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The new rates regime

By Sebastian Fernandez - 20 June 2014 69

household-rates

I don’t want to beat a dead horse, but I have to again raise that I’m extremely worried about the direction this city is heading in re household rates.

I’m a homeowner and I intend to stay in my house for a long time.

I understand that on average, Canberra homeowners move every 7 years, but I intend to be well above that average.

Those of us who do stay in a home for 10, 15 or 20 years will end up paying more than we did under the old system.  We won’t benefit from the saving of the reduction in stamp duty.

I know this hasn’t been in the news cycle of late, but I think it should be.

We’re setting up Canberra to be one of the most expensive places in which to live in the entire country, if it isn’t already. Sure, you won’t have to pay that dastardly stamp duty when you buy a house, but if you’re got to pay 10K in rates every year, what’s the diff.

I still can’t believe that Andrew Barr’s only answer to this when questioned in a some Legislative Assembly committee, his only answer was get a higher paid job, or negotiate for more pay.

What planet are these people from.

I’m not a huge fan of Jeremy Hanson, or for that matter Zed Seselja, but I have to concur with their assertion that our rates will triple in around a decade.  Where do you think rents will go ? In a city which is already way to expensive to rent in, it’ll just get worse.

How sad if we have hundreds of Canberrans who make the call to move out of town because they can’t afford to pay the rates.

I guess the big question is, could the Libs wind this all back should be elected, given that they’re going to be so busy ripping light rail out of the ground ?

 

What’s Your opinion?


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69 Responses to
The new rates regime
1
Mark Parton 11:03 am
20 Jun 14
#

I get so many calls to my radio program saying exactly this. I think the Government is now more aware of the problems connected to this policy but they must remain committed to it for obvious reasons. More than a lot of cities in Australia, Canberra has always been a great place to live, if you make lots of money.

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2
BreeGirl 11:05 am
20 Jun 14
#

The Chief Minister still says that the Liberals were lying when about rates tripling. Difficult to know who to believe on this, but it looks to me as though rates will triple well before 2022

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3
arescarti42 11:09 am
20 Jun 14
#

“Those of us who do stay in a home for 10, 15 or 20 years will end up paying more than we did under the old system. We won’t benefit from the saving of the reduction in stamp duty.”

Probably. Pretty much any change to any Government policy will result in some winners and some losers.

“We’re setting up Canberra to be one of the most expensive places in which to live in the entire country, if it isn’t already. Sure, you won’t have to pay that dastardly stamp duty when you buy a house, but if you’re got to pay 10K in rates every year, what’s the diff.”

Exactly the opposite. Moving revenue away from stamp duties and towards land taxes/rates is extremely sensible economic policy. The ACT Government has done a lot of really dumb things, but this is certainly not one of them.

Transactions taxes (like stamp duty) are a horribly inefficient burden on the economy that destroy wealth, unlike taxes on land and property which are immensely more efficient. Getting rid of stamp duty will give the ACT a competitive advantage over states that have it.

“I guess the big question is, could the Libs wind this all back should be elected, given that they’re going to be so busy ripping light rail out of the ground?”

If the Libs are as committed to lower taxes and responsible economic management as they like to say they are, they’d continue full steam ahead with higher rates.

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4
Innovation 12:32 pm
20 Jun 14
#

Using stamp duty to meet ongoing and future State and Territory costs is a flawed revenue base. Obtaining revenue through rates is a much better way to reflect and recover Government costs. As well it has an environmental benefit in that it better facilitates owners moving houses more regularly as their life changes – potentially freeing up land and building use and potentially reducing intertown travel needs.

There are several problems though which the Government appears to happily be ignoring:
1/ existing homeowners have not been given any credit for stamp duty paid on existing properties (eg they could receive a reduction based on how long they have owned their home for);
2/ some homeowners have improved or redeveloped properties based on factors such as the planning rules and rates system in force at the time of their development. Ongoing changes to planning rules – especially to allow ever increasing densities – and the new rates system could significantly devalue building structures for these people without them receiving any compensation by the Government.
3/ Government accountability for revenue received is reduced. For example, Governments can provide services and funding direct to key electorate or politically sensitive areas (eg light rail) but quickly raise revenue from all over Canberra – especially in suburbs with higher land value.
4/ Homeowners must have sufficient funds to pay rates which will now be much higher. Telling homeowners to “get a pay rise” just because their land is now worth more is quite naive (eg many older and/or unskilled employees have little or no bargaining power) and completely disregards the circumstances of most retirees.
5/ I suspect that the new rates system at a Territory level (and particularly if or when this occurs in the States) has the potential to affect Federal revenues especially if the properties are used for investment purposes.

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5
JC 12:52 pm
20 Jun 14
#

Two questions.

1. What is the alternative?
2. Why should those that move house more often bear the burden? Surely there must be a better way, refer to Q1.

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6
miz 1:00 pm
20 Jun 14
#

Doesn’t exactly encourage people to buy now either given you will still have to knowingly pay stamp duty effectively twice. Why can’t they just scrap it in one go?

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7
dungfungus 1:04 pm
20 Jun 14
#

It’s not just rates that are rising either. It is all contributing to less disposable income, especially hurting those on fixed incomes (and those on decreasing incomes if you believe the socialist propaganda).
I think the ACT Government has made some huge blunders as far as balancing the budget is concerned and they will soon be campaigning louder for an increase in the GST which will punish us even more.
There are signs that the real estate bubble has popped so we will see our wealth decrease concurrently with big increases in cost of living. An oil price rise shock is likely soon so that will add to the cost of running our cars and also increase the price (freight) of consumer costs etc. etc.
Inflation is certain to rise which could be good news for those with large home mortgages because it it will be easier to pay off yesterday’s debts with tomorrows’ income.
I think Point #1 in post #4 is an excellent idea.

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8
Maya123 1:23 pm
20 Jun 14
#

dungfungus said :

It’s not just rates that are rising either. It is all contributing to less disposable income, especially hurting those on fixed incomes (and those on decreasing incomes if you believe the socialist propaganda).
I think the ACT Government has made some huge blunders as far as balancing the budget is concerned and they will soon be campaigning louder for an increase in the GST which will punish us even more.
There are signs that the real estate bubble has popped so we will see our wealth decrease concurrently with big increases in cost of living. An oil price rise shock is likely soon so that will add to the cost of running our cars and also increase the price (freight) of consumer costs etc. etc.
Inflation is certain to rise which could be good news for those with large home mortgages because it it will be easier to pay off yesterday’s debts with tomorrows’ income.
I think Point #1 in post #4 is an excellent idea.

Better get that vegetable garden planted!

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9
MERC600 2:07 pm
20 Jun 14
#

Maya123 said :

dungfungus said :

It’s not just rates that are rising either. It is all contributing to less disposable income, especially hurting those on fixed incomes (and those on decreasing incomes if you believe the socialist propaganda).
I think the ACT Government has made some huge blunders as far as balancing the budget is concerned and they will soon be campaigning louder for an increase in the GST which will punish us even more.
There are signs that the real estate bubble has popped so we will see our wealth decrease concurrently with big increases in cost of living. An oil price rise shock is likely soon so that will add to the cost of running our cars and also increase the price (freight) of consumer costs etc. etc.
Inflation is certain to rise which could be good news for those with large home mortgages because it it will be easier to pay off yesterday’s debts with tomorrows’ income.
I think Point #1 in post #4 is an excellent idea.

Better get that vegetable garden planted!

and the home brew.

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10
Mysteryman 2:12 pm
20 Jun 14
#

The new rates setup is designed not to save first home buyers money, as the government keeps insisting, but to bleed money from all existing and future home owners to help in propping up the budget. Rate WILL triple across the projected timeframe given by the Liberals. I raised this with Andrew Barr and it seemed very clear from the conversation that if you didn’t think the new rates regime is a good idea, then in his opinion you must be an idiot.

Quite honestly I think it’s a terrible idea born from poor fiscal management. Everyone is going to be stung by this in the long term. Next time I hear a Labor voter complaining about the rates rise, I’ll be sure to let them know that it’s their own fault.

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11
Maya123 3:13 pm
20 Jun 14
#

I think a better plan would have been to apply the high rates to all new houses and when old houses change hands. If most Canberra houses change hands every few years, soon most houses would be under the new system; no stamp duty but higher rates. The older house owners paid stamp duty, so have made their contribution.

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12
JC 5:03 pm
20 Jun 14
#

Maya123 said :

The older house owners paid stamp duty, so have made their contribution.

They may have made A contribution, but it is not sufficient to keep the city running. The only solution is do something with rates or a GST increase or maybe both.

Whilst I disagree with the approach the Federal government has taken in the last budget, the basics of Hockey’s rhetoric is right in that we do ALL need to contribute more into the future. Though in their case they are using this augment as a way to redistribute funds towards the big end of town. But I digress.

Locally it is no different we all have to pay and pay more into the future. Stamp duty isn’t the way.

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13
chewy14 5:30 pm
20 Jun 14
#

Maya123 said :

I think a better plan would have been to apply the high rates to all new houses and when old houses change hands. If most Canberra houses change hands every few years, soon most houses would be under the new system; no stamp duty but higher rates. The older house owners paid stamp duty, so have made their contribution.

Which would encourage people under the old system to hold onto their properties for as long as possible.

ie. The exact opposite of what the goal of the policy is.

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14
davo101 5:32 pm
20 Jun 14
#

miz said :

Why can’t they just scrap it in one go?

Well they could have. Not sure how doubling rates in one go would have gone down with the electorate, but at least it would spare us 19 years of carping on about it while they transition it in.

Maya123 said :

I think a better plan would have been to apply the high rates to all new houses and when old houses change hands.

Would require the Territory to borrow the money needed to make up for the lost stamp duty that would not yet be covered by the new rates. More expensive in the long run as you have to pay back the interest.

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15
HiddenDragon 6:30 pm
20 Jun 14
#

Mark Parton said :

I get so many calls to my radio program saying exactly this. I think the Government is now more aware of the problems connected to this policy but they must remain committed to it for obvious reasons. More than a lot of cities in Australia, Canberra has always been a great place to live, if you make lots of money.

I think your final sentence sums it up very nicely, Mark. For all the talk, and selective statistics to the contrary, Canberra remains a company town, heavily dependent upon federal government spending and with living costs – including ACT government rates and charges – predicated upon household incomes well above the national average. But with federal government spending now less lavish than in the past, at the same time as the rates and other ACT Government tax increases are starting to bite, more people will be really noticing the squeeze on their living costs – so all those calls are hardly surprising.

If it weren’t for the fact that the shift from stamp duty to rates is being approached with what seems almost like blind faith, a more pragmatic approach might be for the ACT Government to say, OK, we will go to a certain point, and not beyond, unless the other States* and Terrritory (but most particularly NSW, for obvious reasons) follow suit. In fact, if you look at the revenue projections in the recent ACT Budget papers, it looks like rates are being pushed up more quickly than stamp duties are being wound down – particularly for properties of middling values and above.

*I believe WA has started something similar, but I doubt, in practice whether we are too often in direct competition with WA for investment and productive residents, so that’s probably of limited relevance – for other than rhetorical purposes.

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