ACT government property reform: what's happening to Canberra rates and land tax

The plan? Gradually abolish "inefficient" transaction-based taxes, such as stamp duty and insurance tax, in favour of higher residential and commercial rates.

The purpose? To make the territory's tax system "fairer" and to ensure that, when the government ran out of land to sell, the ACT has a steady and sustainable revenue stream to draw on to pay for services and infrastructure.

But seven years into the reform program, Canberrans are feeling the pinch. Though Chief Minister Andrew Barr insists the "heaviest lifting" has been done, taxpayers are facing three more years of steep rate rises. Canberra Liberals leader Alistair Coe, sensing the scale of community angst, has pledged to freeze rates for four years if his party wins government at the 2020 election.

Former treasurer Ted Quinlan's 2012 review of the territory's tax system concluded that the ACT's main revenue streams were "unfair, unstable and, as such, unsustainable".

Take stamp duty, for instance. Before the start of the reforms, stamp duty revenue made up about a quarter of the ACT's total tax take, despite only being paid by about 9 per cent of households. Revenue fluctuated wildly year-to-year, making it hard to make projections for future budgets.

Shifting the burden to land-based taxes would create a fairer and more predictable means of raising revenue, the review found.

The Quinlan review, which drew on the findings of Ken Henry's 2010 tax inquiry, recommended the reform package be ushered in gradually to soften the impact of the changes on taxpayers.

The government agreed to phase in the reforms, at least in principle, across four five-year blocks. The 2012-13 budget outlined plans to abolish insurance duty within five years. It committed to gradually wean the territory off stamp duty revenue until it was abolished entirely by 2032.

It agreed, in principle, to abolish land tax "in its current form".

To compensate for the loss of revenue, the government said it would introduce higher marginal tax rates for residential and commercial property owners. Commercial land tax would be abolished.

Significantly, the reform package was designed to be "broadly revenue neutral", meaning the ACT government was not planning to reap more money from higher rates than it lost from lower - and abolished - taxes.

This wasn't intended to be a money spinner for the government.

Insurance tax has been abolished, saving a household with $3000 worth of insurance $300 a year. The payroll tax threshold has been lifted to $2 million, meaning 90 per cent of Canberra businesses no longer pay tax on staff wages.

Stamp duty costs are slowly coming down: the buyer of a property valued at $500,000 will pay about $9100 less next year than they would have before the reforms started in 2012-13.

First-home buyers won't have to pay stamp duty on a property transaction from July 1 - so long as they have a household income of less than $160,000.

Rates, meanwhile, have increased dramatically. In 2011-12, the government collected $209 million in rates revenue. Next financial year, that figure is expected to reach $599 million. The figure combines commercial and residential rates.

Canberra homeowners face hikes of 7 per cent in 2019-20, while apartment owners will pay an extra 11 per cent. Average residential rates are expected to increase 7 per cent in 2020-2021 and 2021-22. Mr Barr on Tuesday said rate increases would be lower as the reform program entered its final phases.

The government continues to rake in land tax revenue, too. It will collect about $141 million from households this financial year, which is twice what it took when tax reform began. Commercial land tax was abolished in 2012, as promised.

Overall, the total amount of government tax revenue was $1.2 billion in 2018-19, about double the amount from seven years ago.

In that time, total stamp duty revenue has dropped only slightly, from $267 million to $264 million.

Does that suggest the government has been "double dipping" - simultaneously hiking rates while continuing to reap the riches of stamp duty and land tax?

Has the reform been "revenue neutral" as promised?

Dr Khalid Ahmed, the former executive director of policy at ACT Treasury, said it almost certainly hasn't been, regardless of how broadly the term is interpreted. But Dr Ahmed said the government could quickly and easily compile and release data which would either prove, or dispel, claims the reform had been revenue neutral.

He said while the government was lowering stamp duty, it was increasing other taxes, such as the Fire and Emergency Services Levy.

"If you look at the macro picture, if you combined the stamp duty and general rates together, and look at their combined growth rates, it is different pre-tax reform compared to post tax-reform," Dr Ahmed said.

"It is almost double. And you say 'well, it's the same economy, isn't it'? They keep talking about population growth - but the previous period of growth was higher."

"I think they need to answer why [revenue has doubled]."

Mr Barr could not provide up to date figures on the total costs of the reforms so far. But he said the government had commissioned a detailed analysis of the reform's first two stages, which would examine "progress against the revenue neutrality objective". The analysis would help inform the next phase of the reform, due to be announced in the 2020-2021 territory budget.

Mr Barr said the government's commitment remained that the tax reform would be revenue neutral over the "full 20-year transition period".

He said Canberra's population growth meant the government was collecting rates from 27,248 more properties than it was in 2011-12.

Average house prices have increased from $568,400 to $735,800 since reforms started, helping to boost the territory's overall tax taking, he said.

The Quinlan review made 27 recommendations, none of which suggested the government move to re-balance the discrepancy in rates paid on houses and units.

Nevertheless, the Barr government implemented changes in 2017, which pushed most units into the highest rating bracket and consequently sent the rates bills sky-rocketing.

Appearing last year before an Assembly inquiry, Mr Quinlan said it was clear the government had realised it needed to generate more revenue from units, but argued the changes it made had an "element of unfairness to them".

In its 2019-20 budget, the government announced it would introduce a new rating method for units, which Mr Barr said would "address any inadvertent anomalies arising from the reforms".

The next ACT election is still almost 500 days away, but tax reform has already emerged as a key battleground in the race to form the next territory government.

Mr Coe used his budget reply speech on Thursday to announce the Liberals would cap rates in their first four-year term if the party was elected next October. The Liberals have already committed to abolish payroll tax in the ACT.

Mr Barr rubbished Mr Coe's plan, saying it would cut the equivalent of one-third of the territory's health spend each year.

The clear policy difference sets up an 15-month fight over how, and how much, Canberrans should be taxed.

In the meantime, property owners will continue to grapple with hip pocket pain.