We all care about council rates when we receive our rates
notice from the local council asking us to pay up.
But as an issue, council rating systems are a topic that
make most people's eyes glaze over faster than you can say "ad
valorem".
That's unfortunate, because it's a key issue for anyone who cares
about social equity and public services.
Most people are aware that rates provide most of the funding
for the services that councils provide, and that the amount that a ratepayer pays
is linked to the value of their land.
One common misconception is that a council receives more rate
revenue if land values in their area go up. In fact, in NSW that isn't the
case, because the state government restricts the total amount of rate revenue that
a council can collect (called "rate capping").
Leaving aside special levies (such as the waste service
charge) that are usually included in rate bills, rate capping effectively sets the
size of a council's total rate revenue "pie", while other factors
(including land value) determine how this pie is divided into the individual
slices that each ratepayer pays.
Probably the most vigorous debate about council rates is
whether the amount each ratepayer pays should be the same for everyone (i.e., a
base rate) regardless of ability to pay, or whether it should be linked to some
"ability to pay" indicator, such as land value (i.e., ad valorem - or
"according to land value").
Those who see rates as simply a "fee for service"
tend to argue that everyone should pay the same amount; those who see rates as a
kind of tax tend to argue that the amount that individuals pay should reflect their
ability to pay.
In NSW, at least half of each residential rate assessment must
be based on land value. The other half can be either ad valorem or base rate.
Comparing the two, the greater the ad valorem component, the
less that people who own relatively lower valued land pay. With a greater base
rate component, owners of lower valued land pay more, and owners of higher
valued land pay less.
Because people who own lower valued land tend to be poorer than
those who own higher valued land, a base rate tends to shift the rate burden on
to those with less ability to pay.
Newcastle Council has adopted the maximum possible
base rate of 50%. This tends to advantage wealthier ratepayers (who own land above
Newcastle's average land value) at the expense of ratepayers who own land below the average value.
Of course, land value can be a blunt instrument for this
purpose, and not everyone who lives on higher valued land does have a greater
ability to pay. Councils have developed hardship provisions to accommodate such
exceptions.
