The Local Government (Rating) Act 2002 of New Zealand is an Act of New Zealand's Parliament that empowers Local Government bodies to levy property taxes on property owners within their jurisdictions. These property taxes are called rates. They are assessed annually and usually paid in four equal instalments.

New Zealand no longer has land taxes per se. Formerly, NZ did have land taxes—its first ever direct tax, enacted in 1878, was a land tax (levied at a rate of one halfpenny per pound of unimproved land value).^[1] But the contribution of land taxes to the government steadily reduced and by 1967 represented a mere 0.5% of total government revenues. In 1982 it was observed that only 5% of all land was taxed (the rest was exempted under one of an increasing list of exemptions), and so in 1990, land tax was repealed.^[2]

Instead, it has property taxes related to land. This might seem like a distinction in search of a meaning, and in simplest terms a property tax is more flexible than a land tax, and can be applied to both land and the improvements on the land.^[3]

In New Zealand, as in most countries, residents pay income tax, a Goods and Services Tax, and property taxes (as well as assorted other minor taxes and fees). Although property taxes are the least substantial of these three principal forms of taxation, they are generally held to be the most unpopular. They are possibly the most 'obvious', they are the hardest to structure or minimize, and they apply no matter if resident is wealthy or poor. Being sensitive to the public dislike of property taxes, and a general feeling of alienation and disenfranchisement from the tax setting and policy process, the NZ Government set about a major rewrite of both the legislation defining how local government bodies were managed (the Local Government Act 2002) and the property tax setting process (this Act).

Section 3 of the Act states its purpose in three points:

(a) providing local authorities with flexible powers to set, assess, and collect rates to fund local government activities

(b) ensuring that rates are set in accordance with decisions that are made in a transparent and consultative manner

(c) providing for processes and information to enable ratepayers to identify and understand their liability for rates.

The powers given to local authorities are indeed broad and flexible (as per the first point) which leads to the constraining second point—rates can only be set and collected after going through a formal process of consultation with the public. The third point makes the process even more transparent—it requires a detailed breakdown of the amount being collected in rates each year so that rate payers know exactly what they are funding.

The Act sets out what types of land can be rated (i.e. taxed), either in full or partially, and what types of land are exempt from local government rates. The Act sets out parameters for how land can be differentiated, and the types of methods and formulas that can be used for assessing rates. It also contains administrative type provisions for how values are calculated and rates are assessed and collected, penalties for late payment, and other special case considerations.

The national government's Auditor General audits all local authority annual reports, and several times has prepared specific reports on common issues and concerns that have arisen from its reviews.

After the first year of the new Act's operation, the Auditor General reported in 2005 on some inconsistencies to do with how local authorities could reset rates during a rating year, and how they should handle any rate surpluses collected.^[6]

In 2006, the Auditor General reviewed the specific policies relating to postponement of rates.^[7]

A formal inquiry, chaired by David Shand and sometimes referred to as the Shand Report, but formally titled 'Funding Local Government' was undertaken in 2006 and reported in 2007.^[8] This inquiry noted that in a number of respects, the consultation, planning and accountability practices of local authorities were more advanced than those of central government.^[9] Nonetheless, it came up with 96 specific recommendations grouped into eight categories for future improvements.

One of the Report's more surprising recommendations was that local authorities should fund more capital works from debt, which it felt was a fair and appropriate way to fund long-term capital benefits, and which could allow for a 10% reduction of current rates.^[9]

In general, very few of the Report's recommendations have been acted on.

In 2014, the Auditor General provided some commentary on their auditing policies and issues uncovered to do with local authority rates. They reported that most local authorities had some problems with rating compliance, and that they uncovered compliance problems with every aspect of the Act's requirements. The report goes on to cite some of the problems uncovered, with the problems generally being failures of procedure or understanding of the Act's requirements, rather than being anything willfully fraudulent.^[10]

It is difficult to give accurate time series data for rates revenues, due to the changing nature of local authorities, one-off transactions each year, and the dominating/distortive impact of Auckland. So we are providing some simple headline data here.

Between the period 1993–94 and 2006–2007, rates increased by 38% in real terms, i.e., after adjusting for inflation.^[11]

A report commissioned by the Local Government Association shows that real rates per household have increased by almost 50% between 1993 and 2011.^[12]

The Department of Internal Affairs published a detailed set of time series and analysis of how rates were imposed in July 2011.^[13]

In 2009–10, local authorities collected $2.9 billion in rates receipts, being 53% of total operating revenue of $5.5 billion.^[14]

In 2010–11, local authorities rates receipts made up 54% of total operating revenue.^[15] This increased still further to 55% of total operating revenue in 2011-12.^[16]

Following what seems to be a trend, rates made up 56% of total operating revenue in the 2012–13 year.^[17] For the 2013–14 year, although rate revenues increased 4% over the previous year, the percentage of total operating revenue dropped to 54% as a result of some asset revaluations in Auckland.^[18] The 2014-15 year showed rates receipts returning to 'normal' trends and totalling 57% of total revenues.^[19]