We want to change how rates charges are worked out, from the rent value of a property to its sale value, to ensure a fair rates burden on residents, so that people are charged a fair contribution for services, particularly considering the shift in property valuations.
We’re proposing a move from Net Annual Value (NAV) to the Capital Improved Value (CIV) rating system, with Differential Rating, and a separated out tiered waste charge, to give Council enough flexibility to effectively address these changes and rate shift issues. CIV is a simpler mechanism based on property market value and is consistent with most Victorian councils who are already using the CIV system.
The proposed change to our rating system (from NAV to CIV) would change how rates charges are worked out, from the rent value of a property to its sale value, that is:
- Net Annual Value (NAV) is calculated based on the greater of current value of a property’s net annual rent or five per cent of CIV
- Capital Improved Value (CIV) is the total market (sale) value of the land plus buildings and other improvements.
We’re proposing these changes for several reasons, including significant changes in the waste sector and in our community profile (with a greater growth in residential properties, as well as valuation shifts in specific property types resulting in some disproportionate rates distribution shifts).
Our current NAV rating system has seen rates distribution shifts from non-residential (commercial and industrial properties) to residential properties by up to $0.9 million since 2016/17, due to changes in property valuation.
The valuation for the 2021/22 year saw commercial and industrial properties on average receive a rate decrease, while residential properties on average had a rate increase above rates cap due to the valuation shift – meaning that more of the rates burden shifted to residential. We are also anticipating a continuation of this trend in the 2022/23 valuation cycle – which means that, without intervention, the rates burden will continue to shift towards residential properties.
Differential Rating alongside the change to CIV can be used to more effectively address the issues associated with valuation shifts. This is why we’re proposing to introduce Differential Rating at property class, with the following rates in the dollar:
- residential rate in the dollar 0.001615
- commercial rate in the dollar 0.002062
- industrial rate in the dollar 0.002073.
Differential Rating would be used to maintain fairness and relative consistency in the distribution of rates between property classes and a ratepayer’s ability to pay. A higher differential rate would be set for commercial and industrial properties compared to residential properties. This reflects an objective to maintain fairness and relative consistency in the distribution of rates between property classes (which is inbuilt within the NAV rating system), as well as the taxation and higher rental yield benefits generally available to owners of these types of properties.
To manage the impacts of change, any major differential rating changes will be gradual and take into consideration the annual general property valuation and demographic changes as part of the budget development process and setting of differential rates.
It is important to note these proposed changes do not impact the total rates revenue raised each year, which is determined by the annual budget process within the prescribed rates cap.