Where’s The Local Goodwill When It Comes To Rates?

How do we know that our local councils have raised far more money than they need?

It isn’t the fact that local governments have enough money to send councillors on “diplomatic” missions to negotiate “friendship city” relationships. Moreland City Council proudly notes that it has relationships with councils in China, East Timor and on the beautiful island of Sicily. Ararat City Council carefully points out on its website that it took “many visits” to forge its relationship with the city of Taishan in China. And thank goodness for Latrobe City — apparently its fraternity with cities in Japan and China is responsible for all that peace, goodwill and friendship around these days.

But that’s not it. And it’s not because local councils have enough extra money and surplus bureaucrats to organise those cringe-inducing “community” events — the sort of events that assume people wouldn’t say hello to their neighbours unless they were coaxed to do so by a public servant.

Every council has a half-dozen silly programs that help the bureaucrats feel like they are encouraging diversity, harmony and other nice things. Boroondara has a spring planting festival, Frankston has a pet’s day out, Brimbank has a leisure challenge, Stonnington has a thrilling-sounding follow your recyclables tour and, rather ambitiously, Monash sponsors the clean up the world weekend.

No, what makes it most obvious that local councils have jacked our rates up far higher than they need to is this: council workers appear to have woken up one day and decided that they were no longer petty bureaucrats deciding the orientation of road signs. Instead, they decided that they were investment bankers, with striped suits and a large bundle of equity-leveraged, investment-shared, portfolio-bearing, interest-asset options.

Councils are harvesting such an enormous amount of money from home owners and businesses that they can afford to play the sharemarket. So, obviously, the financial crisis has hit local governments hard.

In NSW, where the law lets councils invest in pretty much anything they feel like, the subprime crisis has sucked so much money out of council investments that they are trying to sue their way out of the crisis. The ratepayers of Manly City Council probably didn’t expect that by paying their rates they were also speculating in low-doc mortgages in San Diego. They no doubt thought their money was going towards vital diplomatic missions to sunny Italy and essential dog beauty pageants. Instead, their councillors were being seduced by stockbrokers eager to sell shiny new investment portfolios that may not have been technically blue chip, but were definitely a secure-looking aquamarine.

In Victoria, our councils’ lesser subprime exposure is only due to the fact that they have been legally restrained from making the most stupid investments. Local governments have never been very competent at the best of times — if you want to organise a hard-rubbish pick-up in April, you had better get on to the council now — but it is particularly damning that the only reason Victorian councils haven’t all gone under from shonky trading is because the State Government made doing so illegal.

Of course, it’s a bit ironic watching local governments fall foul of the financial crisis. To a certain extent, it was local governments around the world that caused the crisis to begin with. For many years, local governments have attentively listened to those prudish property owners who are eager to block their neighbours’ development plans. Council bureaucrats have had great fun heritage-listing otherwise useful buildings and blocking subdivisions. And council planners have helped state governments restrict development in the name of stopping evil “sprawl”. These are the sorts of heavy-handed planning regulations that have artificially raised the price of housing and contributed to the housing bubble that spectacularly imploded earlier this year.

Admittedly, local governments didn’t invent the hoarding of tax. The Federal Government’s Future Fund — that accumulating mountain of cash — has now morphed into a giant cheque account that tries to make a virtue of the fact that budget after budget, Canberra is taxing us more than even they can think of ways to spend.

But instead of funding overseas trips, or playing the stockmarket, or hoarding for the future, perhaps governments should think about not taxing so much in the first place.