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Wednesday, 27 March 1985
Page: 882

Senator PETER RAE —I refer the Minister for Finance to the statements by him relating to the Commonwealth contribution to local government financing. What effect does the Minister expect that the slashing of Federal Government funds to local government authorities will have on local government rates and charges? Contrary to the Minister's statement to the Senate on Monday that 'local government authorities have not increased their revenue raising effort', local government taxation has increased from 1.21 per cent of gross domestic product in the year 1980-81 to 1.28 per cent of gross domestic product in the year 1982-83, which last-mentioned figure is, according to the Minister's Department, the most recent available. I ask further: Does not this proposal of the Minster simply represent an attempt to shift the tax burden so that the Federal Government will appear on paper to be conforming to its trilogy commitments?

Senator WALSH —To my knowledge, nobody has talked about or contemplated slashing funding to local government. To my knowledge, nobody has talked or thought about anything less than an increase in real terms in the amount of money that is likely to be paid to local government next year compared to this year. What has yet to be decided is the size of that real terms increase. Senator Peter Rae seems to be implying that there ought to be a 15 per cent real terms increase to local government. If he believes that, I wonder whether he also believes that there should be a 15 per cent increase in real terms in payments to the States and, if not, why not.

Senator Peter Rae —I did not mention 15 per cent, or any other.

Senator WALSH —He did not say it, but he was implying it. I am not familiar with the figures he quoted. I make the general observation that it is possible to get movements in figures if a particular starting date and finishing date are selected. On Monday I said-if I did not say it, I certainly intended to-that local governments have not increased rating income in accordance with the rise in property values. When property values are rising in real terms, that means economic rent is accruing to land because of its scarcity value. I do not see anything wrong with taxing some of that economic rent with high rates. In other words, the Henry Georgists, although they saw only a tiny section of reality, insofar as they did see it, correctly identified it. I see nothing wrong with taxing the economic rent which accrues to land because of its increasing scarcity value or its value as a positional good.

Senator PETER RAE —I have a supplementary question. I ask the Minister to address the question I asked him, which was not related in any way to increases in the value of land, but rather to local government taxation as a percentage of gross domestic product, which must take into account the movements in the economy, including increases in value. I suggested that in the two-year period for which the latest figures are available there was an increase in the percentage of GDP from 1.21 to 1.28 per cent in taxation by local government. Does that not represent an increase in the taxation effort of local government as a percentage of GDP?

Senator WALSH —If the figures are correct, of course it does; that is undeniable. However, it does not address the point that land values can increase at a faster rate than nominal growth. Under that situation I see nothing wrong with rates on land increasing as a proportion of GDP.