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The development of the policy will also ensure council staff and councillors work together and have a deep and consistent understanding of the council’s long term revenue goals.
Being clear and open about decisions will help to build a greater understanding in the community of why rates are charged and that those rates are used for the benefit of the community.
A rates and charges policy should include a statement regarding the aspirational goal of the council when setting rates. The principles of taxation may be a useful starting point when considering the council’s aspirational goal.
This goal should be consistent with the council’s strategic and long-term financial and asset management plans.
Many ratepayers do not know the breadth of services provided by their local council, believing the services are restricted to roads, rubbish and parks.
Including in the policy a list of services provided in the council area may assist ratepayers to gain an understanding of why rates are raised and what rates are actually spent on.
Local Government has the choice of three bases of value of land:
A council’s policy should include a reason why the council has chosen to rate on the specific valuation base. Such consideration will assist the council to determine if this base continues to be the best valuation of land basis for the municipal area.
The value of land that the council bases the general rate on under section 90 must be used as the value of land that it bases its service rates on (section 93(2)), including the service rate for fire protection.
A general rate must be set every year under section 90 of the Act by the 31 August.
Once a council has set a general rate, a council may then vary (by absolute majority) that general rate, a service rate or a service charge on the following factors specified in section 107:
If a council applies an averaged area rate in the municipal area, the policy should specify the locality or localities and the categories of rateable land to which the averaged area rate applies. The policy should also specify the reasons why the council applies an averaged area rate rather than a general rate (or varied rate) to that rateable land.
The fixed charge is a flat charge that forms part of the general rate. The rationale for a fixed charge is that, for a portion of council services, the benefits are distributed relatively evenly across properties and therefore ratepayers.
The total revenue raised from a fixed charge cannot exceed an amount equal to 50 per cent of the council’s general rates for the year. The fixed charge must be applied to all ratepayers and cannot be varied.
The use of a fixed charge reduces the effect of fluctuations in the property valuation component of the general rate. It also changes the distribution of the total rate burden to reduce some of the difference between what would be paid by the owners of low-value land and the owners of high-value land.
If a council applies a fixed charge, the council’s policy should include a reason as to why a fixed charge has been utilised. For example, a council may identify some services that are provided consistently to all ratepayers that are funded through the inclusion of a fixed charge.
A fixed charge can only be applied if there has been no minimum amount payable in respect of the general rate set.
The minimum amount provides a mechanism by which lower valued properties pay not less than a minimum amount. A minimum rate is imposed to ensure that all ratepayers contribute towards the provision of basic services at a reasonable level.
The amendments to the Act in December 2011 were introduced to allow the minimum amount to be varied if the general rate is varied under section 107. A minimum amount cannot be varied if the general rate has not been varied.
Additionally, a limitation has been placed on the proportion of properties that the minimum amount payable can apply to – 50 per cent in the 2012-13 rating year and 35 per cent in each rating year that follows.
If a council applies a minimum amount in its rating decision, the council’s policy should include a reason as to why a minimum amount is applied. If that rate and minimum amount is varied, the policy should explain the basis of that variation.
A minimum amount in respect to the general rate can only be set if there has been no fixed charge applied.
Rate caps were included in the Act in June 2011 as a new tool for councils, primarily to manage rating fluctuations arising from changing property valuations. Rate caps limit the maximum percentage increase in rates any single ratepayer, or class of ratepayers, may experience in a given year.
If a council chooses to apply a rate cap, the council policy should include an explanation as to why a cap will be imposed and, if it is not imposed equally across all categories, why the council made this decision.
A cap is to be set as a percentage and not as a fixed amount.
A council’s rates and charges policy should specify the particular services that council provides and can charge specifically for those services.
Councils should also provide information to ratepayers regarding any specific service rate or charge that may be new, or will only be set for a number of years, such as a charge for the rehabilitation of a waste management facility.
A council may (by absolute majority) make a separate rate or charge in respect of a class of land for the purpose of planning, carrying out, making available, maintaining or improving anything that in the council’s opinion is or is intended to be, of particular benefit to the land value, landowners or land occupiers (for example for the purpose of funding and recovering the costs of constructing a new flood levy in a particular area).
A separate rate or charge can only be applied for five financial years, at which point the council will need to review the need for the separate rate or charge.
If a council applies a separate rate to a part of the municipal area, councils should explain what land the separate rate applies to and why it is being applied. A separate rate should not be applied to the entire municipal area.
The council rates and charges policy should contain information as to when the council may decide to remit rates.
If a council intends to make rates remissions for a class of ratepayer, the council should provide an explanation as to why. If a remission has been previously applied, and will no longer, the policy should be updated to reflect the reason why this remission is no longer available.
The rates and charges policy should include information as to what the council will permit in terms of payments.
The policy should also highlight the potential impacts or consequences if a ratepayer does not pay the rates. As the consequences may include selling the land that is subject to the unpaid rates, it is important that councils make it clear that Local Government has enforcement powers to recover revenue owing to it.
It is important for ratepayers to know what their rights are if they believe that they have been rated incorrectly. The rates and charges policy should include information concerning the grounds on which an objection may be made, and the process, or refer ratepayers to section 123 of the Act.