Govt proposal for sharing GST-rates take

Press, 24 January 1986, Page 1

Govt proposal for sharing GST-rates take

By

MARTIN FREETH

in Wellington

A new system of revenue-sharing between the Government and local bodies will be worked out during the next few months.

The Government has taken a big step towards fulfilling its 1984 election commitment on revenuesharing by creating a working party of central and local government officials to study systems and make recommendations.

The system introduced will provide a way of returning revenue from the goods and services tax on rates back to local bodies.

Revenue-sharing has become linked with GST since the Government decided to apply the new tax to rates, in spite of strong objections from local bodies.

The Associate Minister of Finance, Mr Caygill, gave an assurance last year that such revenue would be returned to local

bodies. That money is expected to be about $5O million in the first year of the tax, to be introduced on October 1.

The Government opted to put GST on rates because they are in part a payment for services, and to take compensatory steps through revenuesharing because rates are also a form of tax. Local bodies have argued that GST on rates amounts to a tax on a tax. An official on the staff of the Minister for Local Government, Dr Bassett, said yesterday that the working party would have to establish principles to cover all aspects of revenue-sharing. Labour’s election policy was to introduce revenuesharing initially by replac-

The policy said that the pace at which changes were made would depend on resources available to the Government and would be linked to the adoption of additional functions by local bodies. The possibilities for revenue-sharing are wide open, and recommendations by the working party will reflect its terms of reference, which still have to be settled.

The Cabinet is expected to decide on those within the next few weeks.

The working party will consist of four representatives from the Counties and the Municipal Associations, one from regional government and officials from the Treasury and

ing existing subsidies paid to local bodies with annual grants.

the Internal Affairs Department.

The two associations have told Dr Bassett that their first preference for moves towards revenuesharing is to have returned to each local body GST revenue collected on its rates. The Government could introduce a different system for distributing all GST revenue from rates back to local bodies. It could also add conditions to the receipt of that money by local bodies. The working party will have to work fast. Official sources say that most local bodies set their rates in May and June, and will need to know before then how their finances for the year ahead will be affected by the introduction of GST.