Rates Cap to Continue Vicious Circle

“Victorian Labor’s capping of local council rates plays straight into the hands of Tony Abbott’s pro-GST revenue centralisation agenda” stated Prosper Australia Project Director Karl Fitzgerald.

“The integrity of Victoria’s local council rating independence was dealt another blow by the arbitrary limit on council revenues. Local Councils will now have to deal with more red tape as they struggle to fund increased service obligations handed down the governmental chain.

“Prosper Australia has witnessed the continual undermining of the rating system over decades. The Kennett Liberal Party last engaged in rate pegging. This led to chronic underfunding of roads and local services. Now that even the Labor Party is indulging in rate pegging, user charges are set to grow.

“Municipal reliance on user charges enforces inequality as both wealthy land owners and the less privileged pay the same amounts. The rating system explicitly recognises that both landowners receive differing capital gains according to their location. This has all but been forgotten.

“Reliance on Federal transfers will also escalate, with Financial Assistance Grants totalling $539m in 2014-15, up from  $340.38m (02-03).

“Local councils will be obliged to support higher GST charges to enable higher grants. This regressive tax will place further pressure on local services for the needy. The vicious circle continues.

“The history of rate pegging in NSW has engendered a loss of sovereignty. In 2012 some 26% of councils were adjudged to have poor financial sustainability. Local services are suffering. This trend will spread to Victoria.

“Leafy inner easter Melbourne suburbs, where ratepayers paid off their pools, parks and libraries decades ago have headroom to operate under the new rate capping regime. However growth area councils will struggle to build the infrastructure required. Further pressures on growth area councils comes from Development Contributions Plan payments stretched out over 30 years.”

“For local councils, we expect rate pegging to apply further pressure on the rating base itself. Under the present CIV/NAV bases, the family home pays some 30% more than an identical vacant block. With property investors totalling 50 per cent of housing finance, many will be rubbing their hands in glee at this announcement. Rate pegging will deliver higher land prices  to speculators and higher mortgage payments to financiers, leaving families and small business drowning under additional financial pressures.

“We call on the Andrews government to investigate the wider pressures Melbourne’s 20 year land boom has placed on the operational costs of government, business and the community. Expensive land imposes an anti-competitive burden on the state’s economy that must be recognised. Increases in local council rates to meet such costs are partly to blame on the state’s poor utilisation of the most efficient tax base – Land.

“Poor understanding of holding charges on land (Council Rating and Land Taxes) are sending us on a pathway to regressive user charges. This suits the Federal government, undermining the independence of local government and the states as well” finished Fitzgerald.

Media Contact:

Karl Fitzgerald 03 9077 0999 karl@prosper.org.au