The leftwing Green Party has found common ground with a small-government lobby group by proposing council rates be based solely on land values

If you glance at the skies tonight and spot a pig flying past a blue moon, it may only be the second most surprising part of your day.

Because at 12:28pm on this unlikely Tuesday, the Taxpayers’ Union endorsed a Green Party tax policy and urged the National-led government to support it.

Don’t get too excited. It wasn’t the $20 billion wealth tax. It was a proposal from the party’s local government candidates in Wellington to change how rates are calculated.

Instead of taxing properties on their total value, including buildings and improvements, the Green candidates want to base rates solely on the value of the underlying land.

Jordan Williams, executive director of the Taxpayers’ Union, said the current system effectively penalised the kind of development that makes cities more liveable.

“The Greens are right on this one. Taxing land, rather than housing and development on land, creates the right incentive of avoiding land banking or not putting land to its most productive use, such as housing,” he said. 

“Local Government Minister Simon Watts should reach over the aisle and grab this phenomenal policy to realign rates as a tax on land for services provided to a property, rather than operating as a tax on improvement.”

Lower rates for most 

Green Party councillors Rebecca Matthews and Geordie Rodgers, along with associated-but-independent mayoral candidate Alex Baker, have separately proposed reforming the city’s rates system.

They said the change could reduce future rate increases by up to four percentage points for most households, by shifting more of the burden onto large undeveloped lots in northern Wellington.

Derelict houses across the city—often held for future development, zoning changes, or better market conditions—would also face higher taxes. The aim is to nudge owners to build or sell.

But government ministers aren’t rushing to back the idea.

Simon Watts, who is also Minister for Revenue, said he hadn’t seen the proposal and it wasn’t a current priority.

“There’s a variety of views in terms of the methodology that you could use for rating. I think those aren’t new conversations,” he said.

“We’ve also got massive reform in regards to Local Government Done Well. We want to make sure that stuff’s implemented properly before we’re starting to embark on other areas of reform.”

Housing Minister and Wellington MP Chris Bishop called it an “interesting idea” but said he hadn’t formed a view on whether it was worth pursuing.

“My initial understanding is that there are pros and cons. Either way, it would be quite a big change to the way our rating system works and I'm not the Minister of Local Government.”

Broken clocks 

Green MP Ricardo Menéndez March said he was proud to see his party’s council candidates pushing for local solutions.

While he welcomed support for the policy, he hadn’t expected it to come from the Taxpayers’ Union.

“A broken clock gets it right every now and then. I'm not too bothered about seeking their endorsement, but I think it's nice to see that it's getting support,” he said.

“We hope to see greater representation of our Green Party candidates in local government, so that people can actually see the investment they need in things like water infrastructure.”

Inland Revenue recently published a long-term briefing that analysed the costs and benefits of alternative tax bases, including a land tax. While the report focused on central government policy, some of its analysis could also be applied to local council taxation.

IRD said land taxes were among the least distortive, as the supply of land in a given area is fixed and owners cannot reduce it in response to a tax.

“Property taxes are likely to be more distortive than land taxes. This is because the supply of land improvements, such as buildings, is more elastic than the supply of land. The introduction of a property tax creates a disincentive to supply property, and because supply is elastic, less property is made available,” the report said.

Inland Revenue said 94% of local authorities charged general rates, with 29% doing so based on land values and 71% on total property values. Together, these rates raised nearly 2% of GDP in 2022.