Broad pre-budget hints from Andrew Barr suggest his commitment to one of the government's boldest reform measures – abandoning stamp duties and taxes on insurance in favour of increased residential rates and land taxes – may be fading. Treasurer Barr is to unveil a new five-year tax plan as part of his fifth budget next Tuesday. Rather than setting new targets consistent with the reform's original 20-year time frame, however, Mr Barr is expected to announce a marked slowing in the rate at which stamp duty is cut and residential/commercial rates are increased. An announcement of an end date is also off the agenda, with a spokesman for the Chief Minister suggesting that with insurance tax having been abolished and pay roll tax rates reduced, the most significant phase of the reform is complete.
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A well-earned breather and stock-take may be one way of describing it. The other more compelling hypothesis is that Labor is acutely aware that average increases in residential rates of 42 per cent over the past four years have damaged its electoral standing, and that without relief it will struggle to retain government at the October election. Confirmation of that came in the form of a Brendan Smyth media release on Wednesday in which the shadow treasurer said "have no doubt that any suggestion Andrew Barr will ease rates pressure is solely about his re-election, and isn't sincere … under [Mr Barr], rates have been increasing by more than 10 per cent a year. That means rates will triple in 11 years".
The rates model championed and adopted by Mr Barr in 2012 was the result of a broad inquiry tasked with ensuring greater reliability and sustainability of ACT government revenues. Historically, the Territory has been heavily dependent on taxes like stamp duties to finance municipal and territory services. The inquiry proposed reducing reliance on these volatile and inefficient taxes over two decades, and making up the revenue shortfall by gradually increasing land rates (one of the broadest and most equitable of all taxes). It was a prudent and sound strategy, one widely extolled as such by Mr Barr.
Sensing electoral advantage, however, the Canberra Liberals suggested residential rates would triple over time, and judging by Mr Smyth's comments, the party continues to maintain this, despite corroborative evidence. Nevertheless, the claim has struck a chord with many voters – to the point that Labor now appears ready to put the experiment on ice.
This would be unfortunate. Household and commercial property rates may have climbed significantly, but the pay-off has been a stronger, more efficient ACT economy, one better able to withstand the vagaries of the real estate market. That Mr Barr has failed to push this positive message harder may be regarded as regrettable. It would be even more so were he to turn tail and run. Having set the ACT on the course of tax reform, he should adjust sails if necessary and remain under way.
