GST for councils that get houses built being considered by Government

Tuesday, 27 February 2024

Councils may soon receive a $1 billion share of GST from the Government to incentivise house building.

Housing Minister Chris Bishop said on Tuesday the Government was actively considering providing councils a share of the goods and service tax, gathered by the Government on many economic transactions, as a reward for ensuring houses are built.

Consideration of the policy was part of the National-ACT coalition agreement, and it appears to be firming up as a prospective component of the Government’s “Build for Growth” plan.

Bishop signalled in a speech on Tuesday morning the GST policy was “in the mix”, and ACT leader David Seymour said he hoped it would emerge in this year’s Budget.

Exactly how valuable the policy might be for cash-strapped councils, which in some cases fork out more in servicing new homes than received through claiming rates from them, remains unclear.

There also remains the question of how much of its $24b GST take the Government may be willing to forgo, given the tight fiscal situation it faces.

The ACT Party proposed councils receive an amount equivalent to half of the GST that is collected from building a new home, estimated as costing more than $1b a year.

The National Party proposed a $1.1 billion fund (paid for by cancelling the Labour Government’s housing schemes) for councils that would provide them $25,000 for each home that is built above their five-year average of house building - equating to $152 million for Auckland in 2022, and nothing for Tauranga.

Bishop would not confirm on Tuesday if the GST would be in addition to National’s proposed fund, or would replace it.

Speaking after the speech, he said the Government was working through how it could deliver ACT’s GST policy as a house building incentive “deliberately designed to tilt the dial in favour of more housing”.

He said that because the GST went into the wider pool of government funds, any incentive payment would not be a direct rebate - such as that proposed for construction costs.

“We've got our own fiscal constraints as well, so there's a way to go.

“What I was signalling this morning is that Cabinet has agreed to the three elements of our core ‘Going for Housing Growth’ policy, that’s land rezoning, competitive urban land markets, Infrastructure Funding and Financing [Act] reform, and the incentive package. Details to come.”

Seymour said under ACT’s proposal councils would be able to use the GST payments in a manner of their choosing.

'If they consent more houses getting built, they get more money. So ultimately, a council could waste the money, but then they would not get more in future years because they wouldn't have the infrastructure to build more homes.

“The policy development might allow there to be a particularly restraint on how they can use it, or a clawback if they didn’t deliver on infrastructure plans.”

He said while the Government had to “tighten the purse strings” it was also true there was an extensive infrastructure deficit.

Local Government New Zealand president Sam Broughton, who is also mayor of Selwyn District Council, said a GST-sharing policy would be “a step in the right direction”.

'The fact that at the moment councils cover all the expenses of new housing and get no return on what GDP growth that brings is really unfair, and quite an unsustainable way of funding local government.“

Which councils might benefit from such a policy would depend the circumstances of each. He said there was a lot to “tease out” of the proposal - such as the threshold at which councils receive any incentive payment.

High levels of house consenting in recent years had dropped away, he said, so determining which councils might be consenting above a five-year average could be “an interesting piece of work”.

Local Government Minister Simeon Brown said while GST was being considered in relation to the housing policy, providing councils a direct share of the total GST accrued in their area - as some had wanted - was not being considered.

However the Government was looking at a range of financing options to better support councils, including value capture taxes.

Many councils are in difficult financial positions, burdened by large infrastructure bills and high-debt levels.

Though local government credit ratings remain strong, amid the “policy uncertainty” the rating agency S&P downgraded the outlook, not the credit rating, for 15 councils from stable to “negative” last week.