The ratepayers are restless. A meeting on Thursday night called to set up a ratepayers’ association was told that Kerry Packer has a much lower rates bill for his Sydney harbourside mansion than the upmarket places in Canberra.
It is an emotive example. However, it shows the sticky position the ACT Government has got itself into. Essentially, the ACT Government is robbing Peter to pay Paul.
Peculiarly, the ACT embraces both local and state government functions. In the other states and territories they are divided. The local councils collect rates revenue and levy some other charges for the provision of services like garbage collection and road maintenance. The state governments collect revenue and levy charges to run schools and hospitals.
In the other states and territories, rates are quarantined for local-council use. They are purely for local-government services to those property holders.
In the ACT, however, the government can cross-subsidise. It can levy very high rates and use them not only provide garbage collection and gutter cleaning but also for state-type functions such as hospitals and schools.
Some would argue that it costs just as much to collect Kerry Packer’s garbage or the garbage of a house in Mugga Way as it does to collect it from a place in Narrabundah _ perhaps less given that smoked salmon comes in less wrapping paper than McDonald’s. These people would argue for a flat property-service fee.
The fact that the ACT has had to resort to cross-subsidising reveals two other problems, the first self-inflicted the other only partially self-inflicted: dumb, inefficient government practices and a reliance on a very narrow revenue base. And this in turn causes another problem: distortion.
First to the narrow revenue base. We cannot increase the traditional booze, smokes, gambling and petrol taxes because people can nip over to Queanbeyan to avoid them. A rise in the taxes would result in a fall in revenue. Half the working population is employed by the Federal Government which is payroll-tax free. Much of the rateable land it occupied by it and is land-tax free.
Thus, the ACT Government keeps on hitting the ACT’s biggest industry: human shelter. Canberra is here to shelter Federal public servants and those (like me and my colleagues at the Canberra Times) who provide services to them. The hits come in rates, land tax and stamp duty.
The higher the taxes the greater the distortion. Stamp duty has reached a point where it had become the major factor in deciding whether to move or extend and even whether to move to a smaller place to avoid the large upkeep of a childless house. Land tax has been rebracketed with a CPI adjustment so that in five years nearly every block will be levied at the higher rate. That will result in investors thinking twice about buying in Canberra. Higher rates might oddly push property values down.
Once something gets heavily taxed, people’s behaviour to it alters: witness the drift from beer to wine over the past 25 years as wine escaped the slug because it was a rural industry.
The distorting taxes after a while become self-defeating as people flee high-tax incidence for substitutes. Worse, the high tax becomes unjust because the middle and poor often cannot afford to move away from high-tax things. But the ACT seems locked in to this folly to finance its expenditure and because it will not bite the bullet on broadening the revenue base with death duties and making users pay for government services.
So the taxpayers continue to cop it.
I’ll leave aside, in the interests of brevity, the lunatic Peter-and-Paulism that goes on between federal and state governments. The ACT levies a land tax; the landlords claim it against their federal income tax, so the Federal Government looks like retaliating this budget by making the ACT Government (and other local governments) pay sales tax on their goods for which they were previously exempt. So the ACT Government will increase FID on bank transactions which people will claim against Federal income tax because their salaries now have to go through a bank account. And so on.
The cross-subsidy of state and local revenue in the ACT is not bad in principle, provided those who levy the taxes are politically responsible for them. Indeed, there is some advantage to having one polity govern both levels of government: there can be no buck-passing of responsibility.
ACT ratepayers, unlike their counterparts elsewhere, can look to the administration of the whole range of both state and local functions to suggest where inefficiency and folly is causing high rates.
In the ACT’s case you will inevitably find some special powerful interest group (either a union or a developer) driving the many examples of expensive folly, both on the expenditure and revenue side. Either that or some jaundiced ideology.
Examples abound: having the fire service (with its powerful union) do road rescues when police attend car prang anyway; not letting schools independently lease their facilities to community groups so we all get better value for them because janitors will miss out on double-time for opening up at weekends; not levying betterment on change of land use and effective rates to retain community value instead of giving it to developers; building a new hospice instead of refurbishing existing buildings to give developers and construction industry a kick along; allowing the TWU to run a bus service at a $50 million a year loss in the name of social justice; having one person read water meters and then a second person go around exactly the same houses again to read the electricity meters when both are employed by the same government corporation; bringing the TAB into the public service to enable greater union coverage at costs to the general revenue; and that’s for starters.
That’s where the rates are going. No wonder the rate-payers are restless.