IN a shot at the NSW government's rate-pegging system, the Henry tax review has recommended the states should allow councils a substantial degree of autonomy in setting property taxes.
It has also recommended that state land tax and local government rates be integrated so that taxpayers receive a single assessment which identifies the separate state and local government components. State land tax and local government rates would use the same land valuation method.
But this recommendation might be doomed because it is linked to a proposal for a broader-based land tax including the family home, a concept the federal government has rejected.
The report found that council rates were relatively efficient, simple and fair, and served as a stable source of revenue because they were based on a highly immobile tax base - land.
It also found that charges for services such as the use of sporting fields were an appropriate funding mechanism for councils, provided they accurately reflected the cost of provision and that local governments should consider opportunities to expand user charging to reduce rates.
''The review supports our view that the state must credit us with the maturity and ability to negotiate with our communities as to what they want us to provide and how they want us to fund it," said the president of the Local Government Association of NSW, Genia McCaffery.
The review suggests that state governments, rather than the federal government, be responsible for all funding to councils, including untied financial assistance grants now provided by Canberra - but this would be contingent on the states having access to sustainable tax revenue.
It floats the idea that the minimum grant principle unfairly advantages bigger councils. "The current requirement that each council receives 30 per cent of its per capita share of untied financial assistance grants may prevent state grants commissions from redistributing to councils that require greater assistance," it says.
The report recognises that councils play an important role in delivering government services and concludes that federal and state payments to local government for specific purposes "can represent value for money for higher levels of government".
It also tackles the issue of whether developer charges affect housing affordability. It supports such charges where they are limited to services for the particular development, such as local roads, stormwater, drainage, utilities and open space, but says they operate as taxes and discourage housing supply when they exceed such costs.
NSW and Victoria are the only states that force developers to pay for more general services such as public transport, childcare centres, libraries, community centres, recreation facilities and sports grounds. "The charges should reflect only the additional costs that the development imposes on society, not the total cost," the report says.
It recommends that the Council of Australian Governments review developer charges to ensure they appropriately price new infrastructure and that it review zoning and planning policies of local councils and planning authorities to facilitate greenfield and infill developments.
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