Rating system at breaking point...

THE FUNDING model for local government in rural Australia is at breaking point and a serious national study of the best model of financing local government needs to be done.

To do this, however, will take time, and with several councils in Victoria on the brink of implosion over the thorny issue of the rates payable on farmland a temporary provision needs to be implemented to allow such a review to be done properly rather than rushed through.

Perhaps a short-term plan such as an agreement than no more than 70 per cent of a council’s rate revenue can come from farms would stem some of the concerns about potential six figure increases in council rates that farmers in some local government areas are talking about due to adjustments to the rating formula.

Even a simple move such as applying the rate increases across the entire rate base rather than working on differential figures would create a little bit of breathing space to allow the necessary work to take place.

Things have come to a head in Victoria due to an unholy combination of rapid appreciation of farmland values and shifting demographics along with a move to phase out differential rating systems, meaning primary producers in some municipalities are faced with rate rises in the tens, even hundreds of thousands of dollars.

It has led to situations, such as the current proposal in the Horsham Rural City in Victoria where over 90pc of the proposed increase in rate revenue is coming from farmland alone.

Naturally this has inflamed passions and has threatened to drive a wedge between the farming sector and urban rate payers, a situation in no-one’s interest in country Australia where the agriculture industry is often the backbone of the local community.

Elsewhere there are other issues. In the Boulia Shire in outback Queensland, the mayor says the miniscule rate base is not enough to support anything but the most basic of services and is calling for a change in the way small councils are funded.

It is a difficult topic for all but everyone involved in the debate needs to take a deep breath and have a look at realistic strategies for healthy rural-based local government into the future.

For farmers, this means accepting that in order to create vibrant communities local government has to spend money on amenities whether it be an indoor town pool or a community entertainment precinct.

If our rural centres are to attract the influx of skilled professionals they so desperately need there have to be the facilities there to attract them and local government is a critical pillar in providing these assets.

The minimalist theory of ‘they should do the roads and let the rest sort itself out’ is not going to benefit our communities long-term.

On the other hand, farmers cannot be used as a blank chequebook for councils struggling to make ends meet.

We know there is a cap on overall rate revenue rises, but it is a shift in the distribution, such as proposed in Horsham, where farmers are doing all the heavy lifting because of hyper-inflated land valuations, that sends alarm bells ringing.

Killing off the agricultural sector, by far and away the biggest industry in most country municipalities is akin to knocking off the goose that lays the golden eggs.

So what things need to be addressed in any review of rating systems?

Firstly, it has to be acknowledged that agriculture occupies a unique space in terms of how it works in that land is essentially a tool of the trade.

If the price of spanners appreciated dramatically it would not mean mechanics would be paying more in tax, while many consultants today need nothing more than a laptop and a phone to do business so it is disingenuous to suggest that simple calculations based on land value are the most equitable way of funding councils.

Neither, for that matter, is the argument that farm businesses can use rates as a tax write-off.

In a capital intensive business such as farming there is rarely the need to manufacture opportunities for write offs, not to mention the drought years where there is not the income to make tax minimisation a priority.

A review must look at what is best in the long-term, no matter how radical that may be.

Some have advocated council relinquishing some of its duties and handing back services to other agencies, such as state or federal government.

I prefer to see council running services such as libraries and basic health as it creates vital local employment, but the question is how to fund it.

A fairer division of state and federal tax income is an obvious target, such as the alteration of the grants commission formula to recognise the massive asset renewal gap faced by rural councils trying to maintain a mountain of hard assets on a shoestring.

It’s a tough situation and it is going to take time.

Let’s start by stopping the immediate bleeding then get onto coming up with a response that sets up rural local government for the rest of the century.

The story Rating system at breaking point first appeared on Farm Online.