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I recall a conversation many moons ago with a state treasurer in another jurisdiction in which I asked him to explain the reasons behind land tax. He admitted there was no economic justification for it. There was no nexus between land owned and the uses to which the money raised might be put. However, he said, land was a useful vehicle for putting private money into public coffers – in other words, an easy target. Another example of the ‘tall poppy’ syndrome at work in Australia– people with land must be rich, and the rich are fair game.

In effect, he was acknowledging that this was simply a wealth tax, a tax imposed on people’s assets, carrying with it the implication that assets equal disposable income and people with high asset levels had a matching capacity to pay. Wrong.

In 2009, the Tasmanian government launched a review into the rationale behind local council rates. At the time, rates were skyrocketing as property values increased. There was some political sensitivity to the fact that the natives were getting restless as a result of the volatility of the rates they were being asked to pay.  That process is coming to a resolution, with the recent released the recommendations of a review of local government rating systems.

In 28 of our 29 municipalities, rates are currently based on the assessed annual value (AAV) of a property, which is its annual rental value. If your property is deemed to be worth $10,000 p.a. as a rental property and the council strikes a rate of 20 cents in the dollar, then your annual rates bill will be $2000, payable $500 per quarter. This essentially buys you the right to access council services, not including water and sewerage which are now an additional, separate impost - but that’s another story.

To add a complication, there is also a legislated provision that a property’s AAV cannot fall below four per cent of its capital value (CV). So if a property is worth $500,000, the AAV cannot be less than $20,000 and, on the scale just used, your annual rates bill would be $4000.

Since the review began in 2009, there has been some tweaking of this system, including the introduction of capping of rate increases.

However, the broad conclusion of the review is that we should abandon AAV as the valuation for rates and adopt a methodology based on capital value (CV). In other words, it is proposed to continue the inequity of a wealth tax, but using a different formula. Shuffling deck chairs is the image that comes to mind.

TFGA believes there are some fundamental problems with this proposed methodology. Foremost of these is the question of just what are we supposed to be paying for with our rates. Shouldn’t they be based on services provided?

Local government imposes rates on landowners (not tenants) for services it provides: road maintenance, garbage collection, refuse disposal, parks and recreation, planning, parking, etc.

What then of the principle of user pays, fee-for-service? Is that not just too sensible?

Fair taxes have to be based on equity, simplicity, sustainability and consistency - as well as the ability to pay. This recommendation fails on most of those grounds. It assumes that there is a correlation between capital value and capacity to pay a bigger share of the rate burden.

We told them this is clearly wrong. In many circumstances, there is no relationship between property value and capacity to pay. Examples include pensioners, who are often asset rich but cash poor or situations relating to inherited properties. In the case of agricultural properties, this is even more relevant. The capacity of farmers to pay is determined by income, not the value of their properties. Unlike wage earners, farmers’ income is highly variable. It is influenced by a range of external factors from year to year, including seasonal vagaries such as flood, drought or disease or external influences such as national and international market pressures and value-adding business decisions.

We also believe that councils have to take into consideration the variety of property within their municipalities and the real world situation with farms. Farms are bigger and they are often an amalgamation of several properties and titles. There may well be only one residence in the umbrella group, yet each title is still rated on the basis that all services are provided and accessed.

Farmers make less use of municipal services than urban residents. We don’t get our garbage collected; we don’t have to use the local tip as much, we probably don’t spend time at the local pool or library. Yet we are often paying higher rates those in the urban areas.

In a perfect world, we should be able to price council services on the basis of costs incurred and everyone would pay according to the services we use. I recognise that’s a step too far – it would be too complicated and beyond the capacity of government to deal with.  So, in the foreseeable future, we’re stuck with property valuation as the basis of council rates.

Accepting this, then we believe rates should be based on the unimproved value of the land, not the capital value (which includes improvements). This is how rates are calculated in many mainland states and it is the least unfair of any of the methods proposed.

If we can’t manage to come to a commonsense conclusion in this relatively simple matter, then things are really looking grim for Tasmania.