published as Auckland, Shore should gift museum to region, NZ Herald, 20 Mar 2000

On March 2, 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 (Motat). The new Motat funding regime follows a 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 would like to question the assumption that the Motat Act is equitable, and to explore 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% of the levy, Manukau ratepayers paying 18%, North Shore ratepayers paying 17%, others 21%. The alternative was Auckland City paying close to 100%.

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 purchase 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 (eg negotiation and administration costs) than the funding regime mandated by the Motat Act.

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

This proposal scares me, as 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 (ie 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.

© 2000   Keith Rankin

Rankin File | 2000 titles