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Saturday, August 08, 2009:

Rategate and the scandal of the Five Words

For a time, Monash's misleading brochure on rates misled me too, but not in the way it was meant to — writes Gavin R. Putland.

In Monash City Council's brochure on rates reform, and in the July 21 edition of the Monash Bulletin (p.3), there's a numerical example purporting to show how CIV rating would affect the rates bills for a modest 3-bedroom house, a big new 4-bedroom house, a medical clinic, and a unit in a 4-storey block of 12 units, built on four “identical” 800 sq.m. lots “in a street”. The brochure describes the assumed “rates in the dollar” as “estimates only” for the CIV cases (“Options 2 & 3”) but not for the SV case (“Option 1”), although in all three cases the rates in the dollar are based on the official valuations used for the 2009/10 budget. This anomaly is noted in the post of July 31, in which I attacked the numerical example for ignoring the increase in site values due to special building approvals.

Earlier versions of that attack were contained in letters to the Monash Journal (submitted Jul.25, published Aug.3) and the Waverley Leader (submitted Jul.26, published Aug.4). Although the letters differed somewhat in coverage, both concluded that the offending example understates the rates bills for the clinic and the block of units under SV, “and overstates them under CIV”.

Question: What was the reasoning behind the last five words? If the SV is understated, isn't the CIV, hence the bill, also understated? Or if the CIV is correct while the part attributable to the site value is understated, won't the bill be correct?

Answer: I was reasoning from the general rule that a change from SV to CIV favours ratepayers with higher site-value fractions. This assumes that the “rate in the dollar” is determined by working backwards from the total required revenue and the total rateable value (SV or CIV). Changes in individual values affect the total value, which is the denominator in the calculation of the “rate in the dollar”, so that any change in the total value has an inverse effect on individual bills. And because the “rates in the dollar” for CIV were “estimates only”, I didn't see any reason to depart from the general rule!

However, I now know that the CIV rates used in the brochure, like the SV rate, are based on actual total valuations for 2009/10, so that it is misleading to describe them as “estimates only” (at least without describing the SV rate in the same way). As the total valuations are factual while the individual examples are fictitious (and indeed absurd), the effect of those examples on total values should be disregarded, so that there is no basis for the words “and overstates them under CIV”. These five words should never have been included in the text, and would not have been included if I'd known then what I know now. In all other respects, however, I stand by the two letters.

I have duly written to the Monash Journal and the Waverley Leader to correct the record. It remains to be seen whether they print the corrections.* It remains to be seen whether the pro-CIV camp seizes on the Five Words, or keeps quiet for fear of drawing attention to any of the other words in the same two letters. And it remains to be seen whether anyone would have known the Five Words were a mistake if I hadn't 'fessed up.


* Update (September 16): The Monash Journal printed the correction on p.8 of the Aug.17 edition.

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