Council rates surging to pay for new residents

The likelihood you won’t read past this paragraph is high; I’m going to write about local government (wince). But before you scroll to vintage First Dog, remember this: Australian councils, possibly half, are jacking up their rates on existing residents to pay for the cost of new residents.

As a Crikey reader, you might be part of a cosmopolitan cohort of Australians that blame racism for the focus groups’ preference for a "sustainable" Australia. But aversion to paying for new people is another explanation.

For instance, one burgeoning municipality in Western Australia, Wanneroo, hiked its rates in 2010 by 7% to "meet the growing demands" of an extra 40,000 odd people. That’s hardly going to endear the locals to growth.

Oliver Hartwich, a colleague at the Centre for Independent Studies, and I sent a survey to all 560 Australian local governments (mayors and senior executives) to ask how they responded to population growth and whether their revenues were adequate. We received 121 responses, covering a good range of metropolitan and regional councils, large and small.

More than half of respondents said they had put up their rates "to cope with population growth".

The councils were frustrated. One third said explicitly that population growth "damaged their bottom line", which is not what should happen when more potential taxpayers arrive. Indeed, economies of scale in administration might even warrant lower taxes for existing ratepayers.

Almost all councils were unhappy with their existing revenue raising capacities. NSW councils were particularly peeved as the state government there, uniquely, caps councils’ ability to raise rates.

Rates levied on the value of land, for all their theoretical appeal (read Henry George, for instance), are a clunky way to deal with population growth. If new residents live in higher density units or with existing residents, rates will not rise commensurately with demands on the council.

Naturally, the surveyed councils wanted more, and more reliable, revenue streams. A slice of income tax or a part of the GST were popular suggestions. Also, many local councils still hanker for constitutional recognition, despite failed referenda in 1974 and 1988. Constitutional recognition would pave the way for direct funding from Canberra.

Those of a liberal disposition appreciate the benefit of self-sufficient councils: ratepayers are then more likely to take an interest in the quality and efficiency of local government services. Local councils are already a good model: much of their revenue comes from their own rates.

So unless the origins of GST or income tax revenue can be accurately determined (a logistical nightmare), I do not think the Commonwealth should allocate GST to local councils, not to mention the constitutional difficulties in doing so. It would also make local governments as dependent on Canberra as state governments are, which has clearly been a political and economic mistake.

Many councils use "developer levies" to make up for their lack of finance, pushing the costs of new infrastructure onto developers, who of course shift the cost to new residents, worsening the "housing affordability" crisis.

Maybe councils should be able to borrow more easily to fund infrastructure, which is lumpy, often dear, and overwhelmingly the source of the sample councils’ fiscal woes. Borrowing would spread the costs of development across new and existing ratepayers, young and old.

To prompt local councils to compete for people, state government grants should be more strongly linked to the population serviced by the council. This would be difficult in practice though. Census data is not sufficiently timely. Perhaps property owners should inform their local councils how many people they accommodate six-monthly.

If you’ve made it this far you might even want to have a look at the paper, or scroll to vintage First Dog.

Adam Creighton is a research fellow at The Centre for Independent Studies.