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Tuesday, August 11, 2009:

What do ratepayers want anyway?

By Gavin R. Putland

On August 10, at the first of Monash City Council's “information sessions” on rates reform, it was noted that in the days when Victorian ratepayers were allowed a referendum on any change in the rating base, they often voted for site value (SV) although official calculations showed that a majority of them would be “better off” under net annual value (NAV). Presumably being “better off” means paying less.

This was interpreted as evidence that ratepayers don't trust councils (and I'm not suggesting for a moment that they should). But what if ratepayers don't define being “better off” simply as paying less? What if they also consider how the rating base affects the behaviour of their fellow ratepayers, hence the quality of the neighbourhood, hence the values of their properties? NAV rating and capital-improved-value (CIV) rating tax the values of buildings. SV rating doesn't. So is it not clear that if the base is changed from SV to NAV or CIV, property owners will be less inclined to maintain or upgrade buildings, and more inclined to neglect or destroy them, making the neighbourhood less attractive?

In response it is often alleged — and was repeatedly alleged at the “information session” — that municipal rates are too low to exert such influence. But under “CIV with differentials”, according to the estimates in the Council's brochure on rates reform, owners of commercial and industrial property would pay 0.2657% per annum. Compared with SV, the additional holding cost on the value of new construction would be equivalent to an increase in interest rates of 0.2657 percentage points. Meanwhile the Reserve Bank adjusts interest rates in increments of 0.25 percentage points. Clearly the Reserve Bank regards such changes as significant influences on economic behaviour.

A certain octogenarian Monash ratepayer recently wrote a letter to the Mayor and Councillors, sending a copy to the Secretary of Prosper Australia with permission to reproduce it. In the letter she said nothing about how the proposed move to CIV rating would affect her own bill. But she noted that other ratepayers

... if they live in a beautiful home, think they will pay less if it looks dilapidated or painted in odd colours...

Concerning the biggest winners from CIV, namely the owners of vacant sites, she wrote:

If I [own] a block of land and do nothing with it, but wait for the value to go up, this is a “dog in manger” attitude.

On the new penalty that CIV rating would impose on construction, she continued:

If I decide to build, the architect pays tax for paper & pencil,... the builder pays tax for a hammer and nails,... the bricklayer and windows are all taxed and all who work on the building pay Income Tax, and when it is ready for use the Council wants to tax the whole lot when it comes together.

She concluded:

Let us keep progressing and never through tax or fiscal policy turn Monash into a slum.

Perhaps that is a taste of why real ratepayers so often voted against reforms that Councils deemed to be good for them, until the State Government took Bertolt Brecht's advice too literally and voted the ratepayers out — by taking away their right to a binding referendum on any change to the rating base.

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