As the end of the financial year looms and with the publication last month of every suburb’s average unimproved values we should get a clearer picture of Treasurer Ted Quinlan’s new rates system.
In the past week Quinlan very commendably has taken on board some criticisms and suggestions.
You will have to forgive the figures in the rest of this article, but if you want to go beyond the politicians’ adjectives and adverbs of “fair”, “just”, “reasonable”, “best” etc to the nouns and verbs of what it really means, you cannot escape some arithmetic.
June 30 is the big cut-off date. Those people who settle on their new dwelling after then will be as much as $8,000 worse off over the average stay in a dwelling of 11 years. Even in average suburbs you will be $5000 or so worse off.
This is because those people who have lived in their house for the whole 366 days of the 2003-2004 financial year will continue to have their rates for 2004-05 and subsequent years adjusted by the consumer price index. Those people who buy (and settle) on their new house part way through the year will have their rates for 2004-05 calculated according to the average unimproved value of the previous three years and only in subsequent years will their rates go up by just the CPI. The catch is that in the subsequent years their rates adjustment will be off a higher base. Let’s call the extra a surcharge.
The surcharge, coming off a higher base, has a compounding effect. So someone who buys in Deakin after July 1 will have a surcharge over the neighbours of about $680 in the first year. In the 11th year it will be about $940.
I shudder to think how annoyed a buyer might get with a lawyer, bank or real estate agent who messes up a conveyancing settlement in the last days of June when a delayed settlement could cost them so much.
The table shows the surcharge in some typical suburbs across Canberra in 2004-05, based on the existing rate in the dollar. When the legislation was introduced Quinlan said “new owners will pay rates on the existing formula, incorporating the existing AUV of that relevant parcel of land”. That formula is the average unimproved value minus $19,000 times the rate in the dollar of 0.782 cents plus $300.
How did we get that complicated formula? It was former Chief Minister Kate Carnell’s attempt to deal with the same problem Quinlan is dealing with — surging property values causing vote-sapping rates increases unevenly across the Territory.
At least Carnell’s formula was applied across the territory, unlike Quinlan’s which will result in a multi-tiered system where rates on like properties will depend not on some rational basis of affordability, services and amenity but on how long you happen to have lived in the suburb.
Quinlan’s scheme has a fundamental illogicality. He has rightly pointed out the unfairness of huge rates rises in some suburbs while there are only modest rises elsewhere. But why replace one system with unfair unevenness with another?
Quinlan’s heart and policy aims are in the right place, but as the new system unfolds (or maybe unravels) the anomalies might be politically unsustainable as more examples arise of stay-put millionaires getting rates relief while struggling new-home buyers gets slugged.
The system might prove a financial mistake too. It gives people a huge incentive to stay put. More people staying put means less stamp duty revenue for the Government.
Quinlan has said he is prepared to make adjustments to things like the rate in the dollar and some form of relief for people – subject to a means test — who move because of retirement or other pressing circumstances.
One might well ask, why not increase everyone’s rates by just the consumer price index every year and leave it at that. The answer is twofold. The Government must protect and expand its revenue base if it is to do the things it wants to do (buy votes, appease pressure groups, govern responsibly etc). A mere CPI increase will not do that. Secondly, new leases, sub-divisions and units must get an initial assessment somehow. So properties must ultimately have rates assessed according to value unless the Government does the unthinkable and cuts the tax base.
It is likely that the 2004-05 surcharge on movers will be a large one. This because the new three-year AUV will leave off the 1999 AUV – the one just before the most recent property boom. So the AUV for movers shows a hefty increase. Also, people getting the first surcharge will get it after their 2003-04 rates have been based on CPI. It will make the jump even bigger.
The president of the Property Owners and Ratepayers Association, Peter Jansen, says Quinlan should announce any new rate in the dollar before the end of the financial year so people know where they stand – particularly first home-buyers and people on the cusp of affordability.
Quinlan’s office said that a new rate in the dollar is likely but subject to further work so a precise figure is not available. It may be that Quinlan will have to strike a new rate in the dollar every year for the movers and CPI for the rest.
Quinlan has a difficult task with rates. He is tinkering with a fairly messy system to begin with. He has been willing to listen to criticism and take on board suggestions. His quest for equity and fairness is well-placed. The fact his system is complicated is not in itself an argument against it. But the fact it will inevitably result in unfairness is. Quinlan’s test for rates relief – living in one place for a long time – cannot achieve fairness because moving house has little to do with capacity or obligation to pay higher rates. Moving house has more to do with expanding or contracting family size and location of work or schools. Why should people get hit with higher rates because of that?
Quinlan should look at what some NSW councils are doing. They are basing rates half on property value and half on a flat fee for the services everyone uses. This is ameliorated by rebates for pensioners and partial postponement of rates for the elderly until the property is sold or passed on after they die.
As it happens Quinlan’s scheme suits me fine. I intend to sit in the inner south for quite some time. The fact the system is so good for me makes me suspect there must be something wrong with it.