The ACT Greens have proposed a radical overhaul of the ACT's rates system, that would base the charge on the market value of the property, rather than the average unimproved value of the land.
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The Barr government has been steadily increasing rates as it abolishes "inefficient" taxes like stamp duty and insurance taxes.
It tweaked the rating system last year to further increase rates for units, apartments and townhouses, after finding freestanding homeowners were paying the bulk of fees.
But those changes have been labelled as unfair by those living in strata, with the large majority recording rates rises of between 25 and 30 per cent last year.
Even former treasurer Ted Quinlan said the new formula was a "blunt axe" that meant owners within larger complexes were unfairly pushed into the highest rating brackets.
Greens crossbencher Caroline Le Couteur said switching to a rates valuation system based on capital improved value was a fairer way of charging properties.
In a discussion paper to be released on Tuesday, the Greens said a capital improved value (CIV) or improved capital value (ICV) system would mean that rates are higher for people with an expensive home and lower for people with a less expensive home.
"The ACT Greens, and the majority of economists, believe our economy would be better off if we phased out inefficient taxes like stamp duty and replaced them with broader taxes on property like rates," the discussion paper reads.
"The ACT has been leading the nation in tax reform since 2012. This tax reform has been successful so far and the ACT Greens have supported these reforms.
"Because we are the first jurisdiction in Australia to deliver this tax reform, we are also the first to uncover some of the downsides.
"The ACT Greens are concerned that if these difficulties are not fixed now, the ACT may not be able to keep up its tax reform program over the next 10 to 20 years."
The Greens' proposal is based on systems already working in South Australia, Victoria and New Zealand.
The discussion paper says under the current rating system, a single aged pensioner in an older suburb like Garran could be paying over 14 per cent of their income on rates, compared to a median-income household paying median rates, which is around 1.7 per cent of income.
"Research interstate shows that if rates were based on overall property value, rather than land value only, this would more closely match people’s ability to pay," it reads.
Ms Le Couteur said while more Canberrans were living in townhouses and apartments, there was no obvious land value attached to each unit.
"If you own a unit on the fifth floor of a 10-storey apartment block what is your land value," Ms Le Couteur said.
On top of this, under the current system the worst house in the street pays the same rates as the best, as long as the block sizes are the same.
"It just doesn't make sense to have expensive houses pay less than less expensive houses. My contention is the value of the house, as distinct from the value of the land is a much closer approximation to the owner's wealth and their ability to pay rates," Ms Le Couteur said.
The proposal is likely to attract opposition from the Greens' partner in government, ACT Labor.
Ms Le Couteur said she hoped Treasury would at least look into the proposal.
"We have embarked on a voyage to increase the amount people are charged in rates. Every year it's increasing by a percentage amount which means we need to think more carefully about how to make the system more sustainable and fair," Ms Le Couteur said.
"I am concerned the inequities are becoming more obvious and it will mean we end up with a change in government that stops the transition."
The Greens acknowledged there would be downsides to moving to a CIV or ICV system though.
As well as a change-over period in which some people's rates would increase and others would decrease, economists have expressed fears such a system would be a disincentive for people to renovate or extend their homes, as it would mean an increase in rates.
"Because of this disincentive, economists believe that rates based on property value are a little less economically efficient than rates based on land value. However, they are still much better than stamp duty," the discussion paper said.
You can email your feedback to LECOUTEUR@parliament.act.gov.au until October 12.
