Paying GST on your council rates bill

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jonb

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Topic # 87824 8-Aug-2011 12:13

The council rates bill arrived last week - a fair chink of it (15%, to be precise) is made up of GST !

So you're basically paying a tax on top of another tax, what a cheek..

Coming from the UK, I support the campaign for GST on luxuries only but I'm realistic about the difficulty in defining what is a luxury and what isn't, but paying it on your council rates (council tax) seems to be a clear cut case.

Is there any plausible reason why there should be GST on your council rates. I agree you are essentially paying for a service (refuse, highway maintenance etc), but see how long you can go for without paying and very soon you'll be forced to.

I'm trying not to rant here but it really shocked me when I opened the envelope last week..

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Reply # 503270 8-Aug-2011 12:18

it's easier for caluclation purposes to just do it that way. It doesn't make any real difference since total tax take will be the same. i.e. if they made rates exempt from GSt then they would have to bethat much higher to get the same total tax revenue.

same reason why civil servants still pay income tax. i.e. they get paid by the government then have to give a certian % back. just easier to do it that way.

scuwp

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Reply # 503289 8-Aug-2011 12:44

NonprayingMantis: it's easier for caluclation purposes to just do it that way. It doesn't make any real difference since total tax take will be the same. i.e. if they made rates exempt from GSt then they would have to bethat much higher to get the same total tax revenue.

same reason why civil servants still pay income tax. i.e. they get paid by the government then have to give a certian % back. just easier to do it that way.

You sure? The local council takes the 15% GST because the ratepayer (customer) is buying a 'service'. The council then I assume must pass that 15% on to the IRD (Central Government) therefore the local council do not get to keep it...or have I got that wrong?

It is a national tax applied to a local cost (yes a tax on a tax)

Petrol is even worse example of a tax on a tax. Fuel is taxed (excise tax) and then you pay GST on top of that!

Someone once told me that the true average tax rate paid by middle income employed NZ'ers was around 45%, by the time you take all the government 'contributions' such as this into account. Not sure how true that is but doubt it's far wrong IMO

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sbiddle

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Reply # 503298 8-Aug-2011 13:08

Write to Peter Dunne and complain. Before he was part of the government he campaigned a lot on this issue and was very open in his views that a "tax on a tax" was wrong. He even had billboards pushing this line.

He's now been part of two successive governments and obviously doesn't seem interested in pushing for changes.

gardenman

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Reply # 503300 8-Aug-2011 13:09

scuwp: Someone once told me that the true average tax rate paid by middle income employed NZ'ers was around 45%, by the time you take all the government 'contributions' such as this into account. Not sure how true that is but doubt it's far wrong IMO

I doubt it is 45%, The effective tax rate of someone on 45K is 15% which leaves you about 38K. If you spent about 30% of that on mortgage or rent which doesn't have any tax component you are left with 26K. If you spend all of that on consumables you would pay about $4000 GST meaning your total tax contribution is about 25% of your gross income. There is also petrol excise, ACC components of Car rego etc and the taxes involved in cigarettes and alcohol, but I suspect you would have to smoke or drink a lot to get it up to 45%.

scuwp

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Reply # 503345 8-Aug-2011 14:29

gardenman:
scuwp: Someone once told me that the true average tax rate paid by middle income employed NZ'ers was around 45%, by the time you take all the government 'contributions' such as this into account. Not sure how true that is but doubt it's far wrong IMO

I doubt it is 45%, The effective tax rate of someone on 45K is 15% which leaves you about 38K. If you spent about 30% of that on mortgage or rent which doesn't have any tax component you are left with 26K. If you spend all of that on consumables you would pay about $4000 GST meaning your total tax contribution is about 25% of your gross income. There is also petrol excise, ACC components of Car rego etc and the taxes involved in cigarettes and alcohol, but I suspect you would have to smoke or drink a lot to get it up to 45%.

Fair enough. Having a quick look I could only find a link to a British(?) study that put the 'actual' tax rate there around 40%. Considering their income tax range is similar to ours perhaps there could be some similarities.

Lets see, my pay gets taxed, then anything I buy gets taxed with GST. My land rates are a tax then I pay tax on that amount for good measure, I pay tax in my fuel and then GST on that, and then get taxed again when using the toll road, which also has GST on it. Oh and then there is regional council rates (tax) with GST on that of course. Any money I do manage to save (using income already taxed) is taxed again, alcohol, cigarettes - even more tax on tax...whew! I give up, this is getting depressing.

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Linuxluver

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Reply # 503350 8-Aug-2011 14:38

jonb: The council rates bill arrived last week - a fair chink of it (15%, to be precise) is made up of GST !

So you're basically paying a tax on top of another tax, what a cheek..

Coming from the UK, I support the campaign for GST on luxuries only but I'm realistic about the difficulty in defining what is a luxury and what isn't, but paying it on your council rates (council tax) seems to be a clear cut case.

Is there any plausible reason why there should be GST on your council rates. I agree you are essentially paying for a service (refuse, highway maintenance etc), but see how long you can go for without paying and very soon you'll be forced to.

I'm trying not to rant here but it really shocked me when I opened the envelope last week..

Rates look and feel like a tax, I agree. But they aren't defined in law as a tax so we pay GST. Council rates are regarded by central government for tax purposes as a "service" fee or levy. They do not define it as a tax. Therefore you pay GST on rates.

If you don't own a property, you pay no rates (fee) for service, so pay no GST.

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Chainsaw

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Reply # 503370 8-Aug-2011 15:12

Same as petrol. They put taxes on that then add 15%.

gardenman

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Reply # 503384 8-Aug-2011 15:30

Linuxluver: Rates look and feel like a tax, I agree. But they aren't defined in law as a tax so we pay GST. Council rates are regarded by central government for tax purposes as a "service" fee or levy. They do not define it as a tax. Therefore you pay GST on rates.

If you don't own a property, you pay no rates (fee) for service, so pay no GST.

Exactly rates aren't a tax. It is payment for the services provided by your example. For example (this will depend on your council) part is for rubbish disposal. If you took the rubbish to the tip (and paid GST on the cost) do you consider that a tax? Or do you consider paying your lawnmower guy a tax, its no different to paying the council to mow your local park. I guess the alternative in that particular instance is you don't pay for park maintanence through your rates, and instead pay at the gate every time you enter the park - would you consider that a tax?

Ragnor

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Reply # 503390 8-Aug-2011 15:38

Well rates are compulsory for land owners and you pay for services you might not even use, that's a tax in my book.

scuwp

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Reply # 503393 8-Aug-2011 15:41

Ragnor: Well rates are compulsory for land owners and you pay for services you might not even use, that's a tax in my book.

+1

No different to income tax that goes to the government to pay for them providing me "services" that I may not necessarily use or desire, like all the junkets overseas for the MP's. A good argument to do away with most taxes and move to a total user pays system.

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graemeh

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Reply # 503395 8-Aug-2011 15:47

Linuxluver: If you don't own a property, you pay no rates (fee) for service, so pay no GST.

You do pay GST indirectly though. The property owner pays GST and that is just one of the costs that affect the rent they charge.

gardenman

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Reply # 503399 8-Aug-2011 15:57

Ragnor: Well rates are compulsory for land owners and you pay for services you might not even use, that's a tax in my book.

fair point, although indirectly non land owners pay rates as well through rents. Here is a link showing what Aucklands rates are made up of most of which most people would use at some time or another.

fab

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Reply # 503406 8-Aug-2011 16:00

I brought an RV in from the US, had to pay 7% Duty on it - that included the purchase price, shipping cost, shipping insurance and US port levies (!). Ended up being triple what I paid for it (which I had budgeted for, but still annoyed about).

But then I had to pay GST on all of that, including the Duty! Fair?..i think not. But if you want it off the wharf, you have to pay.

UncleArk

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Reply # 503437 8-Aug-2011 16:46

Presumably if you don't own a property (and you are an adult!) then you are renting or leasing and the landlord is recovering rates money from you in that manner for the property concerned.

Taking a step back and looking at the bigger picture though... Typically rates are equivalent to about $4.70 to $5.40 per day for a "standard residential" property.

Lets see what you get for that in a typical large city...

Roads to travel on which are constantly upgraded / repaired.

Footpaths to walk on which are constantly upgraded / repaired.

Parks for you and your children to enjoy (encompassing sporting and social events).

Libraries for you and your children to get books from (which generally are borrowed free).

Running water out of your tap (in some cities, Christchurch being a good example, there is NO charge based on metering for residential).

Foulwater (sewage) disposal to your property - flush and forget.

Stormwater from your roof and hard-stand areas disposed of so your section doesn't flood.

Your household rubbish is taken away right from your gate.

There are Council refuse stations where you can take (in some cities) your garden rubbish free of charge - and your general rubbish at a nominal fee.

Street lighting on local roads - how safe would you feel walking down a street at night with only the moon and the glow of house lights...

Community events and entertainment options / festivals etc.

Many cities the rates will fund things like the officers who attend to your phone call when you ring up complaining about that noisy party, or that dodgy looking building right on your boundary blocking your view etc...

Etc, etc, etc

Sure not every person will take advantage of each and every one of these things on a daily basis - the point is though - they are all available to you if you should so wish to take advantage. I am sure it doesn't take much to appreciate that we all get, for the most part, amazing value for money for our rates dollars here in New Zealand from our local Councils.

Just ask the many people in Christchurch who haven't had running water or sewage connected to their house for the last 11 months what it would mean to them to have the these basics alone for less then the price of a fancy cup of coffee per day!

At the end of the day if you enjoy living in a community (ie urban area) and you want to feel safe and supported in that community and have all the things for yourself and your children that you come to expect to be available to lead a healthy and active life then surely the cost of a cup of coffee is not too much to ask for from your Council!

Just my (rather long) 2c worth. Apologies if it sounded like a sermon delivered from a soap-box!

kingjj

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Reply # 503453 8-Aug-2011 17:13

scuwp:
Ragnor: Well rates are compulsory for land owners and you pay for services you might not even use, that's a tax in my book.

+1

No different to income tax that goes to the government to pay for them providing me "services" that I may not necessarily use or desire, like all the junkets overseas for the MP's. A good argument to do away with most taxes and move to a total user pays system.

User pays is great in theory, but the overall cost to consumers would be higher as the cost of collection for user pays is greater. Getting centralised services covered by a flat tax is a lot more efficient than charging per service/usage. Ergo, with a flat tax (based on a simple formula) total costs will be lower overall.

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