Financing Local Government
Local Government provides the services and amenities that make life tolerable and pleasant.
Roads, pavements, drainage, street lighting and cleaning, parking, water supply, sewerage, parks and gardens, playing areas, child-welfare and a wide range of public safety amenities all make land sites more desirable, and add value to property.
Who should pay for the services?
Municipal services have traditionally been financed through the rating of property. As property owners benefit especially from the availability of local services in a way not shared by others, it follows that all landowners in the area should contribute to the provision of these services.
The true principle of rating is that all citizens should contribute to local revenue on the basis of benefits received from local expenditure. The principle does not require a precise balancing of the increments of land value given to particular sites by particular services. All it requires is a payment into the municipal fund pro-rata to the benefit given by all services, to enable similar services to be extended to other sites or to the same site at a later period.
The only fair method of charging people for the services they require and enjoy is Site Value Rating. SVR places the charge on the land only, not the house. Since public expenditure and services increase the land value, it is absolutely fair that we pay in proportion to the benefits received. Only Site Value Rating achieves this.
For more on the benefits of Site Value Rating, check out “rates” in the Categories drop-down list. Don’t be fooled by ‘user pays’ or other schemes. Site Value Rating is the best and the only fair system.
What are Rates?
Rates are a contribution towards the cost of local government. They provide direct and indirect services which contribute to the development of the community and result in the enhancement of the value of land.
The method of carving the bill between property owners is by rating. The municipal council assesses each by a rate of so many cents in the dollar of the value of their property.
Rates are not simply a payment for services to a particular parcel of land.
“It might be prejudicial to the interests of local government and the general body of ratepayers to link the amount of rates of pay in respect of each parcel of land with the services actually received or made available to the occupants of that parcel.”
NSW Committee of Inquiry, 1960
The principle of local government finance is to split the cost between property owners in proportion to the value given to their property by the services made available.
- The principle recognises that services provided by municipal councils are rendered to the land and benefit land owners in a way that is exclusive to them as compared with all other sections of the community. Hence, they should be expected to meet the cost of providing and maintaining these services.
- The principle simply seeks payment in accordance with value given. It is perfectly just. As the services are rendered to property; their availability gives a far greater value to the property than it would have without them.
- The principle requires payment into the municipal fund pro rata to the benefit given by all services, to enable similar services to be extended to other sites or to the same site at a later period.
- The principle does not require a precise balancing of the increments of land value given to particular sites by particular services, or their cost for a particular site.
- The principle of unimproved land value rating is that owners pay proportionately to the value given to their sites by the community and not according to the value of their own improvements. The Assessed Annual Value system is a direct negation of that principle.
If a local municipality spends its revenue wisely, that expenditure must make the area a better place in which to live or to use commercially. The opportunity to benefit from services is directly reflected in the market price for sites. It is absolutely just that the site holders who receive benefits provided by the community should pay the community directly in relation to the market worth of the privilege.
Vote for Site Value Rating.
Insist on the only fair method of rate calculation!
The Options:
Under Section 90 of the Local Government Act 1993, Tasmanian Councils have the option of using one of three rating systems:
S 90 (3) A general rate is to be based on one of the following categories of values of land:
(a) the land value of the land;
(b) the capital value of the land;
(c) the assessed annual value of the land.
Why do Tasmanian Councils persist with the worst method? Ask your local Alderman!
The biggest problem with the AAV Rating is the huge variance in rates paid by people across Hobart that recieve the exact same service. Rating on Land will increase the problem and cause even greater variances. Why should a pensioner on the Sandy Bay water front pay 5 times as much as a family of 5 with 2 working parents in New Town. The rate movements after revaluation will also be increased under your model. You will recieve my last vote for making the rates even worse. My rates went up nearly $2000 last year. Hobart needs the Brighton flat rate model.
By: Flat Rate voter on October 15, 2009
at 3:59 am
Our difference is between “User Pays”, which has gained momentum lately, and is your preferred model; while I prefer “Beneficiary Pays”. That is, we all pay in proportion to the benefits we receive.
Your example of a pensioner on the waterfront is illuminating. Their property value has increased only because of the increased demand for (1) the amenity of the location, and (2) the services provided by local and other government services. If you think about it, those things have not affected the value of the house itself, which will depreciate over time, but the land value is very much affected. That is community-created value, and it rightfully belongs to all the community – not to one lucky landholder.
What payment has your waterfront pensioner contributed to the millions of dollars poured into the reconstruction of Sandy Bay Beach. Under “User Pays”, the pensioner would pay less than the family at New Town for that, yet would benefit much more through increased property values. It mightn’t be cash in hand, but talk to a bank. They will loan against it, and that makes it as good as cash. Can you explain the equity in that?
Under Site Value Rating, the services provided are reflected in the land values. People pay for the benefits they receive through their rates. Those who benefit most, pay more. That is fair and equitable.
With government and Council services, we are not buying socks or a new car. User pays works well for that. But a good society provides a range of services to its members, some of which we all use, and some only some of us do (eg Aquatic and Athletic Centres). But they are good things to have in our community. Under User Pays, they can’t be provided. We’ll all be worse off for that.
Finally, I might remind you of the (Sydney) story, front page in the Daily Telegraph a few years back. Garbage collection moved to User Pays throughout Sydney and The “Tele” did some sums. They found that Kerry Packer saved $10000 in rates per annum, while struggling families in Bankstown paid more. That is not the kind of society I want to live in.
User Pays is seductive, but it hits the poorest hardest. It will lead to a wider “rich-poor”gap. That’s not on!
AAV is absurd, because it penalises the very things that are good in society – improving ourselves, and our homes.
Site Value Rating is just. It charges people only for the benefits they receive. If the changeover causes hardship to some, then there are many ways we can alleviate that. But I’m pretty certain your old waterfront pensioner, after a lifetime of world watching, would like the next generation to live in a world that gives them all an equal chance.
By: leofoley on October 18, 2009
at 1:50 am
Your argument is faulty due to the following points as it implies that buying and selling land should be treated any differently than other porducts – simply due to a perceived improvement to society
1. the amount of land tax payable varies by an unknown amount when revaluation is performed.
2. You use the chip-on-the-shoulder mentality of defining the rich-poor gap – which assumes that all people who own a second (or more) property are rich
3. Developers have no incentive – only negatives – when considering subdividing land in order to sell for housing – If they are “stuck” with unsold land they are taxed for the priviledge of attempting to sell it.
4. The rental market is affected as the properties are subject to the tax which inevitably is passed on to the tennant – regardless of their socio-economic status.
If we took Battery Point and New Norfolk as examples – many middle aged people who started renting their properties 20 years ago (and are now retirees/pensioners) when the area was not popular and rental prices where cheap are facing the double whammy of massively increased rates and land tax inflicted on the owners. In New Norfolk people with special needs in a share house are being faced with increased rents without a subsequent increase in benefits.
5. Business properties that have fixed revenue streams have to find new ways to cover the tax – which is incredibly hard where customers are price-sensitive – or pricing is contracted. The only way in many cases is to reduce costs elsewhere – usually through reduction in working hours for employees. Look at Shippies – $27,000 of land tax – how much should a beer cost? Hotel 420 Sandy road $22,000- how much should a room cost? Instead of making these businesses less competitive – these businesses will look at reducing staff costs.
6. Your arguments ignore the many developers who strive for improving the state through developments directed at improving aesthetics of the city regarldess of the bottom line revenue of the property. In essence land tax almost ensures developers are only interested in high return projects – such as car parks and office blocks.
7. Government leased offices can artificially raise the land value in an area. Take the Home Ideas Centre in Liverpool street – its land tax has increased to $16,000 simply due to the number of government offices in the vicinity that pay above average prices for their leases.
This is not an imperfect tool – it is a downright blunt instrument that unfairly targets business drivers, investment and hard working people who have managed to create their own nest-egg. It impacts on people in the rental market. It affects retirees. It affects disadvantaged people who cannot afford their own home.
In fact the only people who really support land tax are socialists, people with chips-on-their-shoulders about “richies” and people who will never own a second property.
By: sergei nester on January 21, 2010
at 12:26 am
Leo,
As a Victorian visitor who received your flyer. What is AAV because I have people saying to me we need to sort out Land Tax here in Vic? I printed the article by Jessica to see if that sheds some light. I don’t think people with money should be allowed to buy up big/monopolise and then make lots of loot on rentals, to those who cannot buy. We have a threshold here in Vic ($125,000) which means you can own a property up to that amount and then you pay land tax over that. Not sure if that is the same as AAV?
I will read your pages with interest. Hope you do well.
jill
By: jillian paterson on November 2, 2011
at 4:16 am
Assessed Annual Value (AAV) is the rating system used through most of Tasmania. But no-one knows why and no Councillor takes responsibility for it. It is an anachronism.
AAV is based on an estimate of the rental value of the property (land and buildings). Since most of them are never rented, it is a fictitious figure estimated by bureaucrats who guess at the result. It is absurd. A family needs a bigger house to accommdate the kids, so AAV charges them more than the ‘Double Income No Kids’ living next door. So much for supporting ‘working families’!
A rate based on land value is fair, because it is the Council services (and other government and private services) that gives the land its value, so rating on Land Value is a proper reflection of the benefit received by the householder. In the example above, both households would pay a similar figure – because they receive the same benefit.
Land Tax could also be based on land value, at a fixed rate. That would make it fair, too. At present, all landholdings are accumulated, and the more you own, the higher your rate of Land Tax. It is primarily a wealth tax, so if we want one of those, then lets call it that. A land tax should be simply that – a levy on the land we own; no exemptions, no privileges and no sneaking in ideological taxes on ‘wealth’. That sets it up to fail.
Thanks for your comments, Leo
By: leofoley on November 2, 2011
at 5:09 am