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The potential impact of proposed NSW rating changes

December 2016

IPART delivers its final recommendations to the minister this month (December). The draft report proposed a number of changes designed to give councils more flexibility, and the proposals, if implemented, will give councils more options to spread the rates burden more equitably. In addition, newly amalgamated councils will be able to either maintain the status quo in rates collected from former council areas or transition to a new approach.

The proposals will enable councils to choose between moving to Capital Improved Value (CIV) or Unimproved Value (UV). In addition, councils will be able to choose their valuation service provider and will be required, at the very least, to collect and maintain, in their database, details of the market value (otherwise known as Capital Improved Value or CIV) for all properties. More flexibility will be provided in the use of rating categories, and it is proposed that some exemptions are removed which will be welcome news if the recommendations are implemented.

If they are implemented, as proposed, there are some key areas that councils will want to look at to ensure they are ready.

  • What impact will the removal of minimum rates have on your council? As the recommendations propose that the CIV data collection will be phased in over time Councils will need to consider how their current approach would be impacted if the minimum rate was removed, especially if this happens prior to the ability to move to CIV (or indeed what will it mean if a council decided it does not want to move to CIV).
  • Getting in early with the selection of a valuation provider and agreeing on a timeframe to collect CIV data for all council properties.  This data is needed so that a council can model the impacts of a possible move to CIV.

While transition provisions are proposed for any change to residents’ rates in newly amalgamated councils no such provisions will be provided for a move to CIV. Our experience in working with council clients in New Zealand shows that while the total rates collected under CIV do not change the impacts on individual properties can be considerable. The most recent council in New Zealand to move to CIV (Hamilton City, population 156,000)has taken an approach where CIV is being implemented gradually over ten years (extra 10% on CIV each year) however we do not yet know if such an approach will be able to be taken in NSW.  In Auckland special legislation was required to manage the impacts of transitioning into a CIV system. Despite the “pain of change” CIV is a fairer system and councils who have moved to CIV would not go back to UV.

The key message is to do your homework up front so you fully understand the impacts on individual properties so you have an effective communications plan to explain the change to your residents. Also consider if there is a way to transition into CIV.

Even if a council is thinking of staying with UV, some research into the composition of a council’s ratepayers and costs and services is warranted. Are there different communities of interest, or are there differences in the cost of service provision, that justify different residential rates? What is the mix between commercial and industrial properties and do you actually have data that enables you to differentiate? For rural councils are there differences in the costs of servicing different geographic localities for farms?  And, in particular for Councils who derive significant rates from mining properties, can you identify the costs of services provided to justify the rates charged to mining properties.  A strong methodology will be required if councils want to protect themselves from challenge on the basis for their rates.

For more information contact Stephen s.bunting@morrisonlow.com or Greg g.smith@morrisonlow.com