"Localism and Devolution" Part 2: The Tax Swap and what goes with it.....

Why should we be doing this? What will be the benefits? Q & A ...

This article follows “Localism and Devolution” Part 1: the revival of local in local government in which I proposed a revival of ‘The Province’ as the natural, organic and basic unit of local government. I proposed 19 provinces and six urban authorities. See the first article for maps showing these.

In this present article I outline, in Q & A format, the devolution and tax-swap that would make the provinces stronger and more vital to our daily lives. It would be hoped that as many government functions as possible could be devolved to the local level, to free-up central government to manage those national matters that only central government can do - such as law, police, courts, prisons, hospitals, conservation, national parks, audit, international relations, defence, et c.,

Question and Answer:

Q: Why should we think about changing local government structures? A: Well, let’s consider the whole episode (during the term of the previous government 20017-23) around the promotion of water services reforms (the so-called ‘Three Waters’ agenda). What this showed us was that there is obviously a need to reform local government, since many local authorities are simply not able to invest enough to upgrade the water services infrastructure and to provide new infrastructure for population growth. And this wasn’t only a few small or remote districts, it was even in some of our major cities. Local government is simply not able to manage everything they need to provide within the limited sources of revenue upon which they can draw. And on the other side, often central government can’t really resolve the problems with managing large nation-wide organisations, such as Housing NZ, Kiwi-Build, the Te Whatu Ora integration. They either make a mess of things and end up costing us all extra billions, with reduced services, or they resort to heavy-handed authoritarian strategies, to try to impose the same structures on to everyone, to make every one fit the same mold.

Q: Why do you promote the revival of The Province as the best form for local government? A: Firstly, the provinces are an organic part of our heritage and our history. The provinces are based on the natural forms of the landscape. They reflect the local identities that have developed over time. It’s best to use these to mold local government structures that build on and enhance local identity. This encourages participation and loyalty to one’s own province, building a sense of community and cohesion at the local level.

Q: How will people be bonded to their provinces or cities?

A: The “Domicile Certificate” is the primary device to enhance bonding with one’s local province or city. The “Domicile Certificate” will be a plastic card. It WILL NOT be a ‘digital identity.’ To obtain the Domicile Certificate, one must declare one’s residence within the boundaries of a specific province or city, obtain signed written testimony from three witnesses, stating that one is resident and in good-standing with the community, then present this, together with any other basic ID document(s) and proof of address. The card will be used to make in-person payment of rates and other charges, to enroll one’s children at local schools, register at a medical centre, and to obtain any benefits or support from the local council. Of course people will be free to move to another province; in which case they can either continue their relationship with their home province, or apply to change their Domicile. The DIA may provide back-up systems on a national basis, in order to prevent any individual from holding any more than one Domicile Certificate at a time, or any other fraudulent use or abuse.

Q: What sort of ‘devolution’ do you envisage?

A: I propose that the provinces and cities be given ownership and administration of all schools, primary and secondary, social housing and medical clinics, and also given responsibility for the well-being and welfare or their domiciled residents. This is quite a big change for New Zealand. We have hitherto understood these governance functions to be the exclusive concern of central government - but it’s neither essential nor necessary that they remain with central government. They can more easily and efficiently be managed at the local level, with more local input into management policies.

The Tomorrow’s Schools reforms in the 1980s extinguished the old provincial education boards, but atomizing each individual school, giving them the illusion of being independently governed, but nevertheless making all of them captive to the overlordship of Ministry and political control. Putting schools under local boards at district and provincial level will enable better responsiveness to parental requirements. And, together with this, I also propose that parents or guardians pay ‘attendance dues’ - the rationale for this is that if something is of value to us - the education of our children - then we should be prepared to pay for it directly.

For social housing, this can more easily and efficiently be managed at the local council level, and of course the council gains the rental revenue. Wellington City Council and Christchurch City Council have for many years proved that social housing can be successfully managed at the local level, if only central government stopped interfering...

And for welfare, the local council should care for and pay income support for those unable to work - this is the direct expression of the local community caring for its own members. The local council also will be best placed to assist job-seekers with finding suitable employment in the local area. The only addition to this, is that I would propose a nation-wide ‘unemployment insurance’ scheme, on a completely voluntary basis. Recipients would be paid at the rate of the ‘living wage’ (as determined from time to time) for up to 4 months. If they have not been able to find work within that period then they will become eligible for income support. I don’t propose any specific changes to national superannuation - but this can be administered by the local council, on behalf of/in cooperation with the central government.

Local medical (GP) clinics could be operated by the local councils, and paid for by an annual subscription amount, with a small fee for each consultation. The policies and format will be decided by the local communities. There will not be pressure on doctors to address their patient’s problem or problems within only 15 minutes - giving them the freedom to fulfil their professional integrity. And the salaries paid will be met by the local council, out of the general rates revenue. Under the present structures, it is becoming increasingly difficult for many cities and rural areas to retain doctors to serve their communities. Central government should get out of primary medical care, and focus instead on getting the hospitals into a better shape…

Q: What sort of ‘tax swap’ do you envisage?

A: Firstly, I would propose to calculate all local body rates on land value only, at an appropriate factor for each specific land-use zoning category. Many economists see this as a more fair and equitable basis to raise local revenue, and it would have the effect of encouraging development more quickly. The value of improvements on a property (i.e., buildings) is a private investment, it should not be taxed. But land is a ‘public resource,’ in a sense it belongs to all of us, and none of us. The social cost of holding title to any portion of land is to pay the rates due to the local provincial or city council. The land-value basis for rates would also have the effect of encouraging development more quickly, and potentially acting as a damper on the continuous inflation of both property values and rent. For example, if a developer purchased a sizeable town section, it would be more advantageous to build four town-houses and rent them out, rather than building a single bungalow - the rates would be the same, since it would be based on the value of the land, not on the improvements.

Then I would propose that each and every parcel of land be valued and charged rates at an appropriate factor, including for schools, hospitals, police stations, court houses, state highways, reserves and conservation land (excepting national parks). The only land that couldn’t be charged would be that owned by the provincial or city council itself.

Under this regime, I would expect that we may typically pay around twice the amount in rates for an average suburban residential section (say 800 sq. m.), compared to what we pay today. For renters: if perchance an immediate increase in rates causes an upward impact on rents in the short-term, this would actually be off-set by an overall downward trend in property prices, until a new stable equilibrium is reached.

Q: How would people be compensated for this as a ‘tax swap’?

A: I would propose that the income tax paid by wage and salary earners to central government be reduced to 7.5% for all income up to $85,000 per annum; and 15% for income above $85,000 per annum. As a consequence of this, it would become unnecessary to keep the ‘Working for Families’ rebates - people will already retain sufficient monies in their pockets to be able to look after their own families.

Then, more than this, I would suggest that GST be reduced to 7.5%, and company/business taxes to no more than around 24%. I also suggest that central government be empowered to collect a ‘currency transactions tax’ on all monies taken out of the country - though this can be zero-rated for those taking not more than $10,000 on their person for overseas travel. This would serve to discourage the wholesale repatriation of profits by overseas parties that bought into New Zealand businesses.

Q: How else would provincial and city councils raise revenue?

A: As mentioned above, I propose that parents and guardians of children pay attendance dues for school students - perhaps $800 per year for primary age students and $1,200 per year for secondary students, with discounts for multiple children in a family. This would not be expected to cover the whole cost of the education; the remainder will be taken from the general rates revenue. Local councils will also gain rental revenue from their social housing estates.

I also propose that each and every resident in the province or city pay a minimal, basic ‘annual service charge.’ Thus, each and every adult would be paying this amount to their local council - giving them an investment in the local community. In the end this could serve to encourage community participation and discourage anti-social behaviours.

Local councils, provincial and city, should also be empowered to collect ‘resource use levies.’ This could be direct charges for water use for industry, irrigation and electricity generation. It will also be charged on pollution (however, I do not consider carbon products to be pollutants - they are completely a part of nature), and directly levied on extraction of earth resources, such as coal, minerals, geothermal. This would replace the royalties presently paid to central government - excepting in the case of off-shore resources, such as oil, gas, minerals and fisheries, which do not come under the bailiwick of the on-shore provinces and cities.

Q: How would the current district councils be integrated into the new Provinces?

A: As a part of the transition and establishment phase, each province would assess and decide whether they want to continue with the local district councils as administrative units and as revenue units, and whether or not to place schools and social housing in ownership and administration of the districts, or, alternatively, to coalesce all the smaller districts into one unitary administration. For example, Waikato, with six districts (including Hamilton as one of these) may decide to retain the local districts as the rating authorities and place schools and social housing estates with the districts, with the province serving as a coordinating body, retaining the functions of the current regional council. On the other hand, King Country, with three smaller districts, may decide to become a unitary province, with a single administration for everything.

Each province and city can develop their own local constitution, to suit their own circumstances, to be ratified by the residents and then counter-signed by the Governor-General.

I advocate only a few changes to the current local council boundaries, for example, I would suggest that ‘Waimarino’ (including Ohakune, Raetihi and Waiouru) be taken from Ruapehu, and joined to Whanganui-Rangitikei - these areas are already planning water services together and have a certain community of interest due to proximity. I am also in favour of Wanaka-Upper Clutha gaining status as a separate district within Otago province, to enable it to develop itself independently from Queenstown. However, these districts themselves will decide whether my suggestions are the best for them.

Q: What is the overall rationale for these significant changes to both local and central government administration?

A: Look, the fact is that we are not improving ourselves very much under the current system. So many smaller local councils are struggling to provide all the local services and infrastructures that the people need. Many young people feel drawn to leave for supposed greener pastures overseas. Ok, that’s their prerogative. But let’s allow local communities to work together, with a sense of cohesion, rootedness and loyalty, to do all they can to build up their own local communities. The provinces and cities will be large enough to have economies of scale, to be able to invest in local infrastructures, to grow their local economies - and perhaps more importantly, to compete against each other to improve the standard of living for their own residents. And thereby attract more residents.

And Central government will be able to focus more effectively on the truly nation-wide matters, and cease from using education, social housing and welfare as ‘footballs’ to be kicked from side-to-side by opposing parties, with so much hot air and ego-positioning.

However, the underlying theme and the best advantage for all of us will be significantly increased personal freedoms, an increase in participatory democracy at the local level - with more opportunities to be involved and to express one's views. Many more decisions will be made at the local level, rather than in Wellington. As a result, the culture will transition more towards personal responsibility, with a greater emphasis on people taking care of themselves, rather than always looking to central government to solve every problem.

Of course, we will all pay more in taxes and charges to our local district, province or city, but this will be compensated by significant reductions in direct income tax, the GST and company taxes. The end result for almost all wage or salary earners will be to pay less tax overall.

Q: Do you suppose that these changes will eventually lead to fundamental reform of central government? A: Yes, I do; but that’s another story for another day.

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