City. Nevertheless, the average household income on the Shore is considerably greater than it is in Manukau or Waitakere. It would be unfortunate if North Shore were to assume no regional responsibilities.

I would also like to rebut John Mihaljevic's claim that rates are not a proportionate tax. Of course rates are not exactly proportionate to household incomes. Nevertheless, people on higher incomes tend to pay higher rates. Further, imputed rentals paid by homeowner occupiers to themselves are recognised in the national accounts as a component of household income.