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Rates war explodes after Liberals pledge four-year freeze

Ian Bushnell 8 June 2019 58
Affordable housing

Rates will go up 7 per cent in 2019-20 as part of the Government’s ongoing 20-year tax reform program.

The Canberra Liberals’ pledge to freeze rates for the four years of its first term in office if elected at next year’s election for the Legislative Assembly has drawn a withering attack from a Government that recognises the popular appeal of a pause in its 20-year tax reform program.

Opposition Leader Alistair Coe told the Assembly in his ACT Budget reply speech that a Liberal government would end Labor’s rates rip-off and bring relief to ordinary Canberrans who were hurting.

He said a freeze would ‘take the pressure off households, give certainty and end Labor’s punitive rates regime’.

Anticipating the Labor response that this would be irresponsible, Mr Coe said pressing on with the tax reform process was reckless and unethical, despite Chief Minister Andrew Barr saying the heavy lifting was over and the rate of rises to come would slow.

Setting the scene for an election battle over tax and spending, Mr Barr said in a statement that the Liberals’ alternative Budget would be a cocktail of service cuts, job losses and tax increases.

The two leaders traded blows over how much rates have increased with Mr Coe saying rate revenue had doubled and was set to triple, while Mr Barr countered with average rates figures denying this.

“In 2016, the Labor-Greens Government doubled its rates revenue to $423 million, up from $209 million in 2012. In 2021, rates will more than triple to $652 million and keep growing the year after to $698 million,” Mr Coe said.

“The Government is doing this at a time when its total revenue will soon pass a record-breaking $7 billion.”

Mr Barr said that in 2012-13 average household rates were $1426 a year and in 2019-20 they would be $2373. “Household rates have not tripled, and will not triple under the ACT’s tax reform program,” he said.

It may be a case of comparing apples and oranges, but there is no doubt the rates issue is biting.

The Ratepayers Association of the ACT welcomed the rates freeze pledge,  saying large rates increases every year for almost a decade had been a dishonest revenue raising ploy by the Government.

“The massive increases in rates have not seen equally large dollar reductions in total stamp duties receipts,” it said. “It’s good to see more first home buyers benefiting from stamp duty abolition. However most states have already been doing the same without offsetting increases in rates.

“Home owners and tenants are paying the added rates and land tax costs which are making life very difficult to unbearable and impossible. Rates payments have become the equivalent to a second mortgage which can never be paid off whilst payments increase dramatically every year.”

But Mr Barr said stamp duty rates had been cut every year since 2012-13 and continued to fall in every year of the current ACT Budget.

“The buyer of a $500,000 home now pays $9100 less in stamp duty than when tax reform commenced. They also save $10,570 compared with the stamp duty payable in Victoria or $6590 compared with New South Wales.”

Mr Barr also attacked the Liberals’ 2018 pledge to axe the lucrative payroll tax which he said would cost the Budget more than $600 million a year from 2020.

“His plans would mean cutting the equivalent to one-third of the ACT’s total spend on health every single year,” he said.

“Over 90 per cent of ACT businesses pay no payroll tax at all. Mr Coe’s plan would mean cutting essential services for Canberrans in order to give a massive tax cut to multinationals and big national companies like supermarkets, banks and utilities.”

Mr Barr said Government help for those on low or fixed income would amount in 2019-20 to $76.5 million worth of direct assistance to households through concessions, including on general rates, transport and utilities costs.

”Mr Coe has also shown yet again that he is willing to blatantly lie when the facts don’t fit with his constant negativity about Canberra’s economy and tax reform,” he said.

He rammed home the point that the Liberals were planning huge cuts to services.

“When will you tell Canberrans what’s on the chopping block, Mr Coe? Are you ruling out increasing any other tax or charge? Will you reverse stamp duty cuts, or reintroduce insurance taxes?” he said.

But Mr Coe won’t be drawn on cuts, his focus will remain on rate rises, the cost of living and what the Liberals will argue is wasteful Government spending.

 


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Rates war explodes after Liberals pledge four-year freeze
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Spiral 6:46 pm 09 Jun 19

Sure the Libs say this now, but if they get into power they will suddenly announce that Labor left the economy in a much worse state than they expected (probably blaming it on the light rail) and decide they can’t actually freeze rates.

I believe the current government is a really bad one, but trust this promise from the Libs as far as I could throw the light rail (or any other white elephant).

HiddenDragon 5:36 pm 09 Jun 19

For all the huffing and puffing by the ACT Government about this proposal from the ACT Liberals, I think we need to know more about the yet-to-be elaborated (so far as I am aware) post-Budget comments from Andrew Barr about options to assist people who are feeling the “pinch” (and the Oscar for Audacious Understatement goes to….) of rates rises and who have lived in the same home for many years (or words to that effect).

Perhaps someone has decided to dust off a similar promise made by the then Labor opposition in the campaign for the 2001 Territory election – which was almost certainly criticised by the then Liberal Government.

That little bit of history serves as a reminder that there are no easy answers to this question, and that the best course probably lies somewhere between the two positions currently staked out by Coe and Barr. Over-reliance on stamp duty has problems, but so too does a too-clever-by-half plan to try and lock in boom time stamp duty revenues in the form of very high annual rates and still substantial land tax and stamp duty revenues.

For those who are tired of being lectured and hectored about the virtues of doing away with property transaction taxes (which doesn’t seem to have done much for housing affordability in Canberra), here’s a counter view –

https://theconversation.com/stamp-duty-fever-the-bad-economics-behind-swapping-stamp-duty-for-land-tax-106841

    chewy14 9:02 am 10 Jun 19

    Firstly,
    Canberra wasn’t in a property boom when these changes were enacted and hasn’t really been in one since so your claims about locking in boom time stamp duties don’t really hit the mark.

    Although it does highlight one of the massive problems with stamp duty in that governments can go from feast to famine in a short time based on uncertain revenues which is good for no one.

    As for the article you’ve linked the author provides almost zero evidence for his opinions (And they are simply opinions).

    In particular to point out one of the flaws in his article where he talks about revenue stability and that the boom/bust cycle from stamp duties being a good thing, he might have a point if any government in the history of our country had managed to save those boom time revenues or invested in long term infrastructure needs with it.

    Instead, due to the political cycle, those boom time revenues are almost always used to increase recurrent spending (as if the boom would never end) creating structural deficits or simply wasted in an attempt to buy votes.

    Removing those revenue fluctuations can only be seen as a good thing.

1:17 pm 09 Jun 19

Stamp duty absolutely has to go. This is widely regarded by economists everywhere and even the Henry Tax Review as an inefficient volatile tax stream that incentivises unsustainable planning practices in order to maximise stamp duty revenue (ie, Gungahlin post self government), while simultaneously penalising labour mobility in the most sparsely populated country on Earth.

Stamp duty, like negative gearing on existing properties, are massive tax distortions with only adverse and no positive outcomes.

They both absolutely have to go and stamp duty be replaced with land tax.

So although my rates have shot up as I live in one of the more expensive suburbs (Hawker) that gets hit quite hard, I knew this when buying here and accepted the consequence for a more sustainable funding model.

However, the ACT Government does need to provide clear assurance that stamp duty will decline and when rates rises will plateau.

And all Australian states should follow suit.

This is 20 years overdue and was an agreement all states signed up to with the Howard government when the GST came in to replace stamp duty, which states never did and just kept both instead.

So I support tax reform towards a more stable, efficient and cheaper to administer system and I expect the traditional party of economic vision to take the lead on tax reform and present a clear model also.

I eagerly await presentation of their economic and tax reform vision to compete with Labor's.

The time for bleating and whingeing is over. Our country sits on a precipice with no significant reform in decades and our coal and ore driven "luck" will run out eventually.

And when that happens, we will want all our reforms long behind us so our economy can quickly adapt.

    9:30 pm 09 Jun 19

    Fantastic knowledge and explanation Ian, thank you.

    10:45 pm 09 Jun 19

    Leigh Brady thank you

    11:11 pm 09 Jun 19

    Former Chief Minister Jon Stanhope commented on such matters in an article entitled "Has the ACT government kept its word on historic tax reform?" in the Canberra Times, Sept 8, 2017. Here is an excerpt: Five years on, The Canberra Times reported last month the government was collecting $80 million (or 32 per cent) more in stamp duty than it did in 2012. The government's explanation is that the share of stamp duty as a proportion of total taxation has fallen from 24 per cent to 16 per cent.

    That explanation does not bear scrutiny because overall taxation has also increased well beyond the revenue replacement required, with general rates increasing from $209 million in 2011-12 to $452 million, and significant increases additionally in levies on households (e.g. the fire and emergency services levy, and the lifetime care levy) and charges (e.g. drivers licences, water and electricity). Indeed, analysis of Bureau of Statistics data indicates that stamp duty as a share of total taxation would be more in 2015-16 than in 2011-12 if the tax level relative to the economy was maintained. More at: https://www.smh.com.au/opinion/has-the-act-government-kept-its-word-on-historic-tax-reform-20170828-gy5g0w.html

steveu 8:44 am 09 Jun 19

how about lowering the rates then? Easy to say you will freeze them after someone has gone and risen them for you for years. Lower them and then maybe we will listen.

    muzza 10:20 am 09 Jun 19

    At least three more years of steep rises are planned. Better to have a cap than still more increases.

michael quirk 7:38 am 09 Jun 19

The Liberals need to do more than freeze rates to defeat the mediocre and arrogant Barr government. They should argue for a review of transport policy with the aim of increasing public transport usage. Such a review would explore the merits of a busway to Woden realtive to light rail. Health, planning and devlopment are other areas where labor is underperforming.They also need to move to the centre .Whether Mr Coe is capable os such a move is questionable.

    muzza 9:27 am 09 Jun 19

    Agreed, in such an ALP welded on town, the Liberals would need to carefully consider strategy, get the best marketing advice, and look at a balanced enough offering to have any chance of making it. I don’t normally vote Liberals but the current circumstances require removal of Barr. The cost and rates implications of stage 2 light rail are scary to contemplate.

    JC 5:45 pm 09 Jun 19

    So what are those rate implications for stage 2 light rail. And may I ask what do you think the rate impact was/is for stage 1. Can you tell us how much your rates went up to pay for it? I’m certain is people actually do the maths they may be surprised at how little light rail has cost.

    michael quirk 7:14 am 10 Jun 19

    The point is the billion or so dollars spent on LR1 is not a small amount. BCA Assessment showed it provides a poor return. The LR2 to Woden should not proceed without analysis. What is the government afraid of? Perhaps it will indicate they are wanting to spend $1.6 billion on a project that delivers few benefits.

    JC 8:25 am 10 Jun 19

    Yeah but what has been the impact on your rates?

    I’ll give you a bit of a hint light rail is being paid for by an upfront payment and 20 years of operating cost.

    A fair portion of the upfront cost was paid for through then federal government asset recycling scheme and the rest paid over 20 years is about 1/100th of the current ACT budget. So all things being equal that is 1% of dates funding light rail stage 1. But because construction costs are in 2017 terms that means that as the years go by the annual payment will reduce relative to the total value of the budget so the impact will be less than 1%.

    And none of this takes j to account the value of land sales etc which is what have stage 1 a positive (albeit small) rate of return. Nett effect that 1% impact on rates will be even lower.

    So again what’s the impact on rates?

    chewy14 9:24 am 10 Jun 19

    JC,
    The asset recycling funds were to be used for infrastructure spending, they weren’t linked to light rail so you can’t claim they were used to fund it specifically and the fact that there were better, more efficient options available shows just how bad a decision it was.

    The entire transport budget last year was $378 million, less than the constuction cost of light rail stage 1 which services less than 10% of the population along one single transport route. The ongoing payments to run it are a significant chunk of that budget locked in from now that can’t be used elsewhere.

    If you take a look at the ACT budget, revenue only comes from a few main sources with most of them impossible for the ACT government to influence or economically negative if they try to change. The GST for example is around 35-40% of total revenue.

    Property taxes, including land rates, are one of the few areas the government can raise additional revenue with little negative economic effect.

    Similarly on the expenses side, the vast majority is recurrent and locked in. Education, Health etc. can’t really face significant cuts.

    Which makes light rail a far more significant hit on available discretionary spending.

    So all things being equal, the claims that light rail only make up a small amount of budget spending and doesn’t really affect rates is completely wrong.

    All of these things were included in the business case for light rail and even with some heroic assumptions it’s cost benefit ratio is only 1.3.

    A rate that no investment manager or infrastructure planner would go near with a barge pole. The main reason that Infrastructure Australia assessed the project and rejected it for federal funding.

    michael quirk 12:17 pm 10 Jun 19

    Nonsense. The asset recycling contributed $60m.If the project had been a busway the AR Payments would have been available. If Labor was really concerned about social justice they would have priotitorised housing, health , bus based public transport and education over the gold plated, ego driven light rail folly

    Capital Retro 8:05 am 10 Jun 19

    Compared to what?

    JC 1:19 pm 10 Jun 19

    The Myth busters team are quick out of the blocks today and yet again well off especially with their claims about how money I spent. Somehow saying grants and GST pay for this, rates for that when in reality except for some very specific projects money from all sources comes in and is bundled together.

    That’s why I am not claiming the increase in land sales and rates revenue from blocks along stage 1 are paying for light rail even though it is all related. Because they aren’t they go into consolidated revenue. The story can be spun which ever way you like but fact is payments for stage 1 are 1% of current budget and as a percentage of budget will decrease overtime as the capital portion of that payment remains static and only running costs go up. All of course converted in the public available contracts.

    chewy14 5:20 pm 10 Jun 19

    JC,
    And the ALP apologists are quick to reply despite being shown time and time again to be wrong.

    “Somehow saying grants and GST pay for this, rates for that “

    No one has said anything of the sort.

    The issue is that raising revenue is constrained in most areas, land being one of those where it is far less so. Expenses are the same, most is recurrent and locked in.

    So when significant new projects above what is normal are proposed, where does the additional revenue mostly come from? The revenue sources that are easier to increase. On land.

    “That’s why I am not claiming the increase in land sales and rates revenue from blocks along stage 1 are paying for light rail even though it is all related. Because they aren’t they go into consolidated revenue.”

    As I said, those increases ARE included in the CBA that should such a woeful rate of return, with land uplift benefits exceeding transport ones. Making it a predominantly land development project rather than a public transport one.

    “The story can be spun which ever way you like but fact is payments for stage 1 are 1% of current budget and as a percentage of budget will decrease overtime as the capital portion of that payment remains static and only running costs go up.”

    Yes, it can be spun that this 1% is a tiny amount when in reality it is a huge impost on a constrained budget that provides a public transport option for a tiny minority of the population along one single route. If the entire network is rolled out it will be a millstone around the territory’s finances for decades. 

maxblues 4:49 am 09 Jun 19

Runaway rate rises cause increasing rental prices, causing distress to tenants and threatens viability of small businesses. Any effort to put a brake on this vicious cycle is to be applauded.

11:06 pm 08 Jun 19

Labor have been in power for eighteen years too many. It treats its population with contempt and ignores legitimate complaints. The best it comes up with are wellness indicators, which I assume means feeling joy when getting the rates notice. Those well off enough to pay these rate increases good for you. However there are many who can't. When the coe government gets into power in 2020, I suggest these well off big mouths pay the rate increases planned by the Barr government.

    11:12 pm 08 Jun 19

    Agree - there has also been a regular stream of complaint about high rise and units everywhere, with green space threatened, West Basin and more units and so on. The Greens are missing in action as more and more is concreted over. The rates increases also disadvantage those on relatively fixed incomes. Where do they think the money is coming from to pay for these steep year on year increases?

    1:16 pm 09 Jun 19

    Christopher Goyne this is the fault of competition focussed, for too long, almost exclusively on the "culture wars" in neglect of presenting an attractive economic and social alternative to the Canberra electorate.

    In the absence of strong vision and competition the incumbent grows weak and bloated. But that's not their fault.

    We should ask more questions about the vitality of the competition and their role in this.

    1:19 pm 09 Jun 19

    Ian McLeod good points but Barr must go.

10:57 pm 08 Jun 19

Anybody who thinks this government is a genuine ALP one must be kidding. The regular critiques of it by former Chief Minister Jon Stanhope are testimony to this. Further steep rate rises are coming for the next three years. Time to toss Barr and crew out. Further, we have Mick Gentleman opening the way to Google drone deliveries over more Canberra suburbs. That is, invasive noise that drove people in Bonython nuts. ALP – I don’t think so.

muzza 9:50 pm 08 Jun 19

Anybody who thinks this government is a genuine ALP one must be kidding. The regular critiques of it by former Chief Minister Jon Stanhope are testimony to this. Further steep rate rises are coming for the next three years. Time to toss Barr and crew out. Further, we have Mick Gentleman opening the way to Google drone deliveries over more Canberra suburbs. That is, invasive noise that drove people in Bonython nuts. ALP – I don’t think so.

9:17 pm 08 Jun 19

Barr is panicking.

Wing Nut 7:07 pm 08 Jun 19

Coe is being totally disingenuous by not outlying how the Liberals intended to manage costs as the cost running the ACT will not pause inline with the rates freeze. You can’t pause income without addressing expenditure unless Coe intends to borrow to cover the difference.

    Capital Retro 7:46 pm 08 Jun 19

    He could sell-off Action busses. Adelaide/South Australia have flogged their bus service and they are considering the trams to go next.

    JC 5:55 pm 09 Jun 19

    Adelaide haven’t sold off their buses. They have however contracted out their operation. Subtle but very important difference.

    As for ACtion why that difference is important is the way transport has been organised in the ACT Action no longer really owns anything anyway so nothing to be sold. In essence Canberra buses are are already contracted out, but contracted to Action by Transport Canberra.

    In fact only canberra and Sydney still have government operators and in Sydney that is diminishing every year.

    Capital Retro 8:10 am 10 Jun 19

    Yes, JC, you are correct.

    Strange how only you and I know about what happened in Adelaide, isn’t it?

    JC 8:50 am 10 Jun 19

    Not sure why that is strange. Public transport has been an interest of mine for many years now so reasonably aware of what has happened in other parts of Aus.

    Oh and made a mistake. Brisbane and Hobart still have government operators. Though Brisbane is the local council not state government.

Capital Retro 6:19 pm 08 Jun 19

Due to the disruption of the Fairfax Media forums, a lot of the Howard Haters and their offspring appear to have migrated to the RiotACT.

4:50 pm 08 Jun 19

Yes we all know about Liberal “promises”! All non-core. Liberals run campaigns of lies. Recent events show this! I sure wouldn’t believe anything they say. And what would they do the replace these funds? Slash education, health and other essential services?

Lucy Baker 3:53 pm 08 Jun 19

I just want land made freehold and this rates blowout to end. I don’t care what side of politics does it.

3:27 pm 08 Jun 19

Yeah and ScuMo promised tax cuts for all of three days after his election. There's no trust in this what so ever

1:16 pm 08 Jun 19

... And freeze four years of spending on services!

When will the public realise that the moneys collected in taxes, etc PAY FOR SERVICES, ie hospitals, police, fire services, ambulances, roads, public transport, schools, etc, etc, etc.

Cut taxes (even freezing them) cuts services.

Don't care if it's federal or state/territory.

12:47 pm 08 Jun 19

Any budgeting or numbers to show the coatings for that? Or just an unsubstantiated policy statement?

12:46 pm 08 Jun 19

So you are happy to pay the 7% rates increase?

    1:34 pm 08 Jun 19

    Yep, and it's good to know that overall the taxes and govt charges we pay in the ACT are around the average for Australia as a whole.

12:05 pm 08 Jun 19

Just watch a decrease in funding to essential services and infrastructure.... they did nothing and the ALP had a hell of a mess to fix up..

10:52 am 08 Jun 19

HA HA HA HA and I believe in the Easter Bunny too

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