The last time that Council made any significant changes to its rating system was five years ago when it determined to move from rating on the basis of site value (SV) to rating on the basis of capital improved value (CIV).
Since that time, residential ratepayers have paid an increasing share of the overall rates burden in favour of business ratepayers because of property valuation changes. This is not fair.
I am pleased that Council supported my recommendations to the April 2015 meeting to re-balance the Monash rating system so that the rating burden between businesses in Monash and the residents of Monash is restored to 2011 levels at the time when CIV was introduced in Monash.
I proposed that Council introduce a differential rating system to (modestly) increase the rates collected from commercial and industrial properties in Monash by a total of $700K. This will positively impact residential ratepayers in Monash who over the past five years have contributed an increasing share of the Monash rates burden.
My proposal re-established the same proportional split between residential ratepayers and commercial/industrial ratepayers which existed five years ago at the time that Council introduced CIV as the basis of its rating system. This corrects the trend over these five years which have seen a shift in the rate burden from commercial/industrial ratepayers to residential ratepayers of some 0.6% (equating to approximately $600K in 2014/15).
The introduction of differential rates at the level I proposed addresses that trend and restores the situation to roughly the same levels which existed in 2010/11. Coincidentally, making this change at the same time as also introducing a pensioner rate rebate, also offsets the cost of introducing the proposed Monash pension rate rebate so that there is no impact on residential ratepayers in funding the pensioner rebate.
The proposed differential shifts the rate burden for commercial and industrial property owners from the current 13.7% level back to 14.3% (which compares similarly to the 14.4% it was at the time that CIV was introduced in Monash).
When declaring general rates, Council must consider how the use of differential rating contributes to the equitable and efficient carrying out of its functions compared to the use of uniform rates. Such a determination and its rationale must be disclosed in Council’s proposed budget. Underpinning the rationale for the introduction of differential rates is the recognition that rates are becoming increasingly harder for people to pay and this tends to hit residents the hardest – particularly residents like pensioners who are living off low, fixed incomes.
Given the shift in rate burden over the past five years away from commercial and industrial ratepayers and to the disadvantage of residential ratepayers, it is fair and reasonable that Council should introduce a differential to address that change.
I believe that a fairer rates system in Monash should be based upon commercial and industrial land owners paying a slightly higher burden of the total rates collected across Monash than is currently the case. That will result in a more equitable and efficient distribution of the rate burden. This also recognises that industrial and commercial land – and the businesses which are run from them – have benefited significantly from the residents of Monash who surround them.
It is also worth noting that a number of our neighbouring councils have similar-purpose differential rates in place and so this change brings the situation in Monash more into line with these surrounding councils and is consistent with providing a more level playing field for businesses in different areas.
The impact of the proposed differential on commercial and industrial ratepayers is only modest. They will continue to pay a much lower level of rates compared to other neighbouring councils – particularly in comparison with Knox and Greater Dandenong. The impact of the differential is only to raise the level of rates to be paid by commercial and industrial ratepayers in properties worth $1 million by $95 over residential ratepayers in a similarly valued property.
There are 6,320 commercial/industrial rateable properties in Monash generating $13.6 million in rates (13.6% of the total rates collected). A differential rate imposed on commercial/industrial ratepayers with an aim of collecting an additional $700K, adds approximately 0.7% to total rate revenue. This results in a level of rate increase for these properties of around 5-6% on top of the general Council rate increase of 6%.
The changes to the distribution of rates over the past five years have been the unintended consequence of changes in property valuations which have hit residents in Monash harder than commercial and industrial property owners. Introducing differential rates will help to fairly re-balance this equation back to the situation immediately following the introduction of CIV. The introduction of differential rating addresses this creeping unfairness by restoring the business/residential split to the levels which existed five years ago.
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