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Local government issues tax ultimatum to Government.



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MEDIA RELEASE

 

AUSTRALIAN

LOCAL GOVERNMENT

ASSOCIATION

 

ISSUED 23 JULY 1998

NO OF PAGES 1

REFERENCE: 30/98

 

LOCAL GOVERNMENT ISSUES TAX

ULTIMATUM TO GOVERNMENT

 

Local Government today made it clear that it could not support the Government’s taxation ref orm agenda unless a number of conditions were met.

 

In an open letter to MPs and Senators, President of the Australian Local Government Association, Councillor John Campbell, said that Local Government supported the general notion of tax reform aimed at increasing fairness, equity and efficiency, but held very serious concerns about the possible impact on local communities of the Government's expected package and the lack of any meaningful consultation on the proposals.

 

"ALGA has sought consultation with the Government and a whole-of-government approach to tax reform but no meaningful consultation has occurred. ALGA remains to be convinced that adequate consideration of the role and viability of Local Government will be reflected in the tax package," said Cr Campbell.

 

"Local Government is a sphere of Government and a taxing entity in its own right. It spends over $10 billion a year on infrastructure, economic and community services and employs almost 150,000 people.

 

"A KPMG Report on the potential impact of a GST on Local Government indicates that the failure to zero-rate Local Government could result in an additional cost to ratepayers of up to $1.13 billion.

 

"A GST on rates would be a tax on a tax-value-added taxes are supposed to eliminate double taxation.

 

Tax reform must underpin enhanced services provided by all spheres of government to local communities, especially those under increasing strain in regional Australia," said Cr Campbell.

 

"It is also essential that tax reform addresses current inequities and distortions in federal funding relationships. A GST could simply expand Commonwealth's tax base at the expense of State and Local Government. That would further weaken community services.

 

"The tax package must spell out, through a funding formula based on the roles and responsibilities of each sphere of government, how the federal Government’s intends to ensure adequate funding of Local Government services.

 

"Despite repeated representations at the highest level by Local Government, we have yet to receive assurances that these principles will not be violated by the Government's proposals, nor do we believe that the Government is giving any more than cursory consideration to the implications of tax reform on Local Government. This is bad news for local communities.

 

"And we know that even unintentional 'collateral' damage to Local Government will not be dealt with adequately in the heat and noise of a looming fierce election battle."

 

Ends.

 

Copy of Open Letter attached.

 

For further information: Jane O'Dwyer (02) 6281 1211 ext 25 or 0419 937 336

 

 

A message from Local Government on tax reform

 

Local Government supports effective tax reform

 

Local Government recognises the prerogative of the Commonwealth Government and Parliament to determine the shape of the national tax system and the need for tax reform to enable sufficient government revenues to be raised fairly and equitably.

 

Tax reform should enhance viability of services provided by all spheres of government to local communities, especially those under increasing strain in regional Australia.

 

Moves toward tax reform also provide an opportunity to address satisfactorily inequities and distortions in the current federal funding relationships.

 

What Local Government seeks from tax reform

 

Specifically, ALGA has a mandate through the National General Assembly of Local Government to seek for Councils and local communities outcomes conforming to the following principles:

 

  1. No reduced revenue -tax changes must not reduce revenue to Local Government for pro viding services to local communities.

 

2.  Protect the rating base -Local Government's financial autonomy is already constrained by arbitrary restrictions on Councils' ability to rate properties. These should be reformed. Tax changes should not result in Federal and State Governments encroaching into Local Government's property tax base.

 

3.  Better road funding -the tax system must fairly and transparently provide increased funds to maintain local roads and benefit urban environments.

 

4.  Maintain and enhance financial assistance grants-FAGs are an essential element in the sustainability of Local Government, particularly in regional Australia, and need to be increased to provide better local services and greater equity in service provision.

 

Improving local funding

 

Over 15 years, general purpose financial assistance tyrants to Local Government have fallen from over 0.9 per cent to less than 0.6 per cent of Commonwealth taxation revenues. Over that period, FAGs have declined in real terms by nearly one fifth of their value per person.

 

A tax package must spell out, through a funding formula, the Government's intentions with regard to its responsibilities for funding its fair share of Local Government services. The formula should deliver funding based on the roles and responsibilities of each sphere of government.

 

To ensure adequate funding to local communities, FAGs must be tied to a growth tax or set in some other way that will deliver progressive increases to around one per cent of current Commonwealth taxation revenues. This level would provide a fair revenue supplement for Councils and allow all Councils to provide adequate basic services which reflect local circumstances.

 

Zero-rate Local Government under a broad based indirect tax

 

Local Government does not oppose extension of indirect taxation, but Local Government services must be zero-rated tinder a value-added tax. This is because:

 

* A GST on Council rates is a tax on a tax-value-added taxes are supposed to eliminate double taxation.

* Local community services, currently exempt from income and sales taxes, would otherwise become a who le new area of federal taxation and as a result become less affordable for the community regardless of the extent of compensation to individuals in the tax package.

* A ten or Fifteen per cent GST on top of Councils' rates and charges would significantly reduce the ability of Local Government to raise funds from its property tax base, further diminishing the financial autonomy of Councils and increasing their dependence on grants.

* Local Government should not become a tax collector for the Commonwealth. Particularly in the area of service charges (building applications, dog licences, swimming pool fees, child care etc etc) administrative costs will be very high.

 

Tax reform must address road funding

 

Local Government spends more than $2 billion each year building and maintaining local roads and has shown that $1 billion more each year is required to adequately maintain existing service levels.

 

Tax reform must deliver adequate funding for local roads as well as national highways and State roads. Fuel taxes or road user charges must be retained as a transparent method of funding road expenditure, with a more direct link than at present. Environmental taxes should be used where required to address the problems of urban congestion and pollution.

 

Consultation is required

 

ALGA has sought consultation with the Government and a whole-of-government approach to address Local Government's concerns. No meaningful consultation has occurred. ALGA remains to be convinced that adequate consideration of the role and viability of Local Government will be reflected in the Government's tax package.

 

ALGA is strictly non-partisan in its approach to tax reform and represents only the interests of Local Government and local communities. Local Government will support a package which adequately deals with its concerns. ALGA will oppose any package, or any proposal by other parties, that does not explicitly allay them.

 

This is not special pleading. Local Government is a representative sphere of government responsible for raising 4 per cent of total national tax revenues and for 5 per cent of government expenditures. Local Government has a special position in the tax debate and a unique responsibility as the community sphere of government to ensure that services remain viable and effective.

 

The Prime Minister identifies intergovernmental financial relations as a priority area for reform. An opportunity for real reform will be missed if Commonwealth-State/Territory-Local Government consultation does not take place before the final package eme rges.

 

It is not too late to secure support from Local Government for a tax package that treats communities fairly and equitably and does not endanger the viability of local governance, local services and local communities.

 

Councillor John Campbell

President

 

22 July 1998

 

 

 

LK