Proposed Changes to GST by Central Govt

The Minister of Finance has given a strong indication that GST will be increased to 15% from 1 October 2010 but any decision to do so will not be made until the Budget announcement in May this year.

In the meantime and in order to prepare their Draft Annual Plans within statutory timeframes, local authorities have continued to assume a GST rate of 12.5% in their Draft Annual Plans.

As the Dunedin City Council Draft Annual Plan is currently out for consultation, ratepayers should know that any change to the GST rate will impact on rates in 2010/11 year. Based on information received to date, the changes to 15% will add 1.875% to each property's rates. This percentage represents a pro-rata increase in GST for the year ending 30 June 2011, applying the weighted average increase across the full year:

• First quarter (1 July to 30 September 2010) will have a GST rate of 12.5%
• The following three quarters will have a GST rate of 15%.

For Dunedin ratepayers this will increase the total rates increase proposed in the Draft Annual Plan from 5.3% to 7.175%.

The Society of Local Government Managers is gathering support from Territorial Local Authorities (TLA's) for an approach to the IRD to ensure that the GST provisions in any new legislation affecting TLA's takes account of the nature of rating in local authorities (ie local authorities strike their rates once and then issue a series of invoices to the ratepayer). With the act of striking of the rates occurring only once and the implications of this in their financial management systems, it is essential that the correct rate of GST is included in calculations. The change proposed by the Minister needs to ensure that any legislation recognises this fact.

Ratepayers should be aware of the impact of any Government change to the GST rate now as the Draft Annual Plan 2010/11 assumes a GST rate of 12.5% and the final Annual Plan 2010/11, which contains any changes resulting from the public consultation process, will have a different rate of GST applied. This means that in the final plan, the rates adopted will reflect any changes made to the plan from consultation, as well as the impact of the change to GST made by the Government in its May Budget.

The public should be aware that the unique way that the local government rates are 'struck' means that the increase will be applied pro rata across the rating year. This in turn means it will not be possible to anticipate any GST increase by paying the entire annual rates account in the first quarter at the current rate of 12.5%.