Dr Gavin Putland
As Monash City Council tries to manufacture consent to tax buildings through council rates, the same idea looks set to be dumped in Tasmania and has just been pilloried in the local press in WA.
Strictly speaking, the systems under attack in Tasmania and WA are based on the rental value of the property, including the land and building(s); this is called the “assessed annual value” (AAV) in Tasmania and the “gross rental value” (GRV) in WA. The system proposed in Monash uses the “capital-improved value” (CIV), which is a purchase price rather than a rental value. But the difference is of no consequence; in all cases the rates bill is proportional to the value of the property, including the building(s), and in all cases the proportionality factor (the “rate in the dollar”) is determined by working backwards from the required total budget.
In contrast, the existing system in Monash levies rates on the “site value”, which is the value of the land alone (including airspace and building rights attached thereto, but excluding actual buildings).
“TASMANIAN home owners can expect a more equitable council rates system to be operating by next year,” said the Sunday Examiner on August 16. “It is understood that state and local government heavyweights have held top-level talks and agreed to throw out the much-criticised Assessed Annual Value system that has led to wild variances in rates caused by the property boom.”
Eh? Wasn’t it because of those wild variances in rates that Monash allegedly had to adopt CIV? Yes, it was.
And what system is Tasmania proposing to adopt? The Examiner continues: “It is expected that Tasmania will redraft the Local Government Act and that council rates from next financial year will be flattened and based on land value…”
But isn’t the Monash system based on the land value? Yes. With a flat rate? Yes. And doesn’t Monash regard the opportunity to have “differential rates”, instead of a flat rate, as one of the attractions of CIV? Yes. Indeed, didn’t the Victorian Parliament allow such differentials only for CIV in a blatant attempt to induce Councils to adopt CIV? Yes.
Could I make this up? No!
The Tasmanian experience indicates that if wild variations in rates bills are the problem, CIV is a less-than-satisfactory solution.
Admittedly, CIV tends to reduce the percentage changes in bills in so far as the volatile land values are diluted by the addition of the more stable values of existing buildings. But CIV also introduces another source of variability, namely sudden increases in bills due to construction, extension and renovation.
That’s the issue in WA, where the local press reports that a mother in Cottesloe was hit with a 150% rates increase for rebuilding her house (‘Wrong’ rates ping home builder, POST, Aug.15, p.7). That doesn’t happen in Monash — yet. But it will happen if CIV comes in.
Monash is the last remaining Victorian municipality that uses site-value rating. If it goes to CIV, will it become known as a late adopter of a discredited idea?
(See also “ Rates on Site Values don’t punish home builders”.)