Introduction

1                This working paper describes the assessment for property titles user charges, and resultant assessed user charges.  Issues to do with the assessment method are in Volume 3 of the 2004 Review Working Papers. 

Description of the category

2                The category comprised net collections from fees and charges from registration of property titles.  Table 1 shows average user charges revenues for the last six financial years.  In 2005‑06, the average revenue at $29.07 per capita was 4.27 per cent of total user charges revenue. 

 

Table 1           Property titles, assessed user charges, 2000-01 to 2005‑06

Assessment method

3                The capacity to raise revenue from registration of property titles was measured in two components, because charges were raised either as a flat fee per title or as ad valorem charges on the value of property.  Capacity to collect fees was measured using the number of conveyance transactions (60 per cent of the category). Capacity to raise ad valorem charges (40 per cent of the category) was measured using the value of conveyance transactions.  These weights adopted at the 2004 Review were based on a previous review of the available evidence on the amounts of revenues collected under different charging regimes. 

4                The assessment drew on data from the Stamp Duty on Conveyances assessment. 

Why revenue from property titles fees differ

5                The amounts of revenue raised from property title fees for each State varied greatly from the average.  They also differed from year to year for each State depending on the level of activities in its property market. 

Table 2            Property titles revenue, 2007 Update

6                The Commission seeks to understand the reasons for the differences between States.  If the reasons were to do with the fee structure and the coverage of the transactions covered, they were differences in revenue raising effort due to policy differences, and had no impact on State shares of GST revenue.  If the reasons were due to circumstances beyond a State's control, they were revenue raising disabilities.  The Commission takes these disabilities into account in its revenue assessment.  They do affect State shares of GST revenue. 

7                The reasons for differences in State revenues per capita include:

·                policy influences on revenue effort such as:

-        fee structure;

-        conditions, exemptions and concessions; and

·                non-policy influences such as:

-        asset prices (such as land, houses, offices, commercial and industrial properties and farms); and

-        the rate of turnover of properties (since duty is payable only when there is a transfer of title). 

Box 1:  The Commission's concept of average The Australian average revenue per capita is not a simple average of the revenue per capita for the eight States.  It is a population weighted average, calculated by dividing the total revenues raised by all States by total population of all States.   Population weighting gives equal weight to people irrespective of their State of residence.  But, since more Australians live in New South Wales, that State carries more weight in the calculation of the average.  For example, more than 33 per cent of Australians live in New South Wales, and less than 3 per cent in Tasmania.  Population weighting gives the experience of New South Wales ($15.45 per capita in 2005‑06) about 14 times the weight of the experience of Tasmania ($26.30 per capita).    This concept of average also applies to the assessment of the average effective tax rate.  In calculating the average effort to raise revenue, it divides the total revenue raised by all States by the total revenue bases of all States.  This gives weight to the revenue effort of each State according to its share of the total Australian revenue base.

Assessment structure

8                Table 3 shows the assessment structure for the 2007 Update. 

Table 3                Property titles user charges, Assessment structure for the 2007 Update, 2005-06

Component	Component weight	Factors	Basis of calculation
	%
User charges	100.00	User charges	A weight of 60 per cent was applied to the number of transactions for Stamp Duty on Conveyances, and a weight of 40 per cent to the value of transactions from the conveyances assessment, after adjusting for differences in the coverage of the sample transactions and for the standard policies on the taxing of goodwill, classes of transactions, and unit trusts.

New developments for the 2007 update

9                Actual revenue.  Generally, the Commission uses the ABS Government Finance Statistics (GFS) to compile the average user charges of each assessment category.  The ABS includes User charges as those GFS transactions with an Economic Type Framework (ETF) under the code of 1120 Sales of goods and services.  However, the GFS does not support a separate property title fees classification.  It groups together all fees and charges from the provision of law courts and legal services (including property titles fees) in the general government sector to the following codes of 3420, Fees and Fines, and 3430, Property Titles. 

10            In past updates, The Commission estimated the property titles fees amounts by allocating a portion of the total law court and legal services fees to property titles fees using information provided by the States in earlier years.  In this update, the Commission used wherever possible State provided data for the period 2000‑01 to 2005‑06. 

11            Exempt transactions.  In this assessment, the capacity to raise revenue is based on a weight of 60 per cent applied to the number of transactions liable for Stamp Duty on Conveyances, and a weight of 40 per cent to the value of transactions from the conveyances assessment.  Following a review in 2006 of the data used in the conveyance assessment, a decision was made to exclude exempt transactions from the data collected from the States. 

12            This was because it was found that four of the States were not able to fully include exempt transactions in their data returns as full details of such transactions were not recorded in their data management systems.  As a result all States were asked to revise previous years' data returns for the conveyance assessment by excluding exempt transactions.  The revised datasets on the number of transactions and the value of transactions have been used in the property titles assessment to maintain parity with the conveyance assessment[1]. 

Calculating the category factor

13            As noted, the capacity factor for Property titles user charges was a combination of two factors based on the number of transactions and the value of transactions. 

·                For the factor relating to the number of transactions:

-        the number of transactions was divided by the population for each jurisdiction and for Australia; and

-        the number of transactions per capita for each jurisdiction was divided by the Australian per capita figure to derive factors (see Table 4). 

·                For the factor relating to the value of transactions:

-        the value of transactions was rescaled for differences in the scope of the sample data and actual revenue collected by the States, and then adjusted for differences in State policies affecting the dutiable values;

-        the adjusted value of transactions was divided by the population for each State and for Australia; and

-        the value of transactions per capita for each State was divided by the Australian per capita figure to derive factors (see Table 5). 

·                The overall category factor was calculated by applying a 60 per cent weight to the number of transactions factor and a 40 per cent weight applied to the value of transactions factor (see Table 6). 

 

Table 4           Number of transactions capacity factor

 (a)    Source:  State land departments reports for earlier years for some States, and sample data provided by States for later years. 

 

Table 5           Value of transactions capacity factor

 

 

Table 5            Value of transactions capacity factor (continued)

 

 

Table 6           Joint category factor based on number and value of transactions

 

Results for 2005‑06

14            Table 12 at the end of the section summarises the average, actual and assessed user charges for each State for all years of the 2007 Update. 

15            Table 7 shows, for 2005‑06, average, actual and assessed user charges per capita for each State and their revenue raising capacity ratios. 

Table 7           Property titles user charges, Assessment results, 2005‑06

(a)        From Table 6. 

(b)        Calculated for each State by multiplying the average user charge ($29.07) by the State's user charges factor and its population.

(c)        Same as user charges factor expressed as a percentage. 

16             

17            Figure 1 shows the per capita average, actual and assessed property titles user charges revenue for each State for 2005‑06. 

 

Figure 1          Property titles, user charges per capita— average, actual and assessed, 2005‑06, GST relativities

Revenue capacities

18            A State's revenue raising capacity ratio compares its assessed user charges, which reflects its revenue raising advantages or disadvantages, with average user charges.

19            In 2005‑06, Queensland and Western Australia were assessed to have an above average capacity largely because they had above average numbers of transactions per capita and also above average (adjusted) value of transactions per capita.  In spite of average property prices in New South Wales being above the national average price, the downturn in the property market was reflected in a decline in the revenue capacity in New South Wales in 2005‑06. 

20            Western Australia's and Queensland's high capacities were attributable to the buoyant State of their property markets, especially in terms of high numbers of transactions per capita (turnover) and were fuelled by the economic growth in these States associated with the resources boom. 

Contribution to GST revenue distribution

21            Table 8 shows the category's contribution to the distribution of GST revenue and Health Care Grants (hereafter described as GST revenue) implied by the 2006 Update.  Compared with an equal per capita (EPC) assessment, the Property Titles User Charges assessment redistributed $38.6 million, almost entirely from Queensland because of the persistence of activities in the property market in that State. 

Table 8            Property titles user charges, effect on GST revenue distribution, 2007 Update^a

a           All distributions were calculated using the 2006‑07 GST revenue pool and December 2006 population. 

Note:    The Total redistributed is the sum of negatives or positives. 

Differences from an equal per capita assessment

22            The capacity to raise revenue is not related to population, but rather on the number and value of titles being registered each year.  In turn, these depend on asset prices and the rate of property turnover.  Because these were different across States, the States were assessed to have different capacity to raise revenue from this source and hence there was redistribution across States. 

Changes since 2007 Update

Effect of assessment on GST revenue

23            Table 9 shows the distribution of GST revenue resulting from the Property Title User Charges assessments in the 2006 Update and the 2007 Update, and the reasons for changes.  These changes were brought about because the Commission: 

·                used revised financial data in the category standards and other revised data in factor calculations for the years 2000‑01 to 2004‑05 used in the 2006 Update; and

·                replaced 2000-01 category standards and factors with those of 2005‑06 to move the five-year average on which GST revenue shares were based.  (Moving the five-year average forward in this way ensures the assessments reflect recent trends in State priorities on user charges and recent trends in State demographic, and economic circumstances on the relative level of activity on which charges are levied.) 

Table 9            Comparison of the 2006 Update and 2007 Update assessments^(a)

(a)          All distributions are calculated using the same revenue pool and a constant population. 

(b)        The category revenue and revenue bases interact.  The combined effect of changing both variables can be different to the sum of the effects of changing each separately. 

Changes due to revising category standards and factors for years 2000-01 to 2004‑05

24            The main reasons for the changes in GST revenue distribution were as follows. 

25            Changes due to revisions of revenue data.  There were revisions to the average user charges for some States following the substitution of State supplied data for the previously Commission derived data.   Actual per capita user charges in this category increased by 29 per cent over 2000-01 to 2004‑05, the common years in the 2006 and 2007 Updates.  As a result, States with above average capacity in 2000‑01, principally Queensland, had their GST revenue shares reduced with States with below average capacity in 2000‑01, principally Victoria and to a lesser extent Western Australia and South Australia, increasing their shares. 

26            Changes due to revisions in the revenue base.  There were some changes to the revenue base data following the decision to exclude exempt from duty transactions in the stamp duty on conveyances in the 2007 Update.  The four States that previously had been including details of exempted transactions in their data returns — New South Wales, Queensland, Tasmania and Northern Territory — had their GST shares increased. 

27            Table 10 shows the changes to the category averages and the resultant revenue raising capacity ratios flowing from the changes in actual revenue for the common years. 

Table 10          Property titles, Assessment data, Average of 2001-01 to 2004-05

Changes in State circumstances - the effects of replacing 2000‑01 revenue data and revenue base data with those of 2005‑06 data

28            Table 11 shows the actual user charges and implied capacity to raise revenue for 2000‑01, the year that drops out of the assessment period, and 2005‑06, the year that comes in for the 2007 Update assessment. 

Table 11          Property titles user charges, assessment data, 2000-01 and 2005‑06

 

29            Replacing revenue data.  User charges revenues per capita increased by 44.8 per cent between 2000‑01 and 2005‑06, more than the growth in per capita GST revenue (35.0 per cent).  This increased the importance of the category and reduced the distribution of GST revenues to the States (principally Queensland) with above average capacity in 2000‑01. 

30            Replacing revenue base data.  Capacities to collect user charges were different in 2005‑06 than in 2000‑01 as a result of interstate differences in the growth of property transactions and values.  In line with the stamp duty on conveyances assessment, revenue capacities increased in Queensland, Western Australia (up sharply), Tasmania and Northern Territory between 2000‑01 to 2005‑06 because of above average increases in the growth in the number of transactions dealt with and the value of transactions per capita.  Hence GST revenue distributions to these States reduced in total by $9.6 million, with Western Australia by $7.7 million. 

31            At the same time, capacity in New South Wales and Victoria declined because of the slowdown in their property markets since 2003‑04.  Hence the distribution to these State increased by $4.7 million and $3.4 million respectively. 

 

This chapter was prepared by the Revenue section of the Commonwealth Grants Commission.  If you have any questions about its content please contact Gautam Biswas on (02) 6229 8833 or Gautam.biswas@cgc.gov.au. 

 

    Date:  15 February 2007

 

 

Table 12          Assessment of user charges, Property titles