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Wednesday, 27 March 1985
Page: 922

Senator PETER RAE(6.59) —I rise to speak in relation to the matter of local government finance. I mentioned to the Minister for Finance (Senator Walsh) that I proposed to raise the matter. By way of introduction to what I wish to say, I refer to the fact that in May 1984 the present Government established an inquiry into local government financing. That inquiry is still continuing. It is being chaired by Professor Peter Self. In February of this year the Department of Finance made a submission to the inquiry. Page 4 of that submission states:

The Labor Party's policy platform currently contains a commitment to provide financial assistance to local government including an annual allocation of at least two per cent of personal income tax receipts in the form of general revenue grants and specific purpose grants and loans.

That is a clear commitment by the present Government in its policy platform to the maintenance of the allocation of 2 per cent of personal income tax receipts which was introduced by the former coalition government. The present Government did not go to the last election with a policy for increasing the rate burden on property owners. It did not go to the last election with a policy for decreasing local government revenue. In fact, it went to the last election without a tax policy at all, but that is not the major point I wish to debate. The Government went to the people with a policy that it would have a taxation summit and after that it would review the general situation in relation to tax. The Government most certainly did not say that it would not abide by its platform of continuing the payment of 2 per cent of personal income tax receipts to local government, it did not say that it would cut local government revenue and it did not say that it would grab for itself any windfall that might arise rather than pass it on in accordance with its policy and in accordance with the practice which had been established and which local government had every reason to expect would continue.

The Minister for Finance has frightened every section of local government with most incredible statements in answer to a question by Senator Dame Margaret Guilfoyle last Monday and a question by me today. Some of his statements were more than a little extraordinary. In answer to Senator Dame Margaret Guilfoyle, the Minister stated:

It ought to be noted that, on present estimates, if the existing arrangement for local government is continued into next year it will get a nominal increase in funds of around 20 per cent and a real increase in funds of about 15 per cent. I do not believe that an increase of that magnitude, 15 per cent in real terms, a far higher increase in funds than local government has ever before received, can be justified in the present tight budgetary situation.

Senator Walsh —Do you believe it can be?

Senator PETER RAE —If the Minister will listen to me, I will make my comments and will probably get through the whole of this matter more quickly. The Minister's comments were reported in the media, such as the Sydney Morning Herald of the next day under the heading 'Extra 15 pc for local government not justified, says Walsh'. The Age of Wednesday, 27 March, carried an article under the heading 'Rates rise threat over council funds shortfall'. There were a number of other similar articles, such as the one in the Australian Financial Review headed 'Local government to clash with Canberra on cash', giving some indication of the sort of concern that exists. What do we find? We find that this Government anticipates that it will receive a real increase from personal income tax receipts of, in nominal terms, 20 per cent or, in real terms, 15 per cent. However, it says: 'We will pocket the lot. We will plunder the public purse but we will not let local government have its agreed share. We will pocket the windfall gain which we would otherwise have paid to local government'. This is a measure of this Government's preparedness to plunder the public purse, its preparedness to pocket the plunder, its selfishness towards local government, its indifference to the plight of property owners, who already pay hefty rates and land taxes, and its lack of interest in those who have to rent property as, undoubtedly, any increase in rates on land will be passed on.

If this Minister wants to be fair, perhaps he should consider passing on the full 15 per cent of tax collected to local government. If this is regarded as being too much, he should come to an agreement whereby local government will give a percentage of that amount to ratepayers by way of a tax cut, by way of a percentage rate remission. That would mean that some sections of the community would obtain some tax cut from what otherwise would be an unfair, unjustified windfall grabbed by the present Government.

All the Government can do, if it continues to behave as it apparently proposes, is prove without any possible doubt that it is not only the biggest spending, highest taxing government since Federation but also that it is a government which is prepared to act in direct breach of the firm commitments it made in its policy platform and repeated in its election campaigns and in assurances given to local government. This must be seen in the light of what this Government has been doing to local government. It has been encouraging local government to join in employment schemes to assist in the creation of employment. There is nothing wrong with that but it is an extra cost to local government. It has been pushing for a home and community care for the aged program which again would be carried by local government. Again, there is nothing wrong with that but it is something which would cost local government extra funds.

One finds that the Confederation of Australian Industry argued in its submission to the Economic Planning Advisory Council that it wants local council rates brought down. The Confederation regards that as an important aspect of the cost with which industry is burdened and part of the cost of the uncompetitiveness of Australian manufacturing industry. Yet this Government wishes to pocket the windfall derived from the huge increase in the money received from the personal income tax which is paid in this country. This is notwithstanding the fact that in May last year the Government established, and is still continuing with, an inquiry into local government financing. Although the inquiry was established in May last year this Minister, through his Department, has only just made-in February this year-a submission to the inquiry as to what in his view should happen to local government financing. If his Department made the submission only in February this year he cannot blame the inquiry for any dilatoriness. The Finance Department's submission to the national inquiry did not suggest any particular major change in local government roles. Rather it suggested that local councils continue to take a significant role in the provision of facilities of a variety of welfare and recreational types as well as infrastructure. It has been proved in the past that local councils are, in many cases, the most cost effective bodies for carrying out a certain range of activities.

By the Department's own admission, the statistics which it gave in its submission were considerably out of date and it is possible to obtain some later details. Earlier today I cited some figures-I have now extended them further-in the question I asked. I had hoped, if the Minister had been here earlier, to show them to him before I spoke. However, I am now sending him a copy as I wish to incorporate them in Hansard. I shall explain them. The figures show that from 1977-78 to 1982-83-it is agreed by everybody that 1982-83 is the last year for which figures are available-the percentage of gross domestic product which is reflected in local government taxation has varied. In 1977-78 as a percentage of GDP it was 1.287. It dropped to 1.209 and, in the most recent year, it went back to 1.278. Those are calculated on a consistent method of calculating the comparative figures between local government taxation and gross domestic product. That is why in the table that I propose to have incorporated in Hansard it is shown under the column headed 'New'. This refers to the new and consistent system of calculating. The 'Old' column shows variations and only goes up to 1980-81 because of the change in the system of calculation at that time. I seek leave to incorporate that table in Hansard.

Leave granted.

The table read as follows-

% LG tax GDP


LG tax GDP New Old

1977-78 1164.2 90.476 1.287 1.287 1978-79 1263.8 102.653 1.231 1.231 1979-80 1399.4 115.759 1.209 1.202 1980-81 1595.0 132.112 1.207 1.180 1981-82 1817.2 149.277 1.217 1982-83 2090.1 163.599 1.278

Senator Walsh —What is the difference between the 'New' and the 'Old'.

Senator PETER RAE —There was a change in the system of calculating both the GDP and the local government taxation amounts. In the column headed 'New' the figures are all calculated on a consistent basis, using the formula which has applied since the year 1980-81.

Senator Walsh —Why doesn't it go beyond 1980-81?

Senator PETER RAE —The old formula was changed in 1980-81. I have had the figures calculated on a consistent basis from the year 1977-78 through to 1982-83. The figures show that local government has not reduced in any substantial way the percentage of GDP which it obtains by way of local government taxation. In other words, it has not reduced its effort in relation to taxation. That was the claim which was made today by the Minister when he was answering my question. He said:

On Monday I said-or 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.

He also said:

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 Georges, although they saw only a tiny section of reality, insofar as they did see it, they 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.

Later on the Minister said by way of amplification:

However, it does not address the point that land values can increase at a faster rate than normal gross domestic product growth. Under that situation I see nothing wrong with rates on land increasing as a proportion of GDP.

I find that rather extraordinary economics and I also find it factually inaccurate. The position with regard to valuation is that all of the rating is as a percentage of the valuation of land and land is revalued to take account of inflation. Revaluing varies from State to State; some do it annually and others do it every several years. So great was the rate of change that during the recent boom in New South Wales the State Government saw fit to peg the level of rates in relation to value of property because of the property boom and because it regarded as unreal the extent to which rate growth was taking place. But there is a steady incremental growth, as is evident in the increases in total rate income and the consistency in the amount as a percentage of GDP which is obtained by local government as rate and other revenue obtained by similar methods.

Therefore, the position is that the Minister has confused the issue and has alarmed every local government in Australia. He has also made some factually inaccurate claims and has suggested a breach of the commitments given by his Party in its policy platform and its election campaign. It now proposes to plunder the public purse and pocket the proceeds for itself. I believe that it is appropriate that attention should be drawn to that situation in the adjournment debate. It is a matter which calls for a responsible consideration by the Minister, action by him to stem the alarm which has been caused and some consideration of the equity of the provision which should be made, including the suggestion that I made that if the Minister believes that there will be such a vast increase and that it is not reasonable for it all to go to local government, it should be passed on to local government on the condition that local government passes it on to the ratepayers. Perhaps that is a way of achieving some form of tax cut in this country. If not, let us see some other form of tax revision. Let us not have a situation in which there is a breach of undertaking and a pocketing of an amount which is legitimately due to local government and which will not be passed on if the Minister has his way.