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Leaked report shows efforts LGNZ making to protect poor performing councils

The Taxpayers’ Union has been provided a copy of a leaked report Local Government New Zealand (LGNZ) commissioned. The report was prepared in response to work by the Taxpayers’ Union to improve transparency in local government. Earlier today Ratepayers’ Report – interactive local government league tables  launched at ratepayersreport.co.nz.

We've also been leaked confidential briefing papers for council CEOs. These appear to have been prepared by LGNZ's spin doctors as an aide for councils to avoid any criticism resulting from questions relating to Ratepayers' Report and other efforts by the Taxpayers' Union.

We approached LGNZ earlier in the year and sought its help to ensure New Zealanders got a fair picture of how their local council is doing. Instead, LGNZ went into defence mode and hired an accountancy firm originally to discredit the expert analyst we were using. They were not interested in ensuring ratepayers got an accurate picture, rather creating reasons why we shouldn’t be providing the public with the information.

Despite promising that the report would be made available to the Taxpayers’ Union, we’ve only seen it today because it was leaked to us. The report suggests that LGNZ is more interested in toeing the party line, rather than identifying the councils which are under-performing.

The report, by Grant Thornton, appears to have little basis for what they deem as ‘acceptable’ for the financial measures they apply to councils. They've not provided a league table, or a scoring system and even the data points on the graphs do not reference the councils they relate to.

It appears they’ve put in the data then picked the spot that shows that everyone is doing well.

The report makes soft criticisms of Kaipara District and Waitomo District Councils - but then defends them. It makes assertions that all under-performing councils are dealing with their issues. To us it demonstrates that LGNZ is a lobby group to protect local councils rather than a champion of best practise.

Click "continue reading" to view the report.

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Ratepayers' Report

The Taxpayers’ Union, in collaboration with Fairfax Media, this morning launched "Ratepayers’ Report” hosted by Stuff.co.nz. 

Ratepayers' Review 

Ratepayers’ Report builds on the work of local government expert and financial analyst, Larry Mitchell and his work in previous years comparing New Zealand’s 67 territorial authorities. The data was pulled together by the Taxpayers' Union and supplied to Fairfax Media. Fairfax has had the data checked independently and supplied it to councils for viewing before its publication.

For the first time, New Zealanders now have an interactive online tool to compare their local council to those of the rest of the country. Go to Ratepayersreport.co.nz to compare your local council including average rates, debt per ratepayer and even CEO salaries.

Ratepayers’ Report compares, for the first time, average residential rates.  The figure has been calculated using a methodology developed within the local government sector to compare average residential rates.  Only Kaipara District Council was unwilling to provide the Taxpayers’ Union with the average residential rates information.

Some highlights: 

  • New Zealand’s highest average residential rates are in the Western Bay of Plenty District, $3,274
  • The Mackenzie District has the lowest average residential rates, nearly two thirds less at $1,104
  • The average council liabilities are $4,386 per ratepayer
  • Auckland Council’s liabilities are now $15,858 per ratepayer (and increasing!)
  • Dunedin is not far behind. For every Dunedin ratepayer, the Council owes $15,093

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June 06, 2014

Tax policy ›


How not to reform GST: Changing the rules with a Friday press release

Robin Oliver and Mike Shaw, a former Deputy Commissioner at IRD and former Deloitte tax partner respectively have provided a guest post on the changes to GST relating to bodies corporate announced by Revenue Minister, Todd McClay this morning.

GST and Bodies Corporate

What is proposed?

All Body Corporate supplies under section 84 Unit Titles Act 2010 (all things bodies corporate are required to do) to be deemed to be exempt supplies meaning that bodies corporate are not able to register and receive GST input credits for the GST they pay on purchases.

If the Body Corporate registered before 6 June 2014 (date of announcement) it retains registration BUT is compulsorily de-registered as of 6 June.

There is a complex look-though rule for registered unit holders.  For example a commercial property owned by unit holders who lease offices –  their share of Body Corporate expenses are deemed to be their own expenses so that they can claim a proportion of input credits relating to the Body Corporate.

 Legislation is to be introduced, presumably after the election, which has effect from 6 June 2014.

This is justified by Minister of Revenue as fair, consistent, and reducing compliance costs.

Comments

The proposal is a stunning attempt to legislate by press statement.  The proposal

    • Is not fair
    • Produces inconsistent tax treatment
    • Increases compliance costs.

The proposed legislation by press statement is a naked revenue grab exploiting the misery of the many unit holders who have already suffered as a result of leaky home problems and the costs and misery that entails.  The government helped create the leaky home problem and now they are changing the tax rules to make money out of the resulting misery.

The Proposals are Not Fair

Where a body corporate has been compensated by an out of court settlement to address remediation costs from leaky home problems, post 6 June 2014 they are unable to claim GST on the costs of remediation.  This is in effect a tax grab by the government.  The out of court settlement was paid with no input by the builder/developer etc.  GST was in this way charged on the payment.  This was offset by the payment being free of GST in the hand of the Body Corporate but with GST input tax still available on all subsequent remediation costs.  This no longer applies post 6 June.  The right to input credits is proposed to be removed.  This is a confiscation of GST properly entitled to be refunded to Bodies Corporate and results in two levels of GST being levied (one by the payer of the compensation payment, second on the input tax credit for the Body Corporate).

Many registered bodies corporates have build-up maintenance funds by charging the unit holders levies plus GST.  This will be neutral if the body corporate could recover the GST when they spend the funds to paint the building and undertake their maintenance plans.  Post 6 June 2014, the body corporate cannot claim back the GST on this expenditure, this has resulted in a windfall gain by the Government of GST as GST has been collected on the levies and no GST will be able to be claimed on the subsequent expenditure.

It Results in Inconsistent Tax Treatment

Where instead of getting a compensation payment the builder repairs the building, the builder gets input credits for the costs.  This is the same as current law where the Body Corporate gets the input credit; but it is proposed that these be arbitrarily denied.

Where a Body Corporate employs a cleaner/manager to provide services to unit holders the no GST on that service will now be payable since it is an exempt supply.  If other people purchase cleaning services then GST is normally charged.

The Proposal Will Increase Compliance Costs

For Bodies Corporate which have primarily unit holders that conduct taxable activities, this proposal will materially increase compliance costs in that the GST portion is claimed by the unit-holder and not that body corporate, this will mean monthly reporting to unit holders of detailed financial information (i.e. each payment which has a GST content) to every unit holder.

Legislation By Press Statement Is a Mess

Legislation will not be enacted until some unknown time in the future, therefore what do registered bodies corporate do post 6 June 2014.  Until we have enacted legislation, they are required to comply with requirements to charge GST that will presumably have to be refunded when legislation is enacted.

IRD issued its Issues Paper reaching the interim view that Bodies Corporate are liable to register in May last year.  It has remained silent for 13 months.  Then the government issues a press statement after all this time. 

Robin Oliver and Mike Shaw are principles of OliverShaw. More information is available on their website.

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Waste watch: Auckland Council funds conference on polyamory

Yesterday afternoon we received a tipoff that Auckland Council recently funded a one day conference to explore the practice of engaging in multiple sexual relationships with the consent of all the people involved, also known as polyamory. 

Last month the gaynz.com website reported that among the first recipients of Auckland Council’s first ever 'Rainbow Door Fund’ was 'Poly Panel, Discussions around Queer Polyamory’, a one day event exploring a framework of ethical, healthy polyamory relationships.

We think that Auckland ratepayers will be horrified that it appears their rates are being used to promote alternative lifestyles.

Why should Auckland Council be concerning itself with matters in the bedroom?

This is just as concerning as it would be were Auckland Council funding conservative lobby group conferences such as for Family First.

Earlier this year the Rainbow Door Fund was established to provide grants for glbti people. We think it is questionable for Auckland Council to fund community groups based on the sexual preferences of their members. Conferences such as these should be funded by the interest groups themselves, not from money meant for roads and core services.

Given the spiralling levels of Auckland Council debt, the Council should be focused on value for money, not throwing funding at favoured groups.

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Are our priorities right in Tonga?

This morning we received the following press release from the Government:

NZ to contribute to the upgrade of Teufaiva Stadium
John Key
4 JUNE, 2014

Prime Minister John Key has today announced New Zealand will contribute around $2 million towards upgrading Tonga’s national stadium in Nuku’alofa ahead of the 2019 Pacific Games.

Why are Kiwi taxpayers contributing to this?

“New Zealand looks forward to working with the Tongan Government to improve Teufaiva Stadium in the lead up to the 2019 Pacific Games and other international events,’’ says Mr Key.

“Teufaiva Stadium is already an important site for domestic rugby, athletics and community events and will be a great venue for the Pacific Games.

“New Zealand supports a fit-for-purpose upgrade of the stadium that will expand its utility while supporting the strong community that participates in current stadium events.

“I’m happy that New Zealand can assist Tonga in its efforts to promote sports and healthy lifestyles in Tonga,” says Mr Key.

We’re not sure that contributing funds to a sports stadium is much of a promotion of healthy lifestyles, but more importantly is this really the highest priority to better the lives of those living in the Kingdom of Tonga? If the goal is to improve health, why isn't New Zealand spending the $2 million directly on health, implementing exercise programmes in schools or encouraging a healthy lifestyle?

The first step in the upgrade work will be a New Zealand-funded feasibility study and design, and technical support for the Tongan Government.

Mr Key made the announcement in Tonga today where he is visiting from June 3-5, as part of the 2014 Pacific Mission.

We would have thought that spending $2 million on a sports stadium is a purely nice-to-have rather than something that makes a difference to the lives of struggling families.

While drafting some comment on the Government's priorities we received the following: 

NZ to invest $5 million to rebuild Tongan schools 
John Key
4 JUNE, 2014

Prime Minister John Key has today announced New Zealand will contribute $5 million to rebuilding schools in Tonga’s Ha’apai islands following the devastating Cyclone Ian earlier this year.

 Good! 

“The $7.5m joint project with the Asian Development Bank and the Tongan Government will have a big impact on the lives of nearly 1,300 students affected by the cyclone,” says Mr Key.

“Getting children back into a regular school is vital for their education, safety and emotional well-being. Education is one of the priority areas for Tonga under the New Zealand Aid Programme and we are very pleased to be able to respond to the Tongan Government’s request for assistance,” says Mr Key.

We couldn’t agree more with the value ascribed to education by Mr Key in this quote.

In January of this year, Cyclone Ian caused extensive damage to infrastructure, public utilities and services, agriculture and housing, as well as severely damaging schools in the Ha’apai island group. 

The funding will be used to reconstruct classrooms and staff quarters, and replace school equipment across the island group by 2016.

“New Zealand enjoys a strong relationship with Tonga and the two countries are important regional partners,” says Mr Key.

“There is a significant Tongan population living in New Zealand, so it’s important that we are able to help Tonga in times of need.”

Mr Key made the announcement while visiting Government Primary School in Nuku’alofa today. While in Tonga, Mr Key also met with Tongan Prime Minister Tuʻivakanō and had high level discussions with Tongan members of cabinet. 

Mr Key is visiting Tonga as part of the 2014 Pacific Mission. He will visit Niue on Thursday before returning home.

Whilst we applaud our foreign aid obligations being spent on such worthy causes, it doesn’t alleviate our concern around the sports stadium funding.

That $2 million would still be better off earmarked for the core services of government that influence daily life for the people of Tonga.

We're disappointed that our Government is effectively saying funding for the vanity project of a sports stadium is 40% as important as rebuilding Tongan schools and getting children back into regular education.

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June 04, 2014

Tax Freedom Day ›


Happy Tax Freedom Day

Today is Tax Freedom Day – the first day of the year when Kiwis stop paying for the state and start working for themselves. The Taxpayers’ Union believe that it is high time ordinary people saw the rewards of hard work going into their pockets, not the taxman’s.

Congratulations New Zealand, as at 10.04am today you are working for yourself. However, the fact the Government accounts for all the money earned until today means it is unlikely New Zealanders will be celebrating. The government has effectively sucked up all of our earnings for the first 154 days of the year.

OECD figures put the current burden of government in New Zealand as 42.2% of GDP. This is larger than the 30% recently quoted by Finance Minister Bill English because it also takes into account crown entities, such as SOEs as well as local government.

At 42.2% this year, the burden of government is even larger than when National took office in 2008. While core government expenditure has gone down, the wider crown portfolio and particularly local government has exploded.

We need to aspire to countries like South Korea, Switzerland and Australia. Tax Freedom day this year fell on 21 April in South Korea, 2 May in Switzerland and 11 May in Australia.

Tax Freedom Day is a day for New Zealanders to consider the egregious amount of tax foisted upon us by successive governments. Tax should be used to deliver the key functions of government in the most efficient way possible.

We should be aiming to start working for ourselves in April, not still working for politicians in June. The only way to do that is to reduce the high tax burden on New Zealanders.

We want to keep working to make sure next year's Tax Freedom Day is earlier. Help us do it, by joining, or supporting, the Taxpayers' Union.

 

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May 23, 2014

Budget 2014 ›


Oops - $2 billion mistake in budget appropriations

 

We’ve spent most of this week immersed in the budget documents and making notes of potentially questionable spending or unusually large increases.

To our great surprise yesterday we noticed that one of the primary growth partnerships (PGPs) that the Government is funding appeared to have undergone a massive growth in spending. We’ve expressed much concern in the past about PGPs and consider them inappropriate corporate welfare and the Government picking favourites.

According to the budget estimates distributed on Budget Day, the New Zealand Sheep Industry Transformation Project (NZSTX) is to receive 644 times more than in 2013/14. As you can see from the scan below, the budget documents show an increase in spending from  $3.3 million to just under $2.4 billion dollars.

For comparison, $2.4 billion is roughly the same amount of appropriations for corrections, courts and customs combined!

We've previously made noise that the hundreds of millions committed to PGP funding is wasteful spending.. So you can imagine our shock when we saw that the Sheep Industry would be receiving close to $2.4 billion of hard earned taxpayer money.

We emailed the Minister of Finance’s office and have been told, to our relief, that the figure is mistakenly 1,000 times more than intended.

We are delighted that the Sheep Industry haven’t had a bank error in their favour of over $500 from every New Zealander. Like anyone else they might want all their Christmases to come at once, but thankfully the New Zealand Merino Company, who runs the programme, won’t get to run off into the sunset with designer sheep bedecked in glittering jewels.

The mistake reminds us of the Westpac couple who went on the run after $10 million was mistakenly deposited in their bank account. Luckily this one is more easily rectified as the money is not yet spent!

Click "continue reading" to view the whole appropriation document in which we found the mistake.

***Correction*** In much the same way Treasury made a mistake, an earlier version of this post referred to 2.4billion equalling roughly the same as the total amount spent on Education in Budget 2014. That was incorrect. The $2.4 billion only relates to output expenses in Vote Education.

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