Tuesday, April 26, 2011

rates debates

The parrot commentariat at the Journal of Ignorance has gone off over this posting from the Editor-at-Loose on Rate Squeeze: Council battles rising deficit as Budget day nears

To be fair, on the quality spectrum, this is one of the more reasonable efforts from 'Loose', with just a few oddities, unlike the bizarre comments. A key aspect of all discussion on rates seems to be their supposed relationship to the CPI. The Editor-at-Loose summarised this as: "The average fee rise approved by councillors at a meeting on Wednesday is nearly double the underlying Consumer Price Index annual rate, expected to come in at about 2.2 percent when the latest figures are released tomorrow (Wednesday)"

These underlying measures on the latest results were disturbingly high in the last quarter. However, these are not that relevant to Council costs and rates. The Council is not, as such, a consumer. It is more like a producer and there is also a separate PPI (producer price index). The PPI has generally been above the CPI.

Indeed, a characteristic of the CPI for a decade or more has been an inflation divergence between tradables and non-tradables. The offsetting CPI falls are in such as flat screen TV's and shoes. I am not sure anyone has yet accused the Mayor of building an Imelda Marcos style shoe collection, however transferring spending from roads to Val's shoes is the only way Council could hope to match the CPI.

There has recently been a State Guvmint cap on developer charges which is somewhat controversial. I have no idea on what any potential impact on Cairns may be with this. I also note a recent report from an Infrastructure Charges Taskforce. This report recommended linking Council infrastructure charges to the ABS PPI for roads and bridges in Queensland. This PPI has not been below 5% since 2003. Curiously, subsequent media reports seem to indicate the Bligh Guvmint has linked any increase in capped charges to CPI? Oh dear!

The key point on CPI and Council rates is that the rates are a component themselves of CPI, not an outcome, and it makes no logical sense to link the two so closely. This is not to say that Council costs should not be a community concern. It is conceptually feasible for Council rates to increase faster than CPI over an extended period without changing the CPI itself.

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