Council rates are broad-based taxes on property or the value of land. Taxes on land are generally considered one of the fairest and most efficient forms of taxation, as they have very low negative effects on economic growth and activity.

There is currently limited transparency associated with the ratings policies that councils make and how it impacts on the distribution of rates burden across communities. For example, some councils preferentially rate commercial operations, while others seek a greater proportion of rates from residential properties.

It is proposed that the State work with the sector to explore the current distribution of rates burden across communities in Tasmania, including the relative weight of revenue raised from different categories of land. This work may highlight the need for more innovative rating practices to ensure that rate liabilities are shared equitably across the community. For example, there may be merit in considering alternative rating options such as progressive rating scales within specific categories of land use – noting that the implications of any such options would need to be very carefully considered.

Tasmanian councils are also able to levy separate rates under the Local Government Act 1993. These are additional rates which apply to some areas or classes of property, such as for local promotion and economic development. Separate rates may represent a preferable solution to recent, high-profile rating distortions in the policies of some councils, and be simpler and more accountable to the community, including in the hypothecation of funds realised. Ideally, ratepayers to whom the separate rate applies should have a role in determining its price, which is efficient because it helps determine the optimum quantity of the service provided.

• There was broad feedback that the current rating system lacks transparency and may be inequitable for similar land categories across different municipalities.
• Concerns have been raised that the current system fosters competition rather than collaboration between councils.
• This reform requires a holistic, principles-based approach, aimed at equity and carefully avoiding unintended consequences.

The design and effectiveness of Tasmania’s system of funding local government (rates, user charges, and grants) should be assessed to ensure that it is consistent with contemporary tax design and public finance principles and will meet the future needs of councils and their communities.

This option would build on the work under option 7.1 and see better and more user-friendly reporting and transparency of rating policy changes as part of a proposed local government performance monitoring and management framework (see option 3.2). This may include better transparency around the distribution of the rating burden across the community.

The Tasmanian Government has agreed to the Local Government Legislation Review recommendation that council audit panels be required to review any proposed rate changes that deviate from a council’s long-term financial plan, and/or any changes to a council’s long-term financial plan.

There is scope to review the suite of financial and asset management metrics that councils are required to report on, to ensure they remain meaningful and provide a clear and fair picture of the overall position of councils over time. Other jurisdictions, such as Western Australia, have introduced sophisticated frameworks that provide a more holistic picture of council financial sustainability across several metrics.

Councils presently meet their regulatory obligations, and provide many services, through a mixture of user fees and subsidies from general revenue. User charges should, optimally, reflect the actual cost of a service.

This option would:

• enhance transparency and accountability for revenue raising and service delivery;
• assist the community to understand true costs of services and potentially the costs of regulatory processes; and
• identify potential areas for councils to pursue productivity improvements (and alleviate prices or improve services), for example through improved technology or provision at larger scale.

Where councils choose to subsidise certain activities (which may be justifiable in certain circumstances) these subsidies should be reported transparently in their financial statements, to ensure they are understood by the community.

More consistent pricing, in the form of user charges, could also help facilitate the trade in services between councils, such as through shared services arrangements.

• While establishing a consistent approach to user-pays by applying the ‘benefit principle’ of taxation has merit for some services, there was general concern it may lead to inequitable outcomes given the significant variations in wealth and incomes within and between councils

The Government has agreed to reforms recommended by the Local Government Legislation Review to legislate principles or guidelines for council fees and charges to promote greater consistency and transparency.

The State Grants Commission allocates Financial Assistance Grants to councils, funded by the Australian Government ($82m in 2021-22). Approximately 53% of the grants are allocated to councils for the maintenance and renewal of roads, 14% are allocated on a per-capita basis, and the remaining 33% are allocated on the basis of the balance of a council’s capacity to raise revenues and their need for expenditure, which is weighted by numerous variable cost adjustors.

The allocations for this component, and the per-capita grants, are made in accordance with National Principles, including horizontal fiscal equalisation and ‘effort neutrality’ (the latter meaning grants should not disincentivise councils from raising revenue through efficient land taxes like rates).

• Elected officials should be more aware of the basis on which grants are allocated, there was a view the wider public also needs to be aware of these technical processes.
• There was broad agreement that the allocation model should evolve over time to reflect the spending priorities of councils and communities rather than focus on roads.
• Feedback from some councils pointed to inequities with base grants that result from the application of the current allocation model.
• More work was needed to understand how the grants distribution process (and associated methodology) may be impacting councils’ broad incentive to explore strategic regional shared service opportunities or other efficiencies. There was broad agreement that the allocation model should evolve over time to reflect the spending priorities of councils and communities rather than focus on roads.
• Feedback from some councils pointed to inequities with base grants that result from the application of the current allocation model.
• More work was needed to understand how the grants distribution process (and associated methodology) may be impacting councils’ broad incentive to explore strategic regional shared service opportunities or other efficiencies.

This is a technical area that should be subject to incremental and considered reform as a part of a broader rates and revenue review.

Over the past 10 years, Tasmanian councils have increased rates more slowly than their interstate counterparts, despite having comparatively broad legislative discretion on how they determine rating levels. This could reflect an increased focus on efficiencies and constraining cost increases. It could also reflect constraints that prevent councils from raising the revenue that they need to continue delivering services.

Tasmania has a population that is ageing – rapidly in some areas. The Board has heard that the current rating system presents a challenge for some owner occupiers who, while owning a valuable (and appreciating) asset, may be reliant on fixed incomes. It appears many councils feel the pressure to constrain rate increases knowing it will impact these residents.

Pensioner concession holders are entitled to a Tasmanian Government-funded reduction on their rates, at a budgeted cost of $19.2m for 2022-23. However, this is a relatively small proportion of the overall rates impost as it is capped at $345 per pensioner household for TasWater customers, and $507 for households without reticulated water

• While reform may be contentious and would need to be very carefully managed, there is an opportunity to further explore concession arrangements to determine whether it could be more effective for Tasmania’s changing demographics and provide greater relief to households who are most in need.

Other states have implemented various schemes to better support councils to rate in these instances, and the Board would like to understand these models better.