The New Zealand Initiative has released a new research note examining how to implement revenue-sharing between central and local government, a policy the think tank has advocated for since 2013 and which the Government has now committed to pursue.
The research note, titled 'Revenue Share' for Housing, explores options for councils to receive a portion of tax revenue from new housing developments, addressing New Zealand's persistent housing shortage.
"Our research shows that by redirecting, for example, just 1.4% of its tax revenue, central government could boost local council budgets by 11.3%," said Nick Clark, Senior Fellow at The New Zealand Initiative and author of the research note. "This relatively small shift in funds could create a powerful incentive for councils to say 'yes' to new homes."
The concept is simple: when new houses are built, the government shares some of the resulting tax revenue with the local council. This creates a virtuous cycle where more housing leads to more funding for local services and infrastructure.
While previous governments have been reluctant to implement revenue-sharing due to concerns about fiscal impacts, this research demonstrates that the benefits could far outweigh the costs.
"There are several ways to structure revenue-sharing," Clark explained. "Our analysis shows that some methods are more effective than others at encouraging housing development. The key is to ensure a clear link between new homes and increased council funding."
The research suggests that basing payments on new building consents or completed builds could provide the strongest incentives for councils.
Importantly, any new revenue sources should not substitute for stronger fiscal responsibility in local government.
"We're excited to see revenue-sharing on the Government's agenda," Clark added. "This policy has the potential to significantly boost housing supply across New Zealand, addressing one of our most pressing national challenges."
The New Zealand Initiative stands ready to assist policymakers in designing an effective revenue-sharing system that works for both central and local government.
This research note has also been welcomed by Local Government New Zealand (LGNZ):
“Local Government is ready to work with the Government to enable more housing in New Zealand.
“This research from the New Zealand Initiative shows that with the right settings, the Government could provide strong incentives for housing growth and reduce the burden on ratepayers. The report also highlights an opportunity to share a portion of GST on new non-residential buildings, which would incentivise economic growth without burdening ratepayers.”
“Currently, housing and population growth come at a high cost to councils and communities, which must fund new infrastructure to support new residents and developments. Local growth generates GST and taxable income, which are collected centrally.
“We support growth paying for growth.
“We support the Government’s commitment to investigate sharing a portion of GST collected on new residential builds with councils. Providing a share of GST on all new residential buildings, in line with the costs councils incur for supporting development, would be an effective tool for incentivising growth and reducing the burden on ratepayers.
Campbell Barry, Vice-President of LGNZ
