Canberra Rates Rant

A contrary view (to the Henry/Barr way of thinking), from across the Ditch:

http://www.macrobusiness.com.au/2013/10/getting-development-incentives-right/

The rates assessors have clearly not been distracted from their purpose by Alan Fitzgerald’s memorable zinger about Narrabundah, or by the peacocks or the tyre slasher – more likely they have fond memories of the now relocated truffels.

Queen_of_the_Bun said :

breda said :

Thanks for responses. In answer to questions and comments:

I live in Narrabundah (not the upmarket part). Half of the people in my little street are either retired or close to it. Retirees like me don’t suddenly have an extra $1,000 year lying around because the ACT government can’t manage its finances. My UCV is exactly the same as last year, my very modest income has not increased, I’m not getting any extra services, but am, with my neighbours,expected to absorb my rates almost doubling overnight.

It’s just as well the ACT elections are not coming up.

I should point out that the fact that our suburb has recently become more desirable to developers and yuppies is beyond our control. It has no measurable benefit to us unless we sell up. Most long term residents are far from privileged – 20 years ago it was regarded as one of Canberra’s less desirable areas, and most of the people who bought here were at the lower end of the income scale.

As for the politics of envy, such as saying that my neighbours and I should be grateful to have a roof over our heads, that is precisely the attitude that is dragging this country down. Instead of applauding people who have worked and scrimped and saved to buy a modest home in a modest suburb, we are accused of being heartless plutocrats.

And, while stamp duty is a dreadful way of raising revenue, as has been pointed out, we have already paid it. Again, the only upside for us is if we sell up and buy elsewhere. A tax system that relies on forcing people out of their homes is hardly equitable, IMO.

Perhaps I should apply for a grant? I could call my house a heritage project (it’s old enough!) or spray some graffiti on it and call it public art.

Breda, as someone who has rented in Narrabundah on and off since 1996 and has only just managed to buy into the area, I find your depiction of it as an undesirable suburb really offensive.

You should consider how lucky you are to be in such a great suburb, so close to amenities. If your rates are so high, move northside to Kaleen or south to Calwell.

Up until the last few years, it was well known as an undesirable suburb.

Queen_of_the_Bun said :

Breda, as someone who has rented in Narrabundah on and off since 1996 and has only just managed to buy into the area, I find your depiction of it as an undesirable suburb really offensive.

You find it as offensive as you like. Narrabundah (at least lower Narrabundah) used to be an undesirable place to live. It’s not any more, of course – far from it. But to take offence at history is not very smart.

Queen_of_the_Bun said :

breda said :

Thanks for responses. In answer to questions and comments:

I live in Narrabundah (not the upmarket part). Half of the people in my little street are either retired or close to it. Retirees like me don’t suddenly have an extra $1,000 year lying around because the ACT government can’t manage its finances. My UCV is exactly the same as last year, my very modest income has not increased, I’m not getting any extra services, but am, with my neighbours,expected to absorb my rates almost doubling overnight.

It’s just as well the ACT elections are not coming up.

I should point out that the fact that our suburb has recently become more desirable to developers and yuppies is beyond our control. It has no measurable benefit to us unless we sell up. Most long term residents are far from privileged – 20 years ago it was regarded as one of Canberra’s less desirable areas, and most of the people who bought here were at the lower end of the income scale.

As for the politics of envy, such as saying that my neighbours and I should be grateful to have a roof over our heads, that is precisely the attitude that is dragging this country down. Instead of applauding people who have worked and scrimped and saved to buy a modest home in a modest suburb, we are accused of being heartless plutocrats.

And, while stamp duty is a dreadful way of raising revenue, as has been pointed out, we have already paid it. Again, the only upside for us is if we sell up and buy elsewhere. A tax system that relies on forcing people out of their homes is hardly equitable, IMO.

Perhaps I should apply for a grant? I could call my house a heritage project (it’s old enough!) or spray some graffiti on it and call it public art.

Breda, as someone who has rented in Narrabundah on and off since 1996 and has only just managed to buy into the area, I find your depiction of it as an undesirable suburb really offensive.

You should consider how lucky you are to be in such a great suburb, so close to amenities. If your rates are so high, move northside to Kaleen or south to Calwell.

Well!! I live in Calwell and I take offence at your notion that we are so far out that our rates are as cheap as. I have been round Narrabundah for various bits and pieces and wouldn’t buy in the areas I could afford for nix. I don’t really think that, but I do think that no one else seems to have taken offence at Breda’s take on his suburb which makes your post look odd.

I never understand that why living somewhere that is leafy, green and a lovely 20 minutes away from really anywhere that I might need to go like work, is a problem. I lived in Sydney for 10 years, quite a few of those very close to where I work in North Sydney, and quite frankly I hated seeing my office block every time I wanted to catch the train anywhere.

breda said :

Thanks for responses. In answer to questions and comments:

I live in Narrabundah (not the upmarket part). Half of the people in my little street are either retired or close to it. Retirees like me don’t suddenly have an extra $1,000 year lying around because the ACT government can’t manage its finances. My UCV is exactly the same as last year, my very modest income has not increased, I’m not getting any extra services, but am, with my neighbours,expected to absorb my rates almost doubling overnight.

It’s just as well the ACT elections are not coming up.

I should point out that the fact that our suburb has recently become more desirable to developers and yuppies is beyond our control. It has no measurable benefit to us unless we sell up. Most long term residents are far from privileged – 20 years ago it was regarded as one of Canberra’s less desirable areas, and most of the people who bought here were at the lower end of the income scale.

As for the politics of envy, such as saying that my neighbours and I should be grateful to have a roof over our heads, that is precisely the attitude that is dragging this country down. Instead of applauding people who have worked and scrimped and saved to buy a modest home in a modest suburb, we are accused of being heartless plutocrats.

And, while stamp duty is a dreadful way of raising revenue, as has been pointed out, we have already paid it. Again, the only upside for us is if we sell up and buy elsewhere. A tax system that relies on forcing people out of their homes is hardly equitable, IMO.

Perhaps I should apply for a grant? I could call my house a heritage project (it’s old enough!) or spray some graffiti on it and call it public art.

Breda, as someone who has rented in Narrabundah on and off since 1996 and has only just managed to buy into the area, I find your depiction of it as an undesirable suburb really offensive.

You should consider how lucky you are to be in such a great suburb, so close to amenities. If your rates are so high, move northside to Kaleen or south to Calwell.

Tetranitrate said :

HiddenDragon said :

I am happy enough to pay progressive rates of tax on my income because it’s money I have actually received – it’s not a figure dreamt up by the ATO as a result of a periodic, cursory guesstimate of my means.

I find it interesting that many of those who are very keen on the shift from stamp duty (which is typically based on an actual market figure) to annual land taxes are also firm believers in the economic wisdom of the flattest possible income tax scales – economic theory, and the evidence quoted in support of it, seems miraculously to conform to the world view and personal circumstances of those advance it.

Even as someone who’s in favor of land taxes/rates being as high as possible at the expense of other taxes, I still can’t grasp why they should be structured as progressive taxes. They’re not actually a tax on an income stream, they’re effectively taking in part of the economic rents or potential economic rents from an asset.

If anything making them progressive actually means it’s not a perfectly efficient tax anymore as it creates tax incentives to subdivide high value land and would more generally favor smaller blocks.
Why should a 5 or 6 bedroom ‘mansion’ on a massive block have a significantly greater tax liability (assuming it more than compensates for the fixed charge) than two three bedroom houses on the same m^3 of land in a similar area?

I know the determination of unimproved land value don’t really work quite like that in practice, but to some extent it has to be the case. There’s not really a good case for rates being progressive at all.

In this case, I think the progressivity has much to do with the politics of divide and rule, and boiling the frog slowly. It has worked well so far, and by the time it sinks in for the majority, it will be too late.

watto23 said :

Both sets of my grandparents and my parents all sold and moved to cheaper housing after they retired. They decided to not whinge about it and move to somewhere they can afford to live.

1/ So you’re happy for public housing tenants to stay in oversized housing well into their declining years but not homeowners?

2/ Many home owners still have to sell up in retirement and down size simply because they still owe money on homes that they have lived in but this shouldn’t mean that others who have worked hard to pay off their homes in their working lives should be forced to move. (As others have pointed out reverse mortgages are a crap product).

3/ Often older homes do not fetch much more than the land value meaning that these older people are forced into apartments or out into the suburbs, away from services and at a time when they are less likely to be able to drive. I find it ironic that many older persons end up living in places like Weston Creek where the bus service is appalling.

milkman said :

HiddenDragon said :

I am happy enough to pay progressive rates of tax on my income because it’s money I have actually received – it’s not a figure dreamt up by the ATO as a result of a periodic, cursory guesstimate of my means.

I find it interesting that many of those who are very keen on the shift from stamp duty (which is typically based on an actual market figure) to annual land taxes are also firm believers in the economic wisdom of the flattest possible income tax scales – economic theory, and the evidence quoted in support of it, seems miraculously to conform to the world view and personal circumstances of those advance it.

You’re obviously not a lefty, then.

I’ll have to think about that – it might be a situational thing, like one’s stance on important matters such as flipping.

HiddenDragon said :

I am happy enough to pay progressive rates of tax on my income because it’s money I have actually received – it’s not a figure dreamt up by the ATO as a result of a periodic, cursory guesstimate of my means.

I find it interesting that many of those who are very keen on the shift from stamp duty (which is typically based on an actual market figure) to annual land taxes are also firm believers in the economic wisdom of the flattest possible income tax scales – economic theory, and the evidence quoted in support of it, seems miraculously to conform to the world view and personal circumstances of those advance it.

Even as someone who’s in favor of land taxes/rates being as high as possible at the expense of other taxes, I still can’t grasp why they should be structured as progressive taxes. They’re not actually a tax on an income stream, they’re effectively taking in part of the economic rents or potential economic rents from an asset.

If anything making them progressive actually means it’s not a perfectly efficient tax anymore as it creates tax incentives to subdivide high value land and would more generally favor smaller blocks.
Why should a 5 or 6 bedroom ‘mansion’ on a massive block have a significantly greater tax liability (assuming it more than compensates for the fixed charge) than two three bedroom houses on the same m^3 of land in a similar area?

I know the determination of unimproved land value don’t really work quite like that in practice, but to some extent it has to be the case. There’s not really a good case for rates being progressive at all.

Both sets of my grandparents and my parents all sold and moved to cheaper housing after they retired. They decided to not whinge about it and move to somewhere they can afford to live.

HiddenDragon said :

I am happy enough to pay progressive rates of tax on my income because it’s money I have actually received – it’s not a figure dreamt up by the ATO as a result of a periodic, cursory guesstimate of my means.

I find it interesting that many of those who are very keen on the shift from stamp duty (which is typically based on an actual market figure) to annual land taxes are also firm believers in the economic wisdom of the flattest possible income tax scales – economic theory, and the evidence quoted in support of it, seems miraculously to conform to the world view and personal circumstances of those advance it.

You’re obviously not a lefty, then.

HiddenDragon said :

I am happy enough to pay progressive rates of tax on my income because it’s money I have actually received – it’s not a figure dreamt up by the ATO as a result of a periodic, cursory guesstimate of my means.

I find it interesting that many of those who are very keen on the shift from stamp duty (which is typically based on an actual market figure) to annual land taxes are also firm believers in the economic wisdom of the flattest possible income tax scales – economic theory, and the evidence quoted in support of it, seems miraculously to conform to the world view and personal circumstances of those advance it.

But shouldn’t I just get it anyway? I mean, isn’t this massive sense of entitlement worth anything? Sheesh…

I am happy enough to pay progressive rates of tax on my income because it’s money I have actually received – it’s not a figure dreamt up by the ATO as a result of a periodic, cursory guesstimate of my means.

I find it interesting that many of those who are very keen on the shift from stamp duty (which is typically based on an actual market figure) to annual land taxes are also firm believers in the economic wisdom of the flattest possible income tax scales – economic theory, and the evidence quoted in support of it, seems miraculously to conform to the world view and personal circumstances of those advance it.

breda said :

Seriously, you are saying that because appreciation of land values are enough to cover “tax liability”, that’s the end of the discussion?

You have completely missed the point. Here is X, someone who has worked and saved and finally bought their home. Suddenly, X’s “tax liability” rises. Nothing else has changed, including X’s income. According to you, what X has to do is sell their home to someone who is wealthier and can afford the “tax liability”, or alternatively watch their asset waste away under a reverse mortgage and deferred rates. Nobody knows if or how that will last them to the end of their life.

Brilliant. You will have us all in public housing in no time. But, who will pay for it?

Welcome to progressive taxation. Your means have increased, so the proportion you pay increases.

breda said :

Seriously, you are saying that because appreciation of land values are enough to cover “tax liability”, that’s the end of the discussion?

You have completely missed the point. Here is X, someone who has worked and saved and finally bought their home. Suddenly, X’s “tax liability” rises. Nothing else has changed, including X’s income. According to you, what X has to do is sell their home to someone who is wealthier and can afford the “tax liability”, or alternatively watch their asset waste away under a reverse mortgage and deferred rates. Nobody knows if or how that will last them to the end of their life.

Brilliant. You will have us all in public housing in no time. But, who will pay for it?

Breda, honestly have you read the links provided and the arguments for this change?

Your whole whinge is that the taxpayer should subsidise asset wealthy people because you think it’s unfair for them to have to move or get a reverse mortgage even when that reverse mortgage would clearly cover the liability comfortably.

Please answer why you think the taxpayer should subsidise these people and why you think their assets should be treated differently?

PS, I’m really emotionally attached to my share holdings. I think you should give me some cash because I don’t feel like selling them to fund my lifestyle.

Seriously, you are saying that because appreciation of land values are enough to cover “tax liability”, that’s the end of the discussion?

You have completely missed the point. Here is X, someone who has worked and saved and finally bought their home. Suddenly, X’s “tax liability” rises. Nothing else has changed, including X’s income. According to you, what X has to do is sell their home to someone who is wealthier and can afford the “tax liability”, or alternatively watch their asset waste away under a reverse mortgage and deferred rates. Nobody knows if or how that will last them to the end of their life.

Brilliant. You will have us all in public housing in no time. But, who will pay for it?

breda said :

Yep, so (a) we all know exactly how long we are going to live; and (b) our equity is enough to keep us going “for the rest of our lives.”

Both of these propositions are false.

What I said was that equity was easily enough to cover tax liabilities for the rest of their lives.

Exactly how long do you intend to live that ~$2000-3000 a year in rates is going to deplete $450,000 worth of equity, plus whatever the house is worth on top (plus however much it increases in price over that period).

Unless you expect to live to 150+, live in a home with the equity of a caravan, and expect taxes to double every year in to infinity, this is absolutely true.

breda said :

I can only assume that this poster is not remotely in the situation of an older person who is trying to work out how to survive while having a decent life, when due to events beyond their control, the suburb has become trendy. Sales are not “voluntary” when the alternative is bankruptcy.

Do you know what bankruptcy means? What kind of rate increase is going to put someone in a position where they can’t cover their tax liability with $450k+ in equity?

breda said :

I am not spruiking the need to protect people who are sitting on properties worth millions. But, in Canberra, owing a property with a UCV of $450k hardly puts you in the plutocrat class. Especially when, at the time you bought it. it was because it was considered undesirable, and therefore appropriate for the plebs.

So essentially what you’re saying is that having the value of your land increase hugely is a burden because it increases your tax liability, but that despite being able to cover this tax liability and much more with the massive, unearned, windfall gains you experienced, you shouldn’t have to because reverse mortgages are a bad deal?

Unbelievable.

@ arescarti 42

“It’s not il-informed at all. Good value or not, there is no reason at all why an asset rich, cash poor retiree couldn’t take out a reverse mortgage to pay their tax liabilities for the rest of their lives, and not have to change their standard of living/other expenses one bit.

Any decision to move would be a purely voluntary one.”
———————————————————————————–
Yep, so (a) we all know exactly how long we are going to live; and (b) our equity is enough to keep us going “for the rest of our lives.”

Both of these propositions are false.

I can only assume that this poster is not remotely in the situation of an older person who is trying to work out how to survive while having a decent life, when due to events beyond their control, the suburb has become trendy. Sales are not “voluntary” when the alternative is bankruptcy.

I am not spruiking the need to protect people who are sitting on properties worth millions. But, in Canberra, owing a property with a UCV of $450k hardly puts you in the plutocrat class. Especially when, at the time you bought it. it was because it was considered undesirable, and therefore appropriate for the plebs.

HiddenDragon said :

The broader problem is that, as a nation, we have treated the mining boom, and the revenue benefits of the peak earning and tax paying years of the post war baby boom as normal, and made long term spending commitments accordingly.

Spot on.

HiddenDragon said :

On an important point of detail, I am touched (almost) by the optimism of those who think that reductions in stamp duty will benefit buyers – whether they be first home buyers or investors/speculators adding to their portfolio – rather than sellers. Likewise those who think that a reduction in land tax on rented properties will benefit renters, and also those who think that desirable inner-city properties will magically come within reach of younger people who are currently struggling to afford outer-suburban dog boxes.

Reduced stamp duty in particular will benefit new home buyers. Government charges and taxes in some states make up as much as 40% of the cost of new homes. Developers actually struggle to build new homes that a typical new home buyer can actually afford to buy (hence the dramatic plunge in both FHB activity and new homes built in recent years). Ditching stamp duty would do a lot to improve that.

Innovation said :

It’s just that I’ve seen too many older people have to sell up their home and, depending on whether the threshold is indexed, it could even happen to people like me in the future. I’m aware of reverse mortgages but older people don’t tend to like to carry debt in any form.

Just because someone doesn’t “like to carry debt in any form” does not mean they are forced to sell. If you have both the option to sell your home and cash in, or get a reverse mortgage and continue doing exactly what you’ve been doing, then you have a choice, and are not being forced to do anything.

Innovation said :

I bet some people would feel differently if the feds brought in death duties (which would much better target the wealthy and trusts etc) or reduced the deduction allowed from negative gearing (which would help to bring down property prices).

Both excellent ideas, bring them on.

breda said :

“No asset rich, cash poor retirees anywhere would be forced to move by increased rates/land tax. A reverse mortgage on their house would allow them to pay any tax liability on it for well in excess of the rest of their lives.”

is the sort of ill-informed nonsense that helps no-one. I have investigated reverse mortgages. They are a bonanza for the banks. Every month, your interest payments increase, and your equity reduces. And, there is zero chance of default or even late payment. But you get the fees and charges (for what?) as well. As currently structured, they are a lousy deal.

It’s not il-informed at all. Good value or not, there is no reason at all why an asset rich, cash poor retiree couldn’t take out a reverse mortgage to pay their tax liabilities for the rest of their lives, and not have to change their standard of living/other expenses one bit.

Any decision to move would be a purely voluntary one.