In this week’s episode of The Hutt Seat podcast, I provide insights into the workings of how councils decide how much rates people pay. The annual plan of councils is like a household budget for one year, and the bulk of their income comes from rates, which accounts for 62.8% of Hutt City’s revenue. The council also receives contributions from the government for some projects, and user charges, which are fees for specific services, but the majority of them do not cover the full cost of delivering the service.
Councils have two types of costs: operational and capital expenses. Operational expenses are ongoing costs incurred to deliver services and maintain infrastructure, while capital expenses are significant investments made by the council in assets that are expected to provide benefits over a longer period of time, beyond the current financial year. Capital expenses are typically financed through borrowing money over a long period, and they are like significant household expenses such as buying a house or a new car.
Fixed rates are set for specific things like water supply and recycling collection, and every household pays the same amount for them. The general rate is set to fund things that benefit everyone, like roads and parks maintenance, and it is spread across the city according to capital value. Each property is placed in a rating category based on land use and location, and a charge is set for each rating category to calculate their share of the general rate. The two main categories we use are residential and commercial.
Finally, the podcast episode addresses the misconception that councils receive more revenue when valuations are updated. I explain that valuations are only used to calculate each property’s share of the general rate, and an increase in valuation does not increase the total revenue that the council collects.
Overall, this episode provides valuable insights into how councils determine how much rates people pay and how the revenue is allocated to different expenses.
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