When it comes to tax reform, Malcolm Turnbull recently argued on Insiders that annual property taxes are better than transaction-based taxes such as stamp duties because they lead to more economic activity.

The ACT is the only state or territory jurisdiction that has been brave enough to embrace this concept, but Canberra home owners haven’t enjoyed seeing their rates double, and there may be a backlash at the ACT elections on October 15.

The ACT still has property stamp duties but they have been reduced and are scheduled to drop further. They also have land tax, but this only applies to properties that are rented, so the family home is exempt.

The ACT has been able to pursue property tax reforms partly because it is the only territory in Australia that doesn’t have local councils.

However, the patchwork quilt of local representation is about to change as the ACT legislative assembly moves from having 17 members to 25, under a new voting system with five electorates each electing five MLAs.

The Labor-Green light rail proposal will be the hottest issue in the forthcoming ACT campaign, but once the contracts are signed, it will be difficult for the Liberal opposition to retain their policy of not honouring the infrastructure investment, particularly given the enthusiasm for public transport investment shown by Turnbull.

Given the narrow revenue bases of state and territory governments, property taxes remain their best source of revenue, but how this is shared with local councils is increasingly becoming a bone of contention.

The Andrews Labor government in Victoria has moved to a rate-capping regime, which is being cheered on by the Herald Sun but runs contrary to the state government’s own super-charged embrace of increased property tax revenue.

Shortly before Christmas, Victoria’s Essential Services Commission announced that 2016-17 council rate rises would be capped at 2.5%, which is a dramatic reduction on the average annual rate rise of 6% over the past decade.

Under the state government’s newly introduced rate-capping regime, councils were required to preregister with the Essential Services Commission by January 31, 2016, in order to formally apply for a one-year 2016-17 variation by the end of March.

Given that councils don’t meet in January, City of Melbourne officers decided to preregister in order to keep the rating policy options open for the 2016-17 financial year. Twenty-one of Victoria’s 79 councils are in the same position, as the ESC announced on February 2.

City of Melbourne has had the lowest average rate rises of any Victorian council over the past decade.

All Victorian councils are holding elections in October this year and in the last pre-election budget, City of Melbourne councillors voted to have a rate freeze.

This might be tempting again this year if you are looking for votes but the “Strategic Resource Plan” contained in the 2015-16 budget assumed a 2016-17 average rate rise of 2.75%. There has been no marked change in council’s financial position that would warrant a reduction to below the state-imposed cap of 2.5%.

This is especially so given council is progressing with the biggest capital project in its history, the $250 million renewal of the Queen Victoria Market, plus grappling with managing a rapidly growing city, particularly the emerging costs of providing infrastructure in urban renewal areas.

In light of all of the above, I’ve put up the following motion to be debated at council next Tuesday night:

That Council: 

  1.  Resolves not to apply to the Essential Services Commission for an exemption to the state government’s 2.5% average rate increase cap for the 2016-17 financial year.
  2.  Agrees to set the 2016-17 average rate increase at the cap of 2.5% (retaining the long-standing 17% non-residential differential) to provide certainty through the forthcoming budget planning process.

If supported, this will effectively accept that the state government has taken over revenue setting for councils and the specific 2016-17 rating decision will be adopted three months earlier than usual, thereby giving certainty to all involved in the budget process.

Rate-capping is already cutting council infrastructure investment across Victoria and causing push-back on traditional state government services, which councils have increasingly taken over, such as pedestrian crossing supervisors around state schools, support for the State Emergency Service and library funding.

It will also have an impact on the roughly 50 Victorian councils that have enterprise agreements with their staff expiring on June 30 this year.

And as the Herald Sun continues to attack councils for wasteful spending and pursuing pet causes, it could also have an impact on News Corp’s current attempt to have City of Melbourne spend more than $200,000 a year taking over one of their pet events.

Another pet cause we supported was the $4135 in fees that were waived in 2012 for a tribute event at Melbourne Town Hall after the death of Murdoch family matriarch, Dame Elisabeth.

For a family that is worth $10 billion, you’d think these regular requests for favours from local government just wouldn’t be necessary. And with rate-capping now in place, maybe they won’t be supported in future.

*Councillor Stephen Mayne is chair of the Finance and Governance committee at City of Melbourne and was not paid for this item.