Play­ing a rat­ing game

Higher prop­erty val­ues don’t mean more rates, writes Bill McArthur

Herald Sun - Property - - Finance -

HERE are two com­mon mis­con­cep­tions about coun­cil rates— an in­crease in prop­erty val­ues does not cause a rate rise and coun­cil costs do not move in line with CPI.

Land tax and rates are taxes on prop­erty. Land tax does not seek to col­lect a pre-de­ter­mined amount. The higher a prop­erty’s val­u­a­tion, the more tax col­lected (by the State Gov­ern­ment).

Higher prop­erty val­u­a­tions do not in­crease the over­all rate rev­enue col­lected by a coun­cil; it only al­ters each ratepayer’s con­tri­bu­tion to the to­tal amount iden­ti­fied in the bud­get.

First, a coun­cil de­ter­mines its pri­or­i­ties for the com­ing year with in­put from its com­mu­nity and then iden­ti­fies how much rev­enue is needed to de­liver th­ese ser­vices, pro­grams and in­fra­struc­ture.

The amount to be col­lected in rates is the bal­ance of funds needed af­ter other sources of rev­enue in­clud­ing gov­ern­ment grants, fees and charges are es­ti­mated. The key point is that re­quired rate rev­enue is set in the bud­get, not in­creas­ing with prop­erty val­ues.

To cal­cu­late how much each prop­erty owner con­trib­utes, the bud­geted rate rev­enue is di­vided by the to­tal value of all prop­er­ties in a mu­nic­i­pal­ity to give the ‘‘rate in the dol­lar’’. This is mul­ti­plied by the value of each prop­erty to de­ter­mine each owner’s share of rates payable.

Let’s as­sume coun­cil rates can be de­picted as a pie. The size of the pie is fixed (as rates rev­enue is set in the bud­get), but the slice each per­son (ratepayer) re­ceives may change.

Prop­erty val­u­a­tions are used to de­ter­mine the slice of the pie, but higher prop­erty val­ues can­not make the pie big­ger.

So what do ratepay­ers re­ceive? Vic­to­rian coun­cils are re­spon­si­ble for $47 bil­lion in in­fra­struc­ture in­clud­ing roads, bridges, drains, parks and leisure fa­cil­i­ties. Al­most ev­ery­thing you see from your front gate is pro­vided by your coun­cil, and more than 100 ser­vices are de­liv­ered to com­mu­ni­ties.

Coun­cils mostly pro­vide hu­man­based ser­vices to com­mu­ni­ties— from ma­ter­nal and child-health nurses, im­mu­ni­sa­tions, child­care, food-safety in­spec­tions, parks and gar­dens main­te­nance to garbage col­lec­tion, re­moval of graf­fiti and home care for the el­derly.

CPI mea­sures price move­ments in com­mon house­hold goods and ser­vices, which is not re­flec­tive of the ser­vices that coun­cils de­liver.

The added chal­lenge for coun­cils this year has been to en­sure that pro­grams are aimed at stim­u­lat­ing the econ­omy and cre­at­ing lo­cal jobs to help sup­port com­mu­ni­ties through the fi­nan­cial cri­sis. OUNCILS are rais­ing rates by an av­er­age of $64 or 5.16 per cent, but it’s rarely re­ported that lo­cal gov­ern­ment is also find­ing in­no­va­tive ways to cut costs without re­duc­ing ser­vices.

From bulk pur­chas­ing to shared­ser­vice de­liv­ery and in-house ef­fi­ciency re­forms, coun­cils are be­ing creative to trim costs.

Com­mu­ni­ties don’t ex­pect less from their coun­cil just be­cause costs are ris­ing and other fund­ing is in­ad­e­quate.

It’s a dif­fi­cult bal­anc­ing act for coun­cils. Lo­cal gov­ern­ment col­lects only 2.9 cents of ev­ery tax dol­lar col­lected by all lev­els of gov­ern­ment na­tion­ally, yet rates of­ten at­tract dis­pro­por­tion­ate crit­i­cism.

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