The QPR Blog

In my previous post, we took a look at a couple of specific, current issues relating to the rating system. For those less familiar with the system in general, I thought it might help to step back a little and provide some broader context.

The legislative basis for the levying of council rates in NSW is provided in Chapter 15 of the Local Government Act 1993 (the Act) and the process by which these rates are to be levied is described in great detail in the Council Rating and Revenue Raising Manual (Department of Local Government, 2007) (the Manual).

The starting point for any discussion of council rates will invariably be the up-front disclaimer that council land rates, or ordinary rates, are not a fee for service. While there is a legislated obligation for their ‘fair imposition’, they are a tax, effectively a land tax, pure and simple.

The next point of clarification is that, while most people really only focus on, or care about, the bottom line, a council rates notice generally includes both ordinary rates and relevant water, sewer and waste service charges. Rates and charges are levied quite independently, so for the moment, let’s just talk about ordinary rates.

It may be useful to refer to the principles that were enunciated by English economist Edwin Cannan in his lectures on the History of Local Rates in England, these being the basis for our own system:

“Every inhabitant of a district should be made to contribute according to his ability and everyone who receives benefit from the local expenditure should be made to contribute in proportion to the benefit he receives.”

The ‘fairness’ or ‘appropriateness’ of rates may therefore be considered in the light of these two criteria:

• The extent to which those who receive the benefits of council’s expenditure also pay for those benefits—the so called ‘benefit principle’
• The extent to which those who pay to support council’s functions have the ability to pay for that support—the so called ‘ability to pay principle’

It probably goes without saying that a rate that is fair when judged by the benefit principle may not be fair according to the ability to pay principle, and vice versa.

The Act (Clause 493) further requires that any rating system must include four distinct rating categories: farmland, residential, mining and business. A local Council has a degree of freedom in the way it distributes the overall rates burden across these four categories, but distribution of the burden within any category must generally comply with the principles articulated in the Manual. Further, the rating category used in any given situation must reflect the primary activity undertaken on the property so categorised. As such, any correlation between land use zones defined in a Local Environmental Plan and rating categories is largely coincidental—a rural property, for example, regardless of its size, that is used primarily for residential purposes, will generally be rated for residential use and, similarly, a corner shop in a residential area will be rated for business use.

The Act (Clause 529) also allows for a council, at its discretion, to determine sub-categories for one or more categories of rateable land in its area. This provides an additional mechanism by which to control the equitable distribution of the rates burden within a category. For example (Clause 529 (2) (b)), the category “residential” may be further subcategorised according to whether the land is rural residential land or is within a centre of population.

I chose this example quite intentionally because, as I mentioned last month, the definition of rural residential land in the Act is quite specific (and somewhat exceptional), being land that:

1. is the site of a dwelling, and
2. is not less than 2 hectares and not more than 40 hectares in area, and
3. is either:
1. not zoned or otherwise designated for use under an environmental planning instrument, or
2. zoned or otherwise designated for use under such an instrument for non-urban purposes, and
4. does not have a significant and substantial commercial purpose or character.

These are the only criteria by which any parcel of land may be categorised (for rating purposes) as being rural residential, and if the rural residential sub-category is used, all land that fits this definition must be so categorised.

To be continued…