Australia's Future Tax System

Final Report: Detailed Analysis

Chapter G: Institutions, governance and administration

G3. Local government

Key points

Local governments are generally established under State and Territory legislation. They have access to one tax — local government rates levied on properties within the municipality. The majority of local government expenditure is funded through own-source revenue (83 per cent in 2005–06), with rates making up around 45 per cent of that own-source revenue.

The immobility of land makes local government rates based on land value an appropriate tax base for local governments to use to fund local public goods and services. States should allow local governments a substantial degree of autonomy to set the tax rate applicable to property within their municipality.

Over time, State land tax and local government rates should be more integrated. This could involve moving to a joint billing arrangement so that taxpayers receive a single assessment but are able to identify the separate State and local components. This could also mean that land tax and local government rates use the same valuation method to calculate the base (with this method being consistent across the State).

When implemented correctly, user charging is an appropriate funding mechanism for local governments to deliver private goods and services.

Grants to local government made up 17 per cent of total local government revenue in 2005–06. The distribution of untied financial assistance grants to local governments should be reviewed.