Government to cap rates increases as analysis shows tax reform benefits

Ian Bushnell 27 August 2020 37
Rates

Rates will be an election battleground. A new analysis of the government tax reform program shows it has boosted the economy and home ownership. Photo: File.

The ACT Government has announced increases in average general rates for residential and commercial properties will be capped at 3.75 per cent for five years from 2021-22, and Stage 3 of its 20-year tax reform program will be brought forward one year.

Chief Minister Andrew Barr said the government, which will release its Budget update and Jobs and Recovery plan today, was taking into account the significant impact of the ongoing COVID-19 pandemic on the economy and the need for certainty for households and businesses.

In last year’s budget the average rise for houses was around 7 per cent and 11 per cent for units.

Residential stamp duty rates will continue to fall, targeted at owner-occupier purchases and cheaper land to stimulate affordable housing construction.

Off-the-plan units and land purchases will continue to have significant concessions until 30 July 2021.

The tax-free threshold for commercial stamp duty will also increase from $1.5 million to $2 million by 2025-26. At present, about 80 per cent of commercial property transactions pay zero stamp duty.

The government has also released a positive analysis of the first seven years of its tax reform program (2012-2018), in which so-called inefficient taxes such as stamp duty are eventually phased out while general rates are increased to create a more reliable revenue source.

The trail-blazing but controversial reform program has been roughly revenue neutral over its first seven years, helped to achieve a more efficient and competitive economy, and contributed to a fairer tax system, according to the analysis.

It has also boosted the property market, benefited first-home buyers and could even have helped lower rents and increase the number of rental properties, the analysis says.

The government hopes the analysis will blunt the Canberra Liberals’ long-standing attacks on the reform program and the rate rises involved.

Most economists support the reform program and other jurisdictions are taking a keen interest in its progress to weigh up whether they should tread a similar path.

But the past two elections have been fought on the tax reform program as the Liberals sought to amplify home-owners’ higher rates bills, and it appears the coming election will be no different with the Opposition promising to freeze rates.

The analysis was overseen by a Tax Reform Advisory Group comprised of the Deputy Under Treasurer Stephen Miners, and three independent external advisers – Professor Robert Breunig, Dr Richard Denniss and Professor Robert Tanton.

It is based on work done by the Centre of Policy Studies, Victoria University, the ANU’s Tax and Transfer Policy Institute (TTPI) and University of Canberra’s National Centre for Social and Economic Modelling (NATSEM).

The analysis found the government has collected slightly less cumulative total revenue ($62 million) than would have been collected without tax reform.

It says the increase in cumulative general rates of $793 million is more than offset by the cumulative revenue forgone from stamp duty and insurance duty of $855 million.

Tax reform has increased economic efficiency and resulted in economic growth, with production, household consumption and investment increasing every year since 2012, with the increases growing over time.

The analysis says tax reform has particularly benefited first-home buyers, including households led by women who are new home-owners, and lower wealth households, enabling more to enter the market.

It also claims to have boosted property prices and turnover, although the caveat is these effects may not be causal.

Mr Barr said that despite anecdotal commentary to the contrary, the analysis did not find definitive evidence that tax reform had led to higher rental prices in the ACT.

”In fact, that analysis found that there were more properties available to rent due to tax reform,” he said.

Businesses have also benefited from the removal of commercial land tax, the increase in the stamp duty free threshold for commercial properties to $1.5 million, and the rise in the payroll tax threshold from $1.5 million to $2 million, with less than 10 per cent of businesses in the Territory being liable for payroll tax.

Mr Barr said the heaviest reform work was now in the past, and general rate increases will be lower in the future.

”With the COVID-19 emergency rates rebate of $150, average general household rates in Canberra will not increase in this current financial year, and 110,000 Canberra households will see a rates reduction this financial year,” he said.

The Canberra Liberals have pledged to freeze rates for the four years of their first term in office if they win the 17 October election.


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37 Responses to Government to cap rates increases as analysis shows tax reform benefits
Kim Kim 3:27 pm 05 Sep 20

Chewy, I think you’ve grown on me

Acton Acton 6:40 am 03 Sep 20

So are you looking forward to when you will eventually be paying $6000, $7000, $8000… in yearly rates? Because that is what modest three bedroom homes are already paying in the inner suburbs. The rates formula introduced by Barr guarantees higher rates from higher land values which the government itself assesses to ensure rising revenue to fund it’s budget blow-outs. The real fools are Barr voters who don’t understand they are being fleeced.

    chewy14 chewy14 9:30 am 03 Sep 20

    What planet are you on that you think “modest 3 bedroom homes” are paying that level of rates.

    If you are paying $6000 in rates, you have a unimproved land value of around $1000000.

    Are you seriously suggesting that we should feel sorry for those poor millionaires?

    Really?

    No, really?

    Mike of Canberra Mike of Canberra 4:13 pm 03 Sep 20

    Chewy, I assume you’re young so I’ll try to overlook the callow nature of your comments. Have you ever heard the term “asset rich, income poor”? Well that term sums up the situation confronting many ordinary people who are long-term residents of the inner suburbs but whose situation is not captured by the aggregate figures and analyses we often see. What this term conveys is that, when these people first bought their homes, property values were modest and we had a municipal rates system that simply sought to cover the cost of providing municipal services. Then came ACT self-government and, ultimately, the likes of Barr. Our Chief Minister is full of grandiose ideas and is a spending addict. What he doesn’t appear to get is the idea that spending needs to be proportionate to the community’s capacity to pay. He also doesn’t get that the so-called concessions on rates he provides are usually targeted to the lowest income groups. That’s fine, but it misses a large group of middle income earners who, as long-term property owners in the inner suburbs, have seen their household disposable incomes steadily (and recently more quickly) eroded by Barr’s so-called tax reform, featuring as it does massive increases in rates (triple since 2012 in some cases) that far outweigh any income increases to have come the way of this group. These people didn’t seek to achieve massive capital increases, they just wanted to live somewhere nice. They want to stay there because it’s their much-cherished home. They don’t deserve the punishment Barr is dealing out to them.

    chewy14 chewy14 7:42 pm 03 Sep 20

    Mike,
    I’m not that young and I’m an owner of an above average price house so it would be in my direct financial benefit to have lower rates.

    And I know exactly the people who are affected and despite their sometimes lower income status, they are objectively wealthy. Often significantly so.

    They have also been the beneficiaries of decades of government policy that has objectively made them rich through no action other than owning a piece of land. Also, a large proportion of the development in the city that they rail against, has amplified the value of their land further.

    Land is one of the most efficient areas to tax as it can’t be moved anywhere and taxing it encourages people to use it to maximise its productive use, which drives economic growth and efficiency.

    Allowing people to sit on large inner city blocks and not be taxed appropriately forces younger people to have to live further and further away from the main economic areas of the city where the jobs are.

    This significantly reduces the quality of life for younger people and negatively affects the ability of government services to be delivered on an equitable basis.

    Things like stamp duty on property also creates a hurdle to housing mobility and restricts older people from moving to more appropriate dwellings.

    If older people “just want to stay in their cherished home” as you say, they are free to release their large amounts of wealth through reverse mortgages.

    But in reality, as you well know, they want to have their cake and eat it too.

    If you think it’s fairer to tax younger, poorer people whilst millionaire asset holders pay very little, I would suggest you should have a deeper think about it.

    Mike of Canberra Mike of Canberra 3:05 pm 04 Sep 20

    Okay Chewy, if all the “millionaires” in the inner suburbs can no longer afford to “have their cake and eat it too” and the “poorer people” in the outer suburbs can no longer afford to “have their cake and eat it too”, what social profile do you see for Canberra at the conclusion of this tax reform program in 2032?

    chewy14 chewy14 4:29 pm 04 Sep 20

    Mike,
    Because the reform will lead to the more efficient use of land, the social profile of Canberra will become more diverse due to the greater variety of housing stock that will become available.

    No doubt, the reforms will lead to higher density developments in inner city areas and that is by design and deliberate. It will allow younger families and workers to move closer to their workplaces and social amenity.

    I think that you’re trying to imply that it will make the city more unaffordable but in fact the opposite should occur over the longer term.

    The government will also have a more efficient tax base which allows it to deliver services to citizens in a far more efficient manner which help everyone. Poor people are actually assisted the most due to their heavy reliance on government finds and services.

    The question I would now ask you is what do you think will happen to the social profile of Canberra and indeed the operation of government if millionaire land owners are allowed to remain on very large inner city blocks without paying appropriately for the amenity they gain from living there?

    How does it affect government services and the social fabric of society?

    And how should the government fund essential services and where do you think they should source revenue from if not land?

    Note, I don’t want to hear about government waste in spending here or how they could do more with less. I agree that the government is wasteful and should be more efficient, but that would apply no matter where revenue was being sourced from.

    Mike of Canberra Mike of Canberra 6:19 pm 04 Sep 20

    So you support the use of financial coercion to achieve particular demographic outcomes?

    chewy14 chewy14 11:42 am 05 Sep 20

    Mike,
    You’re acting like the default situation doesn’t do exactly the same just in another direction.

    Why do you support it?

    I would also point out that the potential changes in demographics are a byproduct of the policies, not one of the core objectives so your statement is a bit disingenuous.

    And finally, I’ve also noticed that you’ve continued to address none of my points. If you want to have a discussion, perhaps you should provide a more meaningful reply.

    Mike of Canberra Mike of Canberra 11:00 pm 06 Sep 20

    OK Chewy, no need to spit the dummy. I asked my question for one simple reason. Have you not noticed that, due to the ever-escalating cost of land in Canberra, especially in the inner suburbs, and combined with ongoing population growth, the process you describe in your reply is already underway? More and more entrepreneurial people are in the process of acquiring dwellings in the inner suburbs and seeking to maximise the return on their investment by sub-dividing in a way that replaces single dwellings with multiple ones. Because of this, the face of these inner suburbs is already undergoing significant evolution in the form of densification. It’s called market forces. It was happening well before the new rates regime was introduced. Superimposing excessive rates on these blocks, therefore, appears to be an unnecessary form of financial coercion. Why do you think that is? Do you not think that the ACT Government should be cutting its cloth to the ability of the local community to pay? Do you not think it preferable simply to allow market forces to play out in a way that inevitably will achieve pretty well all of the objectives you have outlined in earlier replies to me? Of course they will – just look at the evolution of the inner suburbs of pretty much every state capital. So I return to my question: given this is happening, do you then advocate artificial financial coercion to achieve demographic outcomes that are in the process of occurring anyway? Or could it be that Barr really isn’t able to control his spending? By the way, re the process of moving people closer to the centres of economic activity, if that’s the objective, why spend so much on light rail?

    chewy14 chewy14 9:32 am 07 Sep 20

    Mike,
    I’ll refer you to my previous comment:

    “Note, I don’t want to hear about government waste in spending here or how they could do more with less. I agree that the government is wasteful and should be more efficient, but that would apply no matter where revenue was being sourced from.”

    I’ve already said the government is wasteful, so we agree on that.

    But it’s irrelevant to benefits of the tax reform, which is designed to be revenue neutral over the long term, replacing stamp duty revenue with higher broad based land taxes. A more efficient tax system helps everyone and taxing land in this way is far preferable to taxing property transactions with stamp duty from an economic perspective.

    And once again, all taxation is artificial financial coercion, the new system is no different to the old one in that regards. The old system affected the demographics of the city similarly, so it’s a moot point.

    As for the light rail, I don’t think it was needed (at least not yet) but it is actually an example of how a more compact city can enable more efficient government services if it was done properly. Not everyone can live in the inner city but with increased density comes the ability to construct more efficient infrastructure, in this case for public transport. The main problem with the light rail is that the business case didn’t stack up. The capacity provided by light rail wasn’t needed yet and there were cheaper options available that would have delivered almost the same benefits.

    ThePickle ThePickle 12:30 pm 07 Sep 20

    This comment reminded my of an Austin Powers movie ..$1 million dollars!! lol. On our planet..$1m is only a bit over the medium house price and in Sydney is less than the medium. Worse still is those living in $1m houses (Which might be an old ex-govie in an inner burbs or a larger family house in the outer burbs) usually have a massive mortgage to go with it (think $600-800+)..and its not about feeling sorry for people, its about equity and fairness. We all get the same services and there are poor people and rich people living all over Canberra. Rates is way too blunt an instrument to achieve any kind of social equity – there are other taxes and entitlements that are better and more targeted ways to support the poor. (Most of whom don’t own houses anyway) The highly progressive rates system needs to be scrapped as a failed experiment.

    chewy14 chewy14 5:24 pm 07 Sep 20

    Pickle,
    Comparing any property with the “median Sydney value” as is meaningless.

    If you have a million dollar property and a massive mortgage, you’ve clearly purchased recently and decided that the cost is worth it. That cost includes the cost of rates and the cost of this tax reform.

    The government’s tax reform is planned to roll out over 20 years, no one is forcing you to buy or live in that type of house and the reform is already well into the transition.

    The median net worth of Australian households is less than $600k, so it’s completely disingenuous to believe that we should feel sorry for people in million dollar houses because they might have to pay some tax.

    “We all get the same services and there are poor people and rich people living all over Canberra.”

    Firstly, this is not remotely true, people living in inner city areas on expensive land gain significant amenity benefits (in a number of areas) from where they live. Wealth is highly correlated to property ownership and value.

    For example, I don’t see a light rail service anywhere but from Gungahlin to the City, do you?

    It makes perfect sense to tax that expensive inner city land commensurately.

    “Rates is way too blunt an instrument to achieve any kind of social equity – there are other taxes and entitlements that are better and more targeted ways to support the poor.”

    This is also just flat wrong. Land is one of the most efficient areas for a government to tax, it promotes economic growth and is progressive to ensure those who have the most resources pay the most tax.

    ThePickle ThePickle 6:42 pm 08 Sep 20

    I completely disagree with all of your points above. However, I am not going to engage further as you have very set views on this and clearly are not open to any alternative views.

    Maya123 Maya123 11:42 am 03 Sep 20

    I live in an inner suburb and pay less than half of that amount. I guess you live on a very large expensive block in somewhere like Deakin or Forrest.

    Acton Acton 3:12 pm 03 Sep 20

    Even a humble ex-govie in Narrabundah on a 722m2 block is now paying well over $4,000pa in rates. Give it a few more years.
    https://www.allhomes.com.au/43-green-street-narrabundah-act-2604

    Acton Acton 2:15 pm 03 Sep 20

    It is easy to confirm this on Allhomes. For example:
    3 bedroom house on 801m2 block in Hutchins St, Yarralumla – Rates = $7,517
    https://www.allhomes.com.au/28-hutchins-street-yarralumla-act-2600

    Rates in other suburbs will catch up because under Barr’s formula rates increase proportionally faster than rising land values, impacting on even smaller houses, with one income families and pensioners. You may not be paying $6-8k now. But you will be eventually because Barr has us over a barrel.

    chewy14 chewy14 7:48 pm 03 Sep 20

    Acton,
    Your link shows a property with a land value of over $1.1 million dollars.

    Once again, are you seriously suggesting we should feel sorry for millionaires that they have to pay some tax?

    Also, the fact that some of these people may be pensioners just proves how ridiculously lax the pension assets test is by not including the value of the family home.

    We have younger people paying ever higher taxes so millionaires can get a welfare payment.

    It’s truly unbelievable the mental gymnastics that must go on inside people’s heads to create a belief that this is remotely fair.

Scottie Roberto Avelia Scottie Roberto Avelia 8:18 pm 02 Sep 20

The Libs tried to tell stupid Canberrans that Rates would triple and got laughed at.... who's not laughing now you morons...? Stamp Duty is still around, sucking up all the money off the backs of people who just want to live....

ssek ssek 4:35 pm 29 Aug 20

So the Labor government are committing to continuing to raise already ridiculously high rates. LOL

And before the last ACT election, comments on here were full of people saying rates doubling was a lie from the Libs.

Stephen Roberts Stephen Roberts 7:35 am 28 Aug 20

Land tax is worse. Tiny apartments with no land get taxed double of what a house in Sydney does. It’s crazy but never have I seen the Liberals saying they would reduce / remove this unfair tax.

    Fiona Atkins Fiona Atkins 1:15 pm 29 Aug 20

    Stephen Roberts new to the ACT....when did these astronomical taxes/rates start?

    Scottie Roberto Avelia Scottie Roberto Avelia 8:19 pm 02 Sep 20

    The ACT Government releases over 90% of land for apartments, and changed the tax rate to milk it big time...

HiddenDragon HiddenDragon 7:57 pm 27 Aug 20

“Tax reform has increased economic efficiency and resulted in economic growth, with production, household consumption and investment increasing every year since 2012, with the increases growing over time.”

With a bit more work on the assumptions fed into the modelling, the stamp duty-land tax transition could also be found to have prevented community transmission of COVID-19 – but linking it to lower rates of male pattern baldness amongst politicians might have been a bridge too far.

    chewy14 chewy14 11:06 am 28 Aug 20

    Hiddendragon,
    Perhaps you could specify some particular assumptions that you have issue with in the modelling?

    Or the scenarios that they included?

bj_ACT bj_ACT 5:35 pm 27 Aug 20

I’ve been concerned about the impact of the new rates model on below average income homeowners since day one.

The modelling and report by ANU/NATSEM released by the ACT Government today, shows that low income homeowners were the group ‘worst off’ under the annual rates from Stamp Duty tax switch. And it’s the outer suburbs of Canberra where the majority of below average income homeowners live.

I’ve always said that there are many elements of the switch from Stamp Duty to Annual Rates that I support. So I’m not against the overall change.

But the progressive level of increase in the tax rate has always been too flat and it hits below average land values way too hard. I would still like to see the ACT follow the example of some other States and use improved land value not unimproved land value. But I can accept that may be a difficult step.

But if there was one area to make the tax changes more equitable….. it would be to reduce rates charges on low per square meter value land and also some further reductions for suburbs that have poor government facilities and residents who have to travel further for work or entertainment options than the average Canberran.

    chewy14 chewy14 6:51 pm 27 Aug 20

    BJ,
    I suggest you read the reports because it’s nowhere near as simple as saying lower income people are the “worst off”, despite what the people at the Canberra Times might think.

    The analysis actually shows that most income and wealth groups are better off under the reforms and they actually result in the richest people paying a higher percentage of the total rates and stamp duty. It actually makes the system more progressive, which is something you claim to want.

    Lower income renters actually do OK out of the changes too.

    The small negative effects on the bottom quintile of home owners occur because they don’t buy many houses anyway and struggle to afford deposits in the first place.

    But as land is a scarce resource it also doesn’t make much sense to significantly help poorer people hold on to land or buy property.

    Weve also been over the reasons why you would never want to tax the improved value of land which would simply incentivise people to let their houses turn into run down slums, the opposite of economic efficiency in this area.

    And the “low value” land you talk about is already taxed at a lower rate than higher value land. Its taxed exactly at the right value which is based on the actual market value of what people are paying in the area.

    Seemingly, what you actually want to happen is for people to be able to buy and hold on to land without paying for the privilege, sorry it’s not going to happen.

    Owning land is not a right, as the analysis shows, the tax reforms are working. Now the government just needs to finish the job.

    bj_ACT bj_ACT 12:48 pm 28 Aug 20

    You continue to make more spin than Andrew Barr on the Stamp Duty changes. Can you confirm for Riot act readers that you have zero connection to the rates Stamp Duty policy change. You can never find a weakness in the policy and you can never see any issues for the policy at the Spatial level.

    You should also be reading my comments and the report (not once again purposely misinterpreting my comments in your responses).

    I said low income homeowners NOT low income people. Low income homeowners are often listed as worse off in the report and as worse off in the various tables within the data. How can you deny this?

    How also can a low income homeowner benefit from lower Stamp Duty and higher annual rates when they are very unlikely to buy a new house? It’s counter intuitive.

    Amongst many of the loose assumptions in the analysis. such as just a 1.7% average house price increase in Canberra, not factoring in Coalition job cuts in the early part of the decade, etc I’m also very dubious of the models assumption that 39% of house sales are for first homebuyers who can claim a Stamp Duty discount. It would be interesting to know what the actual percentage of property sales in Canberra where buyers are able to claim a first homeowners discount.

    chewy14 chewy14 5:43 pm 28 Aug 20

    BJ,
    Seeing as I’m on here regularly berating decisions by the local government, do you really think I have anything to do with them?

    Doesn’t stop me from being able to congratulate them for a truly good tax reform policy here.

    I also didn’t misinterpret you comment, I expanded on the issue with reasoning and logic.

    “Low income homeowners are often listed as worse off in the report and as worse off in the various tables within the data. How can you deny this?”

    Um, I didn’t, and specifically assessed your points in my comment. The majority of people have benefitted out of the policy and it’s made our taxation system more progressive. I’ve also explained specifically why helping lower income people buy and hold on to land is not automatically a good thing. Land is a scarce resource that provides an efficient tax base, we should maximise that.

    “Amongst many of the loose assumptions in the analysis. such as just a 1.7% average house price increase in Canberra”

    Where is this from? They haven’t assumed a 1.7% increase in house prices. One of the scenarios used assumed a price effect that the new policy had raised prices 1.7% additionally compared to the old policy settings. This was to test the impact on the model.

    I’m also very dubious of the models assumption that 39% of house sales are for first homebuyers who can claim a Stamp Duty discount”

    This also wasn’t an assumption, it was an output of the model which aligns with the survey of income and housing data from the ABS. If you’ve got better information, Perhaps you should let the modellers know.

Robert Harrop Robert Harrop 10:38 am 27 Aug 20

The Labour Party has increased rates in Canberra far greater that any other state, there must be an election coming, but they never go through with it

Vanessa Jones Vanessa Jones 10:29 am 27 Aug 20

Rates for a Canberra house worth $600k = $2,500 pa.

Rates for (a friend's) house in eastern Sydney worth $1.3 mill = $1,500 pa. The logic there?

    Vanessa Jones Vanessa Jones 1:16 pm 27 Aug 20

    Water was not part of that for both properties, for the rates I quoted. Here in Canberra I pay separate water, gas and electricity to rates. Regional NSW can easily be $2,000 pa for rates but urban Sydney is far cheaper than urban Canberra.... go figure....

    Vanessa Jones Vanessa Jones 2:41 pm 27 Aug 20

    Which zone are you in?

    Matt White Matt White 1:29 pm 29 Aug 20

    Just adding some perspective on how ACT rates aren’t really that high, particularly as NSW residents also have to pay more stamp duty on house purchases. Was surprised though to hear from Vanessa how low Sydney rates are. I suppose that makes some sense given the high population density but can’t help wonder if it’s also because they’re benefiting more from state/federal funding. So to be honest if I was to bother to write to anyone to complain it would probably be to higher levels of government for insufficient funding flowing down to regional councils.

    Jay Mah Jay Mah 5:16 pm 29 Aug 20

    They have justified the rate increases, they're phasing out stamp duty.

    Steve Fnac Steve Fnac 10:58 am 05 Sep 20

    2019/20 2 BR Apartment Kingston Rates $2,256, Land Tax $2,832. Goes up every Year.

    Steve Fnac Steve Fnac 7:13 pm 06 Sep 20

    They have been in power way too long imo. Time to change.

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