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State property taxes rise, dark side of rate capping revealed

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New data has revealed that Victorians faced an average State tax increase of almost six per cent every year for the last decade, while analysis shows NSW rate caps have devastated the local infrastructure.

Cr Bill McArthur, President of the Municipal Association of Victoria (MAV) said the data underscored the need for the Andrews Government to be more transparent in explaining to Victorians the full picture about State taxes and in particular property taxes, not just singling out municipal rates.

State property taxes (land tax and stamp duty) rose $2.7 billion over the last decade to $5.9 billion. Total State taxes increased an average 5.59 per cent a year, but State property taxes grew by an average 7.13 per cent for each of the last 10 years.

Average Victorian council rate increases tracked below this at 5.99 per cent a year for the past decade according to the Minister for Local Government.

Having the necessary revenue to provide community services for a growing and ageing population is a common challenge facing all levels of government. Revenue must grow to meet the rising demand for services and the number of people accessing them.

Yet in NSW where rate capping was introduced in 1977 communities have had services cut back, asset maintenance backlogs are significant and increasing, infrastructure to support growth is not being provided and the sustainability of a large proportion of councils is in doubt.

Under CPI rate caps imposed by the New South Wales Government, NSW councils effectively spent only 55 per cent of the average capital expenditure by local government in other states leaving a multi-billion dollar black hole for future generations. Welcome to the unintended consequences of rate capping.

Quotes attributed to Cr Bill McArthur, MAV President:

“The MAV and councils are not opposed to creating a fairer, more sustainable system for ratepayers and indeed all taxpayers. Councils don’t mind scrutiny and know they need to be mindful of their costs.

“However, the conversation must mature with the Andrews Government because when State and local government work in partnership it results in better outcomes for our communities.

“Taking funding away from councils while constantly criticising them is unconstructive, particularly when the State continues to reap a massive windfall each year from its own property taxes.

“This year Victorian councils worked hard to keep average rate increases to a 10 year low of 3.8 per cent while still providing more than 100 vital community services and maintaining $73 billion of infrastructure.

“But to expect councils to continue delivering services for and on behalf of the State while under-funding them and cutting back councils’ ability to fund them is a betrayal of the Andrews Government’s obligations to all Victorians.

“Public libraries used to be jointly funded 50:50 by State and local government but with the State’s contribution dipping to a historic low of 18 per cent, ratepayers are expected to fill the breach.

“This iconic service is used by 1.13 million people and contributes to their knowledge, education and job opportunities, yet it is 80 per cent reliant on ratepayers because the State won’t pay its fair share.

“Kindergarten is a State Government early education program, which in other states is delivered from State-funded facilities, often co-located with schools.

“The Andrews Government is investing $50 million for kindergarten buildings, but relies on councils to maintain and provide 83 per cent of Victoria’s 1,320 community-based kindergartens.

“This is an estimated $2 billion voluntary investment by councils. Ratepayers contributed $300 million to kindergarten facilities over the past four years, dwarfing the State’s capital investment.

“Local government is also responsible for 85 per cent of the state’s road network, as well as thousands of community buildings such as sports pavilions, swimming pools, town halls, leisure and arts centres.

”There is undisputable evidence from both independent and government reviews confirming the quality of NSW local infrastructure is lower than in other states, primarily due to the ongoing rate cap preventing councils from necessary capital spending to adequately maintain and renew assets.

“The NSW Treasury Corporation found that NSW councils faced an infrastructure funding shortfall of $7.2 billion in 2012, yet if NSW councils had spent similar amounts to local government elsewhere over the past 10 years, an additional $9 billion would have been spent on fixed capital infrastructure.

“Analysis of Kennett’s rate capping imposed on councils in the early 1990s also confirmed a reduction in capital spending that threatened the liveability of Victoria. The Kennett Government acted on this unintended consequence, introducing a program in the late ‘90s to improve the quality of local facilities.

“Councils are still playing catch up to this day. The Victorian Auditor General identified a $225 million asset renewal funding gap facing councils in 2012, predicted to grow to $2.3 billion by 2026.

“If rate capping won’t cut existing budgets or stop councils providing much-needed services and facilities as the Andrews Government claims, then it should also impose a cap on State property taxes without any loss to services or its existing budget.

“We know this is as unrealistic as it is unachievable. Now is the time to get the new rate cap system design right. We don’t need to spend another two decades trying to recover from ill-conceived policy that is popular in the electorate but lacking any evidence that it delivers long-term benefits to communities.

“The rate cap could have devastating and irreversible consequences for the economic development and prosperity of rural and regional Victoria, as well as the world’s most liveable city. We are going to load up our kids with massive debt to deal with future capital maintenance and renewal requirements.

“We urge the Andrews Government to work in partnership with local government to achieve a fair and sustainable model from the outset and to honestly explain the impacts that communities can expect.”

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For further information contact MAV President Cr Bill McArthur on 0437 984 793 or the MAV Communications Unit on (03) 9667 5521.