Cr Stephen Mayne invited a Prosper presentation at the Future Melbourne meeting last night. This followed on from the February MCC meeting I presented to in reaction to the short sighted Victorian Government decision to cap local council rating.
Cr Mayne had asked council officers to analyse the property related tax take by the state government vis the MCC. The data was compiled in the Report to the Future Melbourne (Finance and Governance) committee: State Land Taxes and other property taxes. The report was made public yesterday and is of great interest to land reformers. The data demonstrates the MCC has not been in engaged in a rates tax grab as per Table 1:
One can see that from 1990 – 91 both the State government and MCC have greatly reduced the tax burden on the property sector by increasing the Land Tax threshold and reducing the MCC rate in the dollar. The Port Melbourne Historical Society recently dropped off a 1968 submission by the legendary Allan Hutchinson from the LVRG, which showed the rate in the dollar was even higher at 14.25.
Table 4 is of further interest:
Looking at Point 4, page 1 in the Key Issues, we see that 16% of the state’s Land Tax will be collected from CBD ratepayers ie those under the MCC rating system. If we apply that 16% to the Land Taxes collected in Table 4, column 4 we can compare the state to council revenue take from the land and property sector:
| Year | State Land Tax | CBD Land Tax burden @16% | CoM General Rates | Comparative ratio |
|---|---|---|---|---|
| 2014-15 | 1750.9 | 280.14 | 226.5 | 1.24 |
| 13-14 | 1658.7 | 265.39 | 213.7 | 1.24 |
| 12-13 | 1589.2 | 254.72 | 201.3 | 1.27 |
| 11-12 | 1401.4 | 224.22 | 197.4 | 1.14 |
| 10-11 | 1397.7 | 223.63 | 187.6 | 1.19 |
| 09-10 | 1177.7 | 188.43 | 177.4 | 1.06 |
| 08-09 | 1237.6 | 198.02 | 166.9 | 1.19 |
| 07-08 | 865.4 | 138.46 | 154.3 | .90 |
| 06-07 | 989.1 | 158.27 | 135.3 | 1.17 |
| 05-06 | 780.1 | 124.82 | 125.0 | 1.00 |
The comparative ratio shows that both council and state were similar in tax take until 2009-10. This was when the State Government thankfully put a stop to the $25,000 increase in Land Tax thresholds seen in Table 1. A higher tax take resulted for the State. As regular readers understand, we support such behaviour. Prosper Australia advocates for a higher tax take on land’s economic rents in lieu of a reduction in payroll and stamp duties.
Table 5 revealed the influence of the flat fee component of the Fire Services Levy (FSL) imposed on all land owners over recent years:
Whilst CBD land investors must pay some 13 – 16% of Land Taxes, only 6.3% was required by land owners for the FSL. This reflects the importance of the broader rating base that the FSL utilises, and the flat fee of $102 per land title.
Regarding the tax take growth, the percentage change in rates seen in Table 4b reflect again that no extortionate grab has been undertaken by the CoM compared to the state.
Cr Mayne identified the rating and Land Tax burden placed on the commercial sector:
In our view, the council rating split of 70 – 30% commercial to residential was fair. However, the State Land Tax split of 92 – 8% commercial – residential was concerning to Cr Mayne. Point 5, page 1 found that 23.6% of land owners were investors and thus liable for Land Tax. I thought this may have been higher. Despite this, residential Land Taxes dropped to just 8% of total contributions, reflecting the zoning skyscrapers and higher density commercial properties enjoy. Such zoning makes commercial sites more valuable. Under council rating theory, this is fair as the land values escalate instantly upon the right to build 40 stories.
The end result is that both state and council revenues have lowered taxes on economic rents. As economic theory would dictate, this has encouraged a speculative mentality to grow as evidenced by the $108bn increase in land values (ABS 5204, 2013-14). This is particularly poignant for the MCC, which is forecasting its first budget deficits in 20 years as a result of the upcoming Victoria Market redevelopment.
We ask – how many billions will be made by land owners in the immediate vicinity and how many millions will the MCC be indebted as a result of the Vic Market public investment? A form of value capture could be adopted as a work around whilst the Andrew’s government acts to support the never ending Australian property bubble.
Andrews could be more savvy by analysing the expenditure side of council revenues. With the twenty year privatisation of council services, questions need be asked of the cost and effectiveness of operators like Serco, the world’s largest prison operator, ‘Bringing Service to Life’ for the MCC.
A local Footscray small businessman tells of a private operator employed by the Maribyrnong Council charging $2,000 for the cleaning of a single drain pipe. Readers with similar anecdotes are encouraged to get in contact or discuss below.
