Andrew Barr wants to be known as the "mayor of Canberra". In his first budget speech as Chief Minister, he said he was delivering with pride a "suburban budget". Mr Barr wants to keep the city's lawns mowed and its footpaths clean and repaired; the classic "roads, rubbish and rates" focus – though one imagines he hopes the community is a little less focused on the "rates" part.
But rising rates, and land taxes, are a crucial part of this government's strategy from which it must not shy. Few residents will be pleased by the decision in Tuesday's budget to increase household rates by about 9 per cent (an extra $150 for the typical home). Land taxes – an extra charge on rental properties – will also rise: the fixed component will climb by 5 per cent. Nor is this the end of these relatively steep increases that began four years ago. The ACT's tax reform is a 20-year project.
The Canberra Liberals fared well in the last election, primarily by opposing these changes. Rising rates will no doubt feature again in next year's election campaign; the Liberals may even reuse their succinct "triple your rates" slogan.
Yet it's worth reminding ourselves why the then Gallagher government began this process in 2012. Historically, the ACT has been particularly dependent upon inefficient taxes, such as stamp duties, to fund its municipal and territory services. The problem with these taxes is their volatility: because they are based on occasional transactions (for example, buying a home), the government never knows how much income it will receive from them. Revenue from duties can rise and fall dramatically as markets ebb and flow; when the ACT government has most needed money (in times of economic downturn), it has been least able to collect it.
Nor are these kinds of taxes fair. They place the burden of funding public services on an arbitrary group of people (those buying a home) rather than on as wide a section of the community as possible.
This is why former federal Treasury chief Ken Henry, in his comprehensive tax review in 2010, urged state and territory governments to abandon duties, as well as other inefficient fees such as payroll tax, in favour of a simpler, broader, fairer tax on the value of land (i.e. rates). "When applied uniformly across a broad base, land tax is one of the most efficient means of raising revenue," Dr Henry's review said, noting that land tax gave governments certainty, was cheap to administer and almost impossible to avoid paying. The review also noted that stamp duties discouraged older people from moving into housing that better suited them.
The great pity is that, five years after the Henry review, the ACT is the only Australian jurisdiction that heeded its advice to any significant extent. But Canberrans are beginning to reap the benefits. The deep deficit reported in this week's budget would have been worse without the tax changes undertaken so far. And while householders will understandably focus on their bigger rates bills, they might not appreciate that their car and home insurance bills are smaller than they would otherwise be. The other great benefit of abolishing stamp duties in favour of land taxes is its gradual, downwards effect on housing prices, opening up a market that has been out of reach of too many Canberra families.
These changes are almost certainly unpopular, but the ACT needs to stay on this course.