Playing a rating game
Higher property values don’t mean more rates, writes Bill McArthur
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.