Councils might soon be able to receive a portion of the GST collected on some construction that occurs in their areas, potentially adding tens of millions of dollars of revenue to their coffers.

Deputy Prime Minister and Act Party leader David Seymour dropped a strong hint that the policy, long championed by his party, could form a part of this year’s Budget.

The policy is designed to encourage councils to enable the building of more homes, by giving them a financial incentive attached to new construction. Act costed the policy in 2023 at just over $5 billion over the four-year forecast period, based on a calculation of returning half the GST from new build homes to councils.

Act and National’s coalition agreement committed both parties to “consider sharing a portion of GST collected on new residential builds with councils“, but the agreement does not stipulate what portion would be shared.

Speaking to Ryan Bridge TODAY on Herald NOW, Seymour hinted at the change when discussing councils’ funding challenges.

“One of the ways that we’re going to do that is by sharing some of the GST that is collected by central Government on construction with the local council.

“That way you get the money where it needs to be because there are real needs in places like Queenstown and places like Auckland,” Seymour said.

Pressed by Bridge on whether this was happening, Seymour suggested it would come in the Budget.

“There’s a Budget on May 28th and details are still being nailed down, but there’s a commitment amongst the parties that formed the current Government to introduce that Act Party GST-sharing idea into a Budget this term,” Seymour said.

Asked whether the sharing would be on new-build homes, Seymour said the concept of the tax change was to reduce tax on “construction activity”.

Seymour said that while the central Government had a broad array of revenue options, from GST to company tax to income tax, councils were relatively constrained in how they levied income.

“Councils, I’ll give them this, have enormous obligations when development happens, but the revenue they get is relatively limited.

“I think that there’s an opportunity to change that so that when you go along and ask a council for a consent, they say, ‘Gee, if we allow more developments in our region, we actually get a share of that revenue.”

Seymour conceded the change would mean less money for the Government and the central Government might need to get smaller to accommodate the tax change.

“Government needs to get smaller and more efficient, there’s no debate there,” he said.