Future Melbourne hampered by rate cap

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Last night I attended the Melbourne City Council’s Future Melbourne Meeting to speak on the dangers the Andrews Government rating cap has placed on council revenue raising. Cr Stephen Mayne had an interesting motion that caught my eye via twitter:

Future Melbourne Committee Agenda item 7.6

10 February 2015

Notice of Motion, Cr Mayne: Land Tax, Fire Services Levy and Congestion Tax

Motion

1. That the Future Melbourne Committee requests management to prepare a report for the 14 April 2015 meeting which:

1.1 Estimates the proportion of total Land Tax, Fire Services Levy and Congestion Tax revenue collected by the State which comes from landowners in the City of Melbourne, including by directly requesting the information from the State Revenue Office.

1.2 Assesses what proportion of City of Melbourne’s residential and non-residential rate payers are liable for land tax.

1.3 Summarises the impact of the 2014 site value valuations in the City of Melbourne on state government land tax revenue.

1.4 Compares historical rate in the dollar levels of land tax against City of Melbourne rates over the past 25 years.

1.5 Provides analysis of the tax rates used by the state in the collection of the fire Services levy, LandTax and Congestion Tax and compares shifts in annual yields to that achieved in the City of Melbourne.

1.6 Outlines the revenue split in the four major annualised property holding taxes (land tax, council rates, fire services levy and congestion tax) between residential and non-residential property owners in the City of Melbourne.

Background

Annual land tax revenue for the state has risen from approximately $400 million to a projected $1.9 billion over the past 20 years. As Council prepares to determine its rating strategy in 2015-16 and beyond in what is potentially a changing regulatory environment, it would be prudent for council and the community to access some factual information on the level of property taxes applicable in the City of Melbourne. Whilst Council has dramatically reduced the ‘rate in the dollar’ collected from council rates since the 1990s, the same hasn’t happened with land tax, leading to soaring land tax receipts, much of which comes from City of Melbourne landowners.

I spoke in support of the motion, based on the talking points from this press release on Rate Capping to Continue Vicious Circle. Regressive user charges are set to increase at the local council level and will quickly be followed by councils chasing federal grants – all of which suits conservative pressures to increase another regressive tax – the GST.

After 25 years of rate capping some 90% of NSW councils are in a poor or neutral financial state.

Cr Mayne closed out the motion by saying that since the early 1990s (when he was a press secretary for Premier Jeff Kennett), the State government had earnt via Land Tax an estimated $500m from CBD ratepayers, whereas the City of Melbourne had only asked for some $230m in contributions via rates. City rates have been tracking inflation. 

Contrary to Cr Mayne’s background statement in the motion that Land Taxes had not reduced as land values ballooned over the last 20 years, Land Tax rates have been more than halved from 5% for the upper brackets (2001) to 2.5% by 2008. In 2009 they were reduced to a still lower 2.25%, from which they thankfully have not fallen any further.

An additional undermining of the Land Tax base has occurred via Land Tax thresholds. In 2001 Land Taxes were triggered when a property was valued over $85,000. The threshold increased in $25,000 amounts up until 2009 to reach $250,000. As economic theory would predict, the price of land has followed this upward trajectory. The threshold must be reduced to zero.

Whilst I support Cr Mayne’s concerns on rate pegging, I hope there is some recognition land values have skyrocketed since the early 1990’s. In 1991 Victorian land values totalled $87.4bn. By June 2014 they had increased ten times to $877.3bn (ABS 5204, Table 61). But yet governments struggle to fund themselves whilst simultaneously encouraging good behaviour. 

The benefits that accrue to landowners are in the billions and paying a tiny percentage back to government in recognition of the services provided to a location is part of our civic duty. Both state government and local council holding charges on land should be increased, replacing inefficient taxes such as stamp duty and payroll tax at the state level and the ubiquitous fixed charges (ie for rubbish removal) at the local level.

Needless to say, this populist Andrews imposition on council sovereignty will cause more long term pain than it solves.

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https://prosper.org.au/2015/02/11/future-melbourne-hampered-by-rate-cap/