Part 1: Introduction

Residential rates postponement.

In this Part, we explain:

Rates postponement

Most local authorities offer some kind of residential rates postponement. However, the number of ratepayers currently postponing their rates is low.

Rates postponement means that a council allows the ratepayer to delay paying their rates. Ratepayers still have to pay postponed rates, but at a later time. In some cases, rates may be postponed for a set number of years. In other cases, rates may be postponed until a certain event occurs, such as the ratepayer selling their property or dying.

The council supplements the existing security it has for postponed rates (deriving from rates being a statutory charge against the land they are levied on) by registering a notification of charge on the title to the ratepayer’s property. This means the property cannot be sold without the council being notified. The notification of charge also alerts anyone searching the title that rates on that property have been postponed.

The final debt the ratepayer owes the council will be larger than just the postponed rates. The council will usually also add interest and other fees to the amount owed. As well as each year’s rates being added to the debt, the interest compounds. This means even quite small initial debts can become large over a period of years.

Home equity conversion

Home equity conversion, also known as equity release or a reverse mortgage, involves the home owner receiving one or more cash payments from the lender. These payments, with interest added, are recorded as a debt against the property. Generally, no payments, even of interest, are required until the property is sold or the owner dies. The whole amount of the loan must then be paid. Home equity conversion is usually available only to people aged at least 60. In New Zealand, home equity conversion is available through some banks and private finance companies.

In contrast, residential rates postponement allows ratepayers to defer paying their rates, using the equity in their property as security. Under rates postponement policies, ratepayers do not receive cash from the council. Instead, they retain money they would otherwise have spent paying their rates.

The Local Government (Rating) Act 2002

Section 87 of the Local Government (Rating) Act 2002 gives local authorities the freedom to set any rates postponement or remission policies they decide. This is a change from previous legislation, which prescribed limited circumstances under which postponement could be offered.

Councils must adopt postponement policies using the special consultative procedure outlined in the Local Government Act 2002.1 Councils may amend the policy only as part of an amendment to their Long-Term Council Community Plan (LTCCP).2

Types of rates postponement

Around the country, councils have adopted rates postponement policies to cover different situations, including:

  • to help businesses that will bring economic development to the area;
  • for special land categories – for example, farmland near urban areas;
  • for ratepayers who own their own properties and wish to use their current income for purposes other than paying rates (“optional rates postponement”);
  • and for residential ratepayers experiencing financial hardship.

This report covers only residential rates postponement – that is, optional rates postponement and postponement on hardship grounds. It does not cover rates remission policies, rates rebates, or other forms of rates postponement policies.

Optional rates postponement

In 2003, four councils and a private company, McKinlay Douglas Limited (MDL), agreed to work together to design and deliver a rates postponement scheme offering postponement to older ratepayers who own their own properties. The four councils were Far North District Council, Rodney District Council, Thames- Coromandel District Council, and Western Bay of Plenty District Council. Gisborne District Council and Waikato Regional Council joined the group in 2004. MDL set up a dedicated company, R P Scheme Managers Limited (R P Scheme Managers), to manage the rates postponement scheme. We refer to this grouping of the councils, MDL and R P Scheme Managers as “the rates postponement consortium”. We refer to councils that are members of the consortium as either “the consortium councils” or “councils offering optional rates postponement”.

Eight other councils have recently joined the consortium.3

Under the consortium policy, any ratepayer who meets the council’s age and residency criteria and has enough equity4 in their property to provide security for the postponed rates may postpone their rates. There is no income or asset testing involved.

So far, all councils offering optional rates postponement have become part of the rates postponement consortium.

Rates postponement for hardship

Before the legislative change in 2002, financial hardship was one of the prescribed grounds on which councils could offer rates postponement. Many councils have retained a policy to postpone rates if ratepayers can show that having to pay rates will cause them financial hardship. This is a need-based policy, and involves income and asset testing.

Why we did the audit

Over the last few years, New Zealand has experienced a substantial increase in property prices. This increase has particularly affected the values of coastal property and properties in many traditional “retirement” regions. In addition to this, rate increases by many local authorities exceed the rate of inflation. A particular problem for ratepayers may arise when the rate of increase in property values varies significantly across a district. This would mean that rates for certain ratepayers will increase more than rates generally across the district. Some ratepayers, retired people in particular, are on low or moderate fixed incomes, and may struggle to pay the increased rates. However, these ratepayers may also own valuable properties, particularly in areas where property values have risen substantially. These ratepayers can therefore be described as “asset rich but income poor”. The optional rates postponement consortium is, in part, a reaction to these circumstances.

Participation in optional rates postponement is currently low. However, participation could grow quickly if more councils join the consortium and more ratepayers elect to postpone their rates.

We have chosen to audit optional rates postponement now, so lessons can be learned early and best practice can be shared among councils considering joining the rates postponement consortium or offering other similar rates postponement policies.

We have included rates postponement hardship policies in our audit as a comparison to optional rates postponement, and to provide assurance about the design and administration of both kinds of residential rates postponement schemes.

Our audit objective and performance expectations

The overall objective of our audit is to provide assurance to Parliament that councils are administering rates postponement policies in the interests of their communities – both ratepayers who postpone their rates and other residents.

In addition, our audit aims to:

  • provide Parliament and local authorities with a clear understanding of the nature of current rates postponement policies;
  • provide assurance over the design and administration of rates postponement policies;
  • provide recommendations for those councils that currently have rates postponement policies or are considering adopting such polices, including joining the optional rates postponement consortium; and
  • describe the structure and management of the rates postponement consortium.

We had expectations relating to:

  • decision-making and consultation (Part 3);
  • risk identification and management (Part 4);
  • application processes (Part 5); and
  • ongoing administration (Part 6).

We have attached the full set of expectations as Appendix 1.

We describe the rates postponement consortium in Part 7.

How we carried out the audit

In conducting our audit of the optional rates postponement scheme, we:

  • visited four of the six councils that are part of the original rates postponement consortium (Far North District Council, Gisborne District Council, Rodney District Council, and Western Bay of Plenty District Council), to review documents and conduct interviews with relevant staff;
  • met with staff of Relationship Services, the independent organisation that provides decision facilitation services to optional rates postponement applicants;
  • met with staff of R P Scheme Managers, the firm responsible for managing the consortium; and
  • analysed documents relating to the consortium, including the Heads of Agreement for Rates Postponement Project, Joint Committee Agreement for Rates Postponement Project, and the management agreement between the Joint Committee and the management company.

In conducting our audit of hardship policies, we:

  • visited two councils that offer rates postponement on hardship grounds only (Christchurch City Council and Wellington City Council), to review documents and conduct interviews with relevant staff;
  • undertook a telephone questionnaire involving another six councils that offer rates postponement on the grounds of hardship;
  • reviewed the policies of all 55 councils that offer rates postponement on the grounds of hardship; and
  • considered the hardship postponement policies of the four councils that offer optional rates postponement where relevant.

We also engaged an actuary to model a range of rates postponement scenarios as well as to review a selection of results from the actuarial model used by members of the consortium.

1: Section 102(2).

2: Section 102(6).

3: Ashburton District Council, Kapiti Coast District Council, Marlborough District Council, Masterton District Council, Nelson City Council, Queenstown-Lakes District Council, Rotorua District Council, and South Wairarapa District Council.

4: In this report, unless the context indicates otherwise, the term “equity” ignores the existence of any mortgages, because rates have priority over mortgage debt. In most cases of rates postponement, there will be no mortgage.

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