The ACT Government has come up with what seems an acceptable compromise on the method of charging rates, but there is a small time-bomb in the proposed system and a bizarre piece of money shuffling.
. The system before the last election was based on the previous unimproved valuation. It meant, however, that rates could fluctuate quite markedly immediately after a valuation. It was not a good system. As an interim measure the Government, adhering to an election promise, applied a blanket CPI increase to every rates bill. The Government wanted to continue with this system, but in the long run it was untenable. Rates could not be based on 1994 values plus CPI indefinitely.
Two rates reviews recommended changes. One, in 1994, thought rates should be adjusted according to the average value of the last three valuations of a property. This would iron out large changes in rates based on a single value. The Government, sensibly, has adopted this approach, but has added some bells and whistles.
Another later review called for a system of a fixed charge to generate half ACT rate income and the rest to be based on property values. That had the drawback of seeing less-well-off people paying much more and people who owned splendid dwellings paying less. The Government has rejected this, but has taken up some of the flat-fee idea.
It will charge a flat fee of $220 per household for municipal and residential services (far less than they cost). To counteract the allegation that this will be unfair on residents with low-value properties, the Government has agreed to a rate-free threshold on the unimproved value to “”minimise the impact of the new system on ratepayers in lower-value properties”. This is a bizarre piece of money shuffling that has more to do with appearances than reality. At the current rating level, an unimproved value component of $19,000 translates to $201.50. So what is the Government doing in paying every ratepayer $201.50 and then taking away from every ratepayer $220? The overall effect is about zero.
The answer must be in the potential to adjust the rate-free threshold and the flat fee by different percentages in the future. If the flat fee rises over the years while the rate-free component stays static, the overall result will be to sting residents in poorer areas (in effect a creeping poll tax). If it is done the other way, the overall effect will be to subsidise residents in poorer areas (in effect a creeping social welfare payment). The virtue in the system is that it is flexible either way and transparently so.
The Government has overcome the problem of large rates fluctuations. It has devised a mechanism to make the system responsive to social needs, at the cost of providing a mechanism that could be misused.
Rating systems will always have flaws. They are levied to pay for services so arguably should be flat, unlike income tax which is designed to be redistributive, but local governments must have a conscience. They are also bound to yield instances of unfairness because unimproved values will never precisely reflect income, wealth or capacity to pay, but unimproved value is the only efficient way of doing it.