In the past three years the Carnell Government has done several things to improve the rating system, but it is still not perfect. Moreover, the system is changing by stealth more towards a user-pay system. That may be no bad thing, except that it is not being recognised and debated.
The Government is to be commended for dealing with the hefty rises in rates that some people suffered in the last two years of the Follett Labor Government. It did that by two methods. First, it changed the method by which individuals were rated. Instead of basing the rates on the unimproved property value of the past year, it based the rates on the average of the past three years. That meant that any large fluctuations in property values did not result in large fluctuations in rates. Rather trends up or down were more gradual. Moreover, the relativities between the various areas in Canberra did not move too quickly. So that large reductions of property values in one year in some areas did have to be compensated by large rises in rates in other areas where property values remained the same or went up in order to keep the overall revenue intact.
Secondly, it promised not to increase rates by more than the consumer price index, and by and large it has stuck by that promise.
Those two changes have done much to obviate the uncertainty of wild fluctuations in rates.
It also introduced a third reform which has not had much affect in the past two years, but will slowly have greater effect in the future. This was the introduction of the flat base fee. Initially, it was $220. It will go up to $240 in the next round. When the fee was introduced a rate-free threshold of $19,000 on the unimproved value was introduced to off-set it. Initially, that threshold was worth $201.50 off everyone’s rates bill, so it fell short of the flat fee by a mere $18.50. Few people noticed. In the next round, though, the $19,000 is not indexed and even at the right rate in the dollar of 1.114 cents in the dollar, the rate-free threshold will fall short of the flat fee by $28.34.
If this trend keeps up the flat fee will be a greater portion of rates as years go by. Indeed, all the trends are that way. Modest rises in the flat fee are likely to continue. Property values are likely to rise so the rate in the dollar is likely to stay fairly stable, or even go down to meet the Government’s overall promise that the total take will not be greater than the CPI. And the $19,000 rate-free threshold will can easily be pegged. Those trends are likely to result in a greater portion of rates coming from the flat fee and less from unimproved property value.
That may not be such a bad thing, especially as the trend will be gradual.
Even so, the property-related charge will remain the lion’s share of rates and it may not the best or fairest basis for rates. The question has to be asked, what are rates? Are they just another tax? Or are they payment for services, if so what sort of services? The next question is, what rationale should apply to who should pay or how much should be paid? Should rates be levied as closely as possible to a user-pays model? Or should rates be struck according to capacity to pay?
Whichever way these questions are answered, the present rating system does not fit. If rates are to be seen as just another tax, the burden should fall on everyone, not just property owners. If they are a payment for services, then property values do not reflect service use. It costs as much to collect the garbage in outer Belconnen, where the property values sank this valuation, as it does in the Inner South, where they rose. Indeed, it might cost more to service properties on the fringe where property values are lower.
On the other hand, if rates are to be struck on the basis of capacity to pay, property values are no necessarily a good guide. It may be that people buying in the top bracket of properties this year reveal a larger capacity to pay than people who have bought properties in the lower bracket. However, settlement patterns in Canberra, and indeed everywhere, are slower moving. Many people moved in to houses in the inner suburbs a long time ago and the values increased later. Moreover, as the values rose, the capacity of the occupants in many cases has decreased, particularly among self-funded retirees. Further, in Canberra there are many quite modest houses in the inner suburbs which are now attracting high rates because under early planning policies each suburb had substantial areas of government housing much of which was sold to occupants.
One of the problems with unimproved values is that older people in inner suburbs have seen their rates rise to the extent that they might no longer be able to afford to stay in their own suburb. Forcing them out could cause more economic and social cost than devising a better rating system.
Unimproved property values seems an inaccurate yardstick. That said, it might be that the unimproved-value system is a bit like democracy — not a perfect system, but no better one has yet been devised.
It might be that improved values would bear a better reflection of capacity to pay. Under this system the person in the mansion would pay more than the person next door on the same size block in a modest home, but the cost of doing detailed individual valuations might well outstrip any saving gained by the lowest valued houses in a suburb. Moreover, such a rating system would discourage home improvement.
Political consideration would probably exclude a per-head charge like the dreaded poll tax introduced by Margaret Thatcher in Britain.
But some change will be needed, perhaps a wider system of means-tested rebates, if Canberra property values continue to variegate throwing illogical and disproportionate rates burdens around the city.