council meeting, 28 april 2015 section 7.3 7.3 a fairer ...€¦ · council meeting, 28 april 2015...

Council Meeting, 28 April 2015 Section 7.3 – Page 9

A Fairer Rating System For Monash

7.3 A FAIRER RATING SYSTEM FOR MONASH Submitting Councillor: Cr Lake

MOTION That Council: 1. notes the rationale for the introduction of a Council-funded pensioner rebate of

$50.00 as part of its 2015/16 budget; 2. notes the rationale of the proposed introduction of a differential rating system to

address the increasing share of the rates burden being shifted from business ratepayers onto residential ratepayers in recent years; and

3. develops a new hardship policy in line with current best practice examples and the considerations outlined below in this report and for this draft policy to be presented to Council for approval by the June meeting of Council.

INTRODUCTION The last time that Council made any significant changes to its rating system was five years ago when it determined to move from rating on the basis of site value to rating on the basis of capital improved value (CIV). Since that time, Council has increased its rates each year by approximately double the level of increase in the government pension and residential ratepayers have paid an increasing share of the overall rates burden in favour of business ratepayers. This is not fair. This proposal seeks to re-balance the Monash rating system so that the rating burden between businesses in Monash and the residents of Monash is restored to 2011 levels at the time when CIV was introduced in Monash. Additionally, a pensioner rebate of $50.00 is proposed to be introduced for all pensioners to provide some relief by assisting pensioners to meet one of their highest annual costs, their council rates. Recognising that financial hardship can be experienced by many in our community, and it extends beyond just residents receiving a government pension, it is also proposed that a new and comprehensive hardship policy be developed and introduced in Monash to offer assistance to any ratepayer in Monash able to demonstrate financial hardship. These measures are collectively aimed at making Monash a fairer place to live. They are modest interventions which resist re-balancing the see-saw too far in one go (such as by causing too much of an impact on commercial and industrial ratepayers). Importantly, these reforms are a long overdue step in the direction of fairness and provide our residents with more appropriate assistance with the payment of their rates.



PENSIONER RATE REBATE The key rationale for proposing the introduction of a pensioner rate rebate of $50.00 is because the level of rate increases in Monash (like other councils) has risen above the cost of living since the mid-1990s. Monash Council has 13,5001 eligible pensioner ratepayers which is nearly 20% of total residential ratepayers in Monash. Despite Monash having Victoria’s lowest rates, our rate increases still have a significant impact on our ratepayers. However they hit pensioners the hardest who are living off fixed incomes which are subject to means-testing qualifications. The largest group of pensioners in Monash are those receiving the aged pension. Introducing an additional pensioner rebate on top of what is provided by the state government can also be justified because it recognises that many of our pensioners have lived in Monash for many years and have played a big part in making Monash the great place to live it is today. We should all be concerned that many pensioners are finding it increasingly harder financially to remain in their homes in Monash because of the growing size of the annual rates bill. I want Council to do something to assist and that is why I am now proposing that we introduce a $50.00 rebate for all pensioners off their 2015/16 rates. We should want all pensioners to remain in Monash for as long as they want to live here and I propose we do something positive to assist that. BACKGROUND When municipal rate concessions were first introduced by the state government in 1973, the municipal rate concession was established at 50% of council rates with a ceiling of $40.00 per eligible pensioner. This ceiling was subsequently raised in 1980/81 to $120.00 and again in 1982/83 to $135.00 and had remained at that level for the next 23 years. In 2004/05 the state government increased the ceiling to $160.00 and committed to adjusting the ceiling amount annually by CPI. For 2014/15 the amount is $208.00 which equates to only 16% of the average Monash rate. There has been a rapid decline in the value of the state government’s municipal rate concession over time and this is most obvious within metropolitan councils such as Monash where property values and rates have increased significantly. For example, if the rebate had increased in line with CPI since 1982/84, it would be worth approximately $450 today – more than double its present value. The rationale why rates assistance should be targeted to pensioners rather than using some other qualification criteria

1 Eligibility for a pension rebate is determined by Centrelink or Veteran Affairs. The number of eligible

pensioners varies throughout the year.



Introducing rates assistance based upon eligible pensioners is by far the best way for Council to provide effective rates assistance to those residents who need it most. While it is acknowledged that there are many ratepayers in Monash who are financially challenged and who are not pensioners, it becomes very difficult, and probably impossible, to design a rebate system based upon some other criteria than the objective and readily verifiable qualification hurdle of whether a particular ratepayer currently qualifies for the municipal rate concession. To qualify for the municipal rate concession requires that a person must hold either:

a Pensioner Concession Card; or

a Department of Veterans’ Affairs Gold Card for TPI or War Widow. A person can receive a Pensioner Concession Card if they receive any of these payments:

Age Pension;

Bereavement Allowance;

Carer Payment;

Disability Support Pension;

Newstart Allowance or Youth Allowance as a job seeker if they are single, caring for a dependent child, and looking for work; and

Parenting Payment single. A person may also qualify for one if they:

are aged over 60 and for more than nine months have been receiving: o Newstart Allowance; o Parenting Payment partnered; o Partner Allowance; o Sickness Allowance; o Special Benefit; and o Widow Allowance; or

have a partial capacity to work and are receiving: o Newstart Allowance; o Parenting Payment partnered; and o Youth Allowance as a job seeker.

These payments represent the Australian social security ‘safety net’ which successive governments have put in place to provide a minimum level of welfare and assistance to the Australian community. It is appropriate that Council, should it wish to provide further relief for low, fixed income people living in Monash, adopt this same framework rather than seek to redesign this wheel.



Neighbouring councils Monash is Victoria’s lowest rating Council and introducing a Council sponsored eligible pensioner rebate will enhance that position. The table below compares how Monash’s 2014/15 rates would compare with other eastern metropolitan councils if a $50.00 rebate was introduced. The table includes six councils with an additional pensioner rebate currently in place: Glen Eira ($62.00), Knox ($100.00), Port Philip ($148.00), Kingston ($80.00), Yarra ($160.00) and Manningham ($50.00). A Monash pension rebate of $50.00 would maintain Council’s lowest rating status and provide Monash pensioners in a position where they are more than $100 better off than pensioners in the next lowest rating council.

Table demonstrating how Monash compares to neighbouring councils:

Financial implications There are around 13,500 eligible pensioner ratepayers in Monash. This figure varies throughout the year as people move in and out of Monash and Centrelink or the Department of Veterans’ Affairs grants pensions and allowances. Budgeted rate revenue for 2014/15 for Monash Council is $100 million so therefore the cost

Council

*Rates per

Assessment

2014/15

State

Government

Pensioner

Rebate

Addit./

Pension

Rebate

Average

Rates net of

all rebates

Monash (Proposed) 1,320$ 208$ $ 50 $ 1,062

Monash 1,320$ 208$ $ - $ 1,112

Whitehorse 1,376$ 208$ $ - $ 1,168

Glen Eira 1,469$ 208$ $ 62 $ 1,199

Port Philip 1,555$ 208$ $ 148 $ 1,199

Maroondah 1,543$ 208$ $ - $ 1,335

Knox 1,580$ 208$ $ 100 $ 1,272

Stonnington 1,616$ 208$ $ - $ 1,408

Kingston 1,676$ 208$ $ 80 $ 1,388

State average 1,729$ 208$ n/a $ 1,521

Greater Dandenong 1,766$ 208$ $ - $ 1,558

Bayside 1,838$ 208$ $ - $ 1,630

Manningham 1,864$ 208$ $ 50 $ 1,606

Yarra 1,915$ 208$ $ 160 $ 1,547

Boroondara 2,052$ 208$ $ - $ 1,844



of introducing a Monash Council sponsored rebate of $50.00 is approximately $675K. The funding of this rebate (0.675% of rates) will need to be incorporated into the total rate raised in the coming Council budget. Council’s Strategic Resource Plan (SRP) target rate increase is 6% and therefore would require a theoretical increase to 6.675% although Council’s rate revenue would still only increase by the currently planned 6%. However, if implemented in conjunction with introducing a differential rating system as propose in this paper, then residential ratepayers would be limited to only the planned 6% rate increase with commercial/industrial rates increasing by around 10-11%. A differential used in this way would limit the overall rate increase to residential ratepayers to 6% and as currently planned by Council’s adopted SRP.

Objectives of introducing a pensioner rebate I believe that it is fair and just that Council resolves to include provision for an additional pensioner rate rebate of $50.00 for every eligible Monash pensioner. The main objectives are to:

address the impacts experienced by pensioners from rate increases over time that have outstripped the cost of living and increases to the pension;

recognise the valuable contribution that many aged pensioners (by far the largest group of eligible pensioners) in Monash have made to making Monash the place that it is today;

recognise that unlike others in our community, generally aged pensioners are unable to take any other steps to increase their income such as through working more or re-training;

provide additional assistance on top of the State Government municipal rate concession which has also eroded in value over time; and

assist and encourage pensioners to remain in Monash in their homes for as long as they want to live here.

DIFFERENTIAL RATES I am proposing that Council also introduce a differential rating system which will increase the rates collected from commercial and industrial properties in Monash by a total of $700K. This will positively impact residential ratepayers in Monash who over the past five years have contributed an increasing share of the Monash rates burden. Rationale for introducing differential rates My proposal responds to this trend by seeking to re-establish the same proportional split between residential ratepayers and commercial/industrial ratepayers which existed five years ago at the time that Council introduced CIV as the basis of its rating system. Over these five years we have seen a shift in the rate burden from commercial/industrial ratepayers to residential ratepayers of some 0.6% (equating to approximately $600K in



2014/15). The introduction of differential rates at the level proposed in this report would address that trend and restore the situation to roughly the same levels which existed in 2010/11. Coincidentally, making this change at this time while also introducing a pensioner rate rebate, would also offset the cost of the proposed Monash pension rate rebate so that there is no impact on residential ratepayers in funding the pensioner rebate.

The table below shows the shift in the rate base as a result of changing to CIV in 2010/11 (from a commercial/industrial rates proportion of 11.7% increasing to 14.4% of total rates). However, since then, changes in valuations have caused a shift of the rate burden back to residential properties from 14.4% in 2010/11 to 13.7% in 2014/15).

Table showing Rate Base Categories – Impact of Valuation changes:

As can be seen from the table, the proposed differential would shift the rate burden for commercial and industrial property owners from the current 13.7% level back to 14.3% (which compares similarly to the 14.4% it was at the time that CIV was introduced in Monash). When declaring general rates, Council must consider how the use of differential rating contributes to the equitable and efficient carrying out of its functions compared to the use of uniform rates. Such a determination and its rationale must be disclosed in the Council’s proposed budget. Underpinning the rationale for the introduction of differential rates is the recognition that rates are becoming increasingly harder for people to pay and this tends to hit residents the hardest – particularly residents like pensioners who are living off low, fixed incomes. Given the shift in rate burden over the past five years away from commercial and industrial ratepayers and to the disadvantage of residential ratepayers, it is fair and reasonable that Council should introduce a differential to address that change. I believe that a fairer rates system in Monash should be based upon commercial and industrial land owners paying a slightly higher burden of the total rates collected across Monash than is currently the case. That will result in more equitable and efficient distribution of the rate burden. This also recognises that industrial and commercial land – and the businesses which are run from them – have benefited significantly from the residents of Monash who surround them. It is also worth noting that a number of our neighbouring councils have similar-purpose

2009/10 2010/11 2014/15 2015/16

CategorySite Value Change to CIV CIV

CIV and

Differential

Residential 88.0% 85.4% 86.3% 85.8%

Comm/Indust. 11.7% 14.4% 13.7% 14.3%



differential rates in place and so this move brings the situation in Monash more into line with these surrounding councils and is consistent with providing a more level playing field for businesses in different areas. Ministerial Guidelines on Differential Rates Section 161 (2A) of the Local Government Act 1989 (Vic) (the Act) requires that councils must have regard to the Ministerial Guidelines on Differential Rates (the Guidelines) before declaring a differential rate for any land. The Guidelines have been in force since 2012. They are intended to require a greater rigour and transparency in the development of differential rates. Section 161 provides that a Council may raise general rates by applying differential rates if it uses the CIV system of valuing land. A Council can implement as many differential rates as it sees as fair and equitable, however the highest differential rate can be no more than four times the rate of the lowest differential. An example of the type of information required, including the objectives, is set out in Attachment A at the end of this report – and is an extract from Knox City Council. The objectives underpinning a move to differential rates are entirely consistent with the Guidelines and there is no reason to suggest that Council’s introduction of differential rates in line with this report will not be supported elsewhere. Monash rating strategy and differential rates Monash Council’s current rating system is a simple one with CIV as the valuation system combined with a uniform rate (a single rate in the dollar for every ratepayer). Monash introduced differential rating briefly in 2013/14 with the Electronic Gaming Machine (EGM) differential. The EGM differential was removed following the introduction of the new Ministerial Guidelines one year later that specifically listed EGM differentials as an inappropriate use of differential rating.

Three of our neighbouring councils – Knox, Kingston and Greater Dandenong have rating strategies based on CIV rating with differential rates. These councils believe that differential rating contributes to a more equitable distribution of the rating burden by rating particular classes of properties at different levels from the general rate. The rating strategies of those councils feature a variety of differential rates applied over various categories of rates (please see the table below).



Table showing neighbouring councils with differential rating:

Council Differential Rating Categories Rate Impact % of Total rates

Knox Residential

Vacant Land or Derelict Land

Retirement Village Land

Commercial Land

Industrial Land

Plus Waste charges

Resi Rate

2.0 X Resi. Rate

0.75 x Resi Rate

1.6 X Resi Rate

1.6 X Resi Rate

67.3%

1.87%

1.16%

10.16%

11.7%

Kingston Residential (General)

Extractive Land

Retirement Village Land

Commercial Land (General)

Industrial Land (General)

Farm Rate

Plus waste charges

Resi Rate

3.0 X Resi. Rate

0.9 x Resi Rate

Same as Resi Rate

Same as Resi Rate

0.8 X Resi Rate

98.6%

0.01%

0.08%

General

General

0.01%

Greater Dandenong

Residential

Vacant Land or Derelict Land

Commercial Land

Industrial Land

Farm Rate

Plus waste charges

Resi Rate

1.2 X Resi. Rate

1.8 Resi Rate

2.5 X Resi Rate

0.8 X Resi Rate

46%

1%

11.6%

40%

0.4%

Monash

Residential

Commercial Land

Industrial Land

Agricultural

Uniform rate

Uniform rate

Uniform rate

Uniform rate

86%

8%

6%

0.02%

The Monash property database comprises 75,086 rateable properties (as 1 July 2014):

Residential 68,766 Commercial 3,861 Industrial 2,452 Rural (Nurseries) 7 Total 75,086

Commercial property is used primarily for the purposes of commercial purposes (e.g. retail) and industrial property for industrial purposes. Monash also has seven commercial nurseries that are classed as ‘Rural’. For the purpose of a proposed differential rate they would be included with the commercial/industrial categories. The following table provides a comparison between Monash and our neighbouring councils with differentials in place comparing a property with a value of $1 million:

Table showing average rates for a $1 million property in each council:



As can be seen, the impact of the proposed differential is only modest with a much lower level of rates to be payable in Monash compared to each of the other councils – particularly in comparison with Knox and Greater Dandenong. This table also shows that the impact of the differential in Monash is only to raise the level of rates to be paid by commercial and industrial ratepayers in properties worth $1 million by $95 over residential ratepayers in a similarly valued property. Financial implications

There are 6,320 commercial/industrial rateable properties in Monash generating $13.6 million in rates (13.6% of the total rates collected). A differential rate imposed on commercial/industrial ratepayers, with an aim of collecting an additional $700K, would add approximately 0.7% to total rate revenue. This would result in a level of rate increase for these properties of around 5-6% on top of the general Council rate increase of 6%. Objectives The main objective of this proposal to introduce differential rating is to establish a fairer basis for Council to raise its rates in future. This proposal will:

raise additional funds across the commercial/industrial property categories to ensure:

o the rate burden is equitably spread across different property types; o that rises and falls in Council rates related to valuation increases remain

affordable for all Monash ratepayers; and

ensure that all rateable land makes an equitable financial contribution to the cost of carrying out the functions of Council, including the:

o construction and maintenance of public infrastructure; o provision of general support services; o enhancement of the economic viability of the commercial and industrial

sector through targeted programs and projects; o encouragement of employment opportunities; o promotion of economic development; o maintenance and construction of road and pavement infrastructure; o maintenance and construction of public drainage infrastructure; and

Average Rate for a Property in each municipality - Property Value $1M

Rate

Monash

with Diff.

2014/15

Knox

2014/15

Greater

Dandenong

2014/15

Kingston

2014/15

Residential Rate 1,945$ 2,528$ 2,183$ 2,355$

Commercial Rate 2,040$ 4,044$ 3,885$ 2,355$

Industrial Rate 2,040$ 4,044$ 5,609$ 2,355$



o provision of streetscaping and promotional activity which is complementary to the achievement of industrial and commercial objectives.

DEVELOPMENT OF A NEW FINANCIAL HARDSHIP POLICY As noted above, and recognising that many residents who are not pensioners are currently facing financial hardship (or may face it in the future), I am also proposing that Council develops a new hardship policy. Recently the MAV and the Public Interest Law Clearing House (PILCH) worked together to develop Hardship Policy Guidelines for councils: http://www.mav.asn.au/policy-services/finance/Documents/MAV%20Hardship%20Policy%20Guidelines.doc (The MAV/PILCH Guidelines). I have separately asked officers to begin a review of our current practices against the MAV/PILCH Guidelines. Following this review, I am planning to present a number of recommendations to Council to improve our practices to be more aligned with the best practice approaches outlined in the MAV/PILCH Guidelines. Among other things, I am intending to recommend that we do the following:

adopt a hardship policy based on the MAV/PILCH Guidelines;

include information on this policy and available options on our website and in other appropriate places;

introduce a Centrelink ‘CentrePay’ payment option;

introduce staff training on hardship;

have a standing policy to agree to revoke infringement notices upon a special circumstances application being made to us which cites homelessness as the reason for the special circumstances application;

require any external parties we use for following up debt collection to have training in place for all of their staff in hardship consideration and to demonstrate their compliance with this;

have a policy in place to reduce the interest which accumulates on unpaid rates from being based on the Penalty Interest rate to a lower and fairer rate in instances where hardship or financial difficulty can be shown (or otherwise waive the interest payable altogether);

develop a ‘rights and Responsibilities’ charter similar to the one used by Western Water and referred to in the MAV/PILCH Guidelines; and

introduce a rate deferral option for pensioners and others who can demonstrate financial or temporary hardship and for this to be based on a low interest rate which is also fair to other ratepayers by avoiding them cross-subsidising the financing of such an arrangement.

I propose that a draft hardship policy which responds to the above considerations be developed by Council officers for presentation to Council by the June Council meeting. CONSULTATION

http://www.mav.asn.au/policy-services/finance/Documents/MAV%20Hardship%20Policy%20Guidelines.doc

http://www.mav.asn.au/policy-services/finance/Documents/MAV%20Hardship%20Policy%20Guidelines.doc



I have consulted widely on these matters in the past and these proposals are based upon feedback I have received from pensioners and their families living in Monash. Council has also previously considered these matters on at least two occasions, the most recent occasion being in 2010 and 2011. It is intended that if supported by Council, that further formal consultation on this proposal will occur as part of the draft budget consultation process (including an opportunity for public submissions) prior to Council making its final decision on what to include in the budget for 2015/16. FINANCIAL IMPLICATIONS The proposals contained in this report have a budget neutral impact for Council. In other words, Council will not collect a single dollar more and nor will it collect a single dollar less, as a result of making these changes. The impact of introducing a higher differential rate for commercial and industrial ratepayers will mean that these ratepayers will collectively pay an extra $700,000 in rates. For a commercial or industrial property valued at $1,000,000 (which is well above the average property value in Monash), this corresponds to an additional $95.00 payable in rates on top of a 2014/15 rates bill of $1,945 (an increase of 4.9%). The impact of introducing a Council-funded pensioner rate rebate for eligible pensioners in Monash will be a rates bill that is $50.00 lower for all eligible pensioner ratepayers than it would otherwise be. There is no impact on non-pensioner residential ratepayers (who are the majority of Monash ratepayers) as a result of these proposed changes. Any financial implications associated with a new hardship policy will be considered at the time that a new policy is considered by Council but it is not expected that a new or revised policy will have a significant impact on Council’s budget. There is nothing more important for Council than to maintain a fair and equitable rating system. While we have worked hard over the past 15 years to achieve the lowest council rates of all 79 councils in Victoria, there is no reason to become complacent. As demonstrated above, over the past five years the rate burden has shifted to the disadvantage of our local residents. These changes have been the unintended consequence of changes in property valuations which have hit residents in Monash harder than commercial and industrial property owners. Introducing differential rates will help to fairly re-balance this equation back to the situation immediately following the introduction of CIV. The introduction of differential rating has the potential to address this creeping unfairness by restoring the business/residential split to the levels which existed five years ago. The proposed differential would shift the rate burden for commercial and industrial property



owners form the current 13.7% level to 14.3% (which compares similarly to the 14.4% it was at the time that CIV was introduced in Monash). Over this period we have also observed an increasing impact on pensioners as rates have consistently risen by about double the rate of their pension payment increases. The $50.00 rebate proposed in this paper will provide some extra assistance to all eligible pensioners, including those living in retirement villages and affordable housing where they are responsible for paying Council rates, while not unreasonably impacting other ratepayers. In fact, as it is proposed to introduce a pensioner rebate at the same time as introducing differential rates, there will be no impact at all on other residential ratepayers and only a 5-6% extra increase for commercial and industrial ratepayers. For a pensioner in a $500K home and a milk bar owner of a $500K premises, these changes will correspond to a $50 saving for the pensioner and only an additional $25 contribution by the milk bar owner (in addition to the general 6% across the board rate increase for 2015/16). Finally, it is appropriate that given this proposal’s focus on improving the fairness of the Monash rating system, it is appropriate that it also includes a proposal to develop a new, best practice financial hardship policy for Monash. This policy will be developed over the coming months and its starting point will be observing all of the MAV/PILCH Guidelines. The cumulative impact of a pensioner rate rebate, the introduction of differential rates and an improved financial hardship policy will be a much fairer rating system for Monash and deserves wide support.



Attachment 1 Sample Differential Rate (Knox Example): Each differential rate will be determined by multiplying the Capital Improved Value of each rateable land (categorised by the characteristics described below) by the relevant percentages indicated above. Council believes each differential rate will contribute to the equitable and efficient carrying out of council functions. Details of the objectives of each differential rate, the types of classes of land which are subject to each differential rate and the uses of each differential rate are set out below

Definitions/Characteristics:

Any land which is used primarily for the purposes of an industrial land. Objective: To ensure that all rateable land makes an equitable financial contribution to the cost of carrying out the functions of Council, including the:

Construction and maintenance of public infrastructure; and

Development and provision of health and community services; and

Provision of general support services; and

Enhancement of the economic viability of the commercial and industrial sector through targeted programs and projects; and

Encouragement of employment opportunities; and

Promotion of economic development; and

Analysis, maintenance and construction of public drainage infrastructure; and

Requirement to ensure that streetscaping and promotional activity is complementary to the achievement of industrial and commercial objectives.

Types and Classes:

Rateable land having the relevant characteristics described in the definition/ characteristics.

Use and Level of Differential Rate:

The differential rate will be used to fund some of those items of expenditure described in the Budget adopted by Council.

The level of the differential rate is the level which Council considers is necessary to achieve the objectives specified above.

Geographic Location:

Wherever located within the municipal district.

Use of Land:

Any use permitted under the relevant Planning Scheme.

Planning Scheme Zoning:

The zoning applicable to each rateable land within this category, as determined by consulting maps referred to in the relevant Planning Scheme.

Types of Buildings:

All buildings which are now constructed on the land or which are constructed prior to the expiry of the 2014-15 financial year.