Property values and rates excite the interest of Canberrans more than any other news story.
Rates raise about $100 million, about a fifth of local revenue.
In the past five years there has been a debate about fairness of rating systems. One argument suggests that every household uses similar municipal services — two bins per house whether in Isaacs or Isabella Plains. The other argument is that those people who live in places where property values are high should pay more because they can afford it. That, in turn is countered by the argument that as people wishing to stay in the inner areas grow old, their income drops while their property values rise. High rates might force them out.
In 1996, the Government changed the rates system to accommodate these opposing views.
Rather than basing the whole of rates on property values, the Government came up with the idea that the flat property rates system should change.
For a start, rates would not be a simple mulitple of the current year’s unimproved value. Rather, it would be a mulitple of an average of the past three year’s values. That has resulted in far less fluctuation in rates, and was a sensible idea. The largest change in the current year is less than 8.5 per cent. (Incidentally, the column marked “”99-00 uv” in the table published yesterday was the floating average for the past three years, not the uv of 1999-2000, which has not yet been determined.)
Secondly, the Government put a fixed-charge component into rates. It started as $220 in 1997 and has risen to $260 this year. In return it removed the first $19,000 for unimproved value for rating purposes. That, too, has reduced the fluctuation in rates caused by high fluctuating property values, but has probably had a larger impact than popularly imagined.
The Government tried to please all, and has probably pleased none. The rich burgers of the inner south would probably like a Thatcherite poll tax of a flat rate for every household whether a mansion on Mugga Way or a shoebox in Outer Belconnen
Nonetheless, both changes have helped people living in high property value areas. Property values went up 13 per cent in the inner south last year (leaving out Pialligo and Oaks Estate). Unimproved property values in the inner south average $220,000 (or $237,000 if you exclude Narrabundah as well). But rates in the inner south will go up only 6.1 per cent.
So under the new system the property values of the rich inner south go up 13 per cent, but they cop only a 6 per cent increase in rates. It gets worse.
Rates are a fixed-cake affair. The size of the cake is of less concern than how it is sliced up. Given the ACT wants to raise $104.3 million from rates this year against $101.7 last year (an increase of 2.5 per cent), it must strike a rate in the dollar that will raise it after taking account of the fixed service fee and the $19,000 threshold. This year that rate is 1.1046 cents in the dollar.
Without the service fee and the threshold it would have had to be higher to raise the $104.7 million.
How much higher? On my rough calculation of $8,916 million worth of unimproved value across 120,000 households in the ACT, a rate of 1.1665 cents in the dollar would have to be struck to reach the $104.3 million needed on the raw value system. It would mean rates in the top seven inner south suburbs would have been $2764 a year instead of $2283.
Now I accept they are back-of-envelope figures, but I think if the numbers are thoroughly crunched the result will show that the new rating system gives a far more generous allowance to the high-end of town than was intended when the new system was devised in 1996.
The reason the new system gives an astonishing $400 plus break to the wealthy inner south is that values there are more than double the Canberra average. Perhaps the system needs revisiting.