1.5 Implementation of the Local Government (Rating) Act 2002

Local government: Results of the 2003-04 audits.


Local authorities collected rates under the Local Government (Rating) Act 2002 (the Rating Act) for the first time in 2003-04. Our previous reports to Parliament have covered a range of issues that local authorities and our auditors have dealt with under the Rating Act.35

The purpose of this article is to discuss 2 rating issues that came to the attention of this Office, and our auditors, in the course of the 2003-04 audits.

Resetting rates

Section 119(1) and (2) of the Rating Act provides that –

Local authority may set rates again

(1) A local authority may set a rate again in the financial year in which the rate was set.

(2) Subsection (1) applies if –

(a) the local authority determines that it is desirable to set the rate again because of –

(i) an irregularity in setting the rate; or

(ii) a mistake in calculating the rate; or

(iii) a relevant change in circumstances; and

(b) setting the rate again will not increase the amount of rates assessed to any rating unit.

The purpose of section 119 of the Rating Act, and the related section 120 dealing with the “replacement of invalid rates”, is to enable councils to fix rating defects without needing special validating legislation every time something goes wrong with the procedures or circumstances change (as was required by the Rating Powers Act 1988). However, while section 119 provides an administratively easier option for local authorities wanting to correct such defects, we expect it to be rarely used.

One local authority decided that its rates should be reset because it had failed to recognise the implications of a revaluation of properties at the time those rates were set. The revaluation had resulted in one group bearing a substantial increase in rates relative to other residents in the district, and the local authority considered this to be “a relevant change in circumstances” under section 119(2)(a)(iii).

Another local authority assumed that its resolutions adopting the annual plan and funding impact statement also formally set the proposed rates referred to in those documents. As a result, it failed to pass the separate rates-setting resolution required by section 23 of the Rating Act. The local authority decided this was “an irregularity in setting the rate” under section 119(2)(a)(i), and accordingly relied on section 119 to reset its rates.

In both circumstances, the local authorities concerned took legal advice and we accepted the positions they arrived at. However, we thought it useful to set out our views on the application of section 119(2)(a).

Section 119(2)(a) prescribes 3 alternative tests, and councils should take considerable care in considering whether any of these tests apply before deciding that it is “desirable to set the rate again”. In our view, each of the tests must be approached on the basis of the natural meaning of the words used.


“Irregularity” does not have a technical or statutory meaning. One plain but useful definition of the word is “not in conformity with the law prescribing and regulating that process”.36

In that regard, any failure by an individual council to comply with a requirement for a separate rates resolution could be considered a type of “irregularity”. The omission of a particular step in the process of setting a rate may also constitute an irregularity.


A situation in which a local authority is given wrong figures that result in an error in setting the rates, or rates that do not reflect the intentions of that local authority, could constitute a “mistake”. However, it is unlikely to apply to a situation where the council simply overlooks the implications of a rating decision.

Relevant change in circumstances

The word “circumstances” could be read in 2 different ways − as a fact or condition connected with the council’s rate as a whole or any part of it, or (more narrowly) as the financial or material circumstances of an individual ratepayer in relation to the rate. In our view, the circumstances in question must relate to the rate itself.

There also needs to be a “change” in circumstances. That change must have taken place since the rate was originally set, and it must also be “relevant” to the rate itself (e.g. affecting its necessity or integrity). These conditions could provide a council with a basis for deciding that it is “desirable” to set the rate again.

In our view, simply changing one’s mind, or realising afterwards that the rate is unduly harsh on some ratepayers, does not meet the test of “a relevant change in circumstances”. On the other hand, events such as the following examples could amount to a “relevant change” in the circumstances relating to the rate:

  • a natural disaster that imposes property-related costs on the community; or
  • a financial windfall for the council.

Surpluses from targeted rates

A targeted rate is a rate set to fund a specific function, or group of functions, under section 16 or 19 of the Rating Act.

A local authority may set a targeted rate for more than one activity or a group of activities, if its funding impact statement so provides. In some instances, it is inevitable that a local authority will be left with a surplus after collecting a targeted rate (e.g. when the activity for which the rate was set did not proceed, or it was only partially completed).

The issue of whether a surplus from a targeted rate can be used for another purpose, unrelated to the purpose for which it was originally raised, has been considered by at least one local authority that we are aware of.

There is no provision in either the 2002 Act or the Rating Act that specifies how a local authority may use a surplus from a targeted rate. However, using such a surplus for another purpose without consulting those who paid the rate is inconsistent with a number of principles and specific requirements in both Acts.

For example, section 3 of the Rating Act states that one of the purposes of the Act is to ensure ... that rates are set in accordance with decisions that are made in a transparent and consultative manner. Section 14 of the 2002 Act states that ... a local authority should conduct its business in an open, transparent, and democratically accountable manner.

In deciding how to use a surplus from a targeted rate, a local authority should consider the decision-making provisions of Part 6 of the 2002 Act, any relevant local authority policies, and the quantum of the surplus. As a minimum, the local authority should ask the ratepayers who paid that rate whether they agree with it being used for another purpose.

A secondary issue is how such surpluses should be accounted for. We think it is important that a local authority is able to demonstrate how it applied a targeted rate. It therefore needs to be able to account separately for the use of surpluses from targeted rates.

We will continue to keep a watching brief on this issue.

35: See Local Government: Results of the 2001-02 Audits, parliamentary paper B.29[03b], pages 57-62, and Local Government: Results of the 2002-03 Audits, parliamentary paper B.29[04b], pages 67-79.

36: Re The Election for Mayor of the Far North District [1993] DCR 769.

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