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Wednesday, May 04, 2011:

Council rates and the capacity-to-pay hoax

Gavin R. Putland releases the LVRG's submission to Tasmania's Review of Valuation and Local Government Rating, conducted by the Department of Premier and Cabinet. The submission was lodged on December 17, 2010.


Proponents of capital-value (CV) rating would have us believe that a ratepayer who owes $500,000 against a property worth $560,000, leaving equity of $60,000, has more “capacity to pay” than one who owns a $400,000 property with no debt. In fact land-value (LV) rating better reflects “capacity to pay” as expressed in locational choices and as conferred by locational advantage, because the locational value of a property is in the land value. Moreover, because CV rates deter construction of competing accommodation, they can be passed on to tenants, whose “capacity to pay” is especially low. LV rating has no such fault.

Nevertheless, because CV rating penalizes construction, it can rely on the support of those who stand to gain from a shortage of housing.

Critics of rating “volatility” pretend that if the value of your property rises by $100,000, causing your rates bill to increase by $500, you are the victim of a “price shock” and deserve relief, whereas if the value of your property falls by $100,000, causing your rates bill to fall by $500, you should pay more in rates so that the poor fellow sitting on the $100,000 capital gain can pay less.

The real problem exposed by “price shocks” is the excessively long period between valuations. The solution is to mandate land-value rating in order to streamline the valuation process, so that more frequent valuations can be performed with the existing resources.

When that is done, the only remaining purpose of change caps will be to protect LV rating from biased headlines and soundbites that draw attention to the biggest increases in bills while ignoring or downplaying the much larger windfalls on which those bills are based.

If capital values and AAVs are no longer recorded, fire levies can be based on land values, and conveyancing stamp duties can be based on changes in land values.

Full text

See http://lvrg.org.au/files/lvrg-tas.pdf (copy-and-paste the address to your browser).

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