- Revenue
- A key consideration of this inquiry is equitable approaches to revenue collection to support the delivery of local government services. This, in the main, refers to the application of land rates on Norfolk Island. Land rates have led to considerable disquiet in the Norfolk Island community, which was strongly reflected in evidence.
- Any future governing body requires a sustainable, locally accepted revenue framework to facilitate levels of funding. This chapter examines the issue of revenue collection and land taxes and outlines some alternative revenue collection methods identified by stakeholders.
Norfolk Island economy
4.3The local economy on Norfolk Island has suffered from a number of setbacks in recent years. The Norfolk Island Accommodation and Tourism Association (ATA) noted the effects of recent economic events on Norfolk Island, stating that:
Norfolk Island has just endured a severe financial crisis with one of the largest economic contractions on Norfolk Island, when visitor numbers were down 27 per cent compared to pre-pandemic levels and tourist accommodation occupancy at 28 per cent for the year ending June 2022.
4.4The ATA raised a number of broad issues confronting Norfolk Island which have affected the economic capacity of the community. These included:
- pandemic border closures leading to $38 million in losses for the tourism industry;
- census data showing considerable financial stress on Norfolk Island;
- annualised inflation rates exceeding 11 per cent;
- increases in official interest rates;
- increases in both land rates and waste management charged by the NIRC;
- high electricity costs;
- annually increasing superannuation and doubling in wages since 2016;
- a doubling in the contractor charges since 2019, and increases in building material costs;
- difficulty obtaining bank loans and high insurance premiums; and
- increases in alcohol prices.
Revenue collection on Norfolk Island
4.5Prior to the establishment of the Norfolk Island Regional Council (NIRC), there had been no system of land rates or property-based taxation on Norfolk Island. Rather, a consistent theme in the way Norfolk Islanders characterised the local approach to revenue collection was ‘to live within our means’.
4.6The small size of Norfolk Island was identified as a central limiting factor facing any local governing body. Mr Ron Ward, a Norfolk Islander, told the Committee:
In larger jurisdictions, there are generally many more properties and residents to spread the costs of operating a rate system. In Norfolk Island these costs are spread across a very small ratepayer base.
4.7Like other local governments around Australia, the NIRC provides a range of important public goods that are used by all citizens, including a library, road maintenance, wastewater, and sewerage. The NIRC also provides a range of other services that are not usually the responsibility of local governments, including fire services, broadcasting, forestry, lighterage, a tourism bureau, and a range of courts and tribunals.
4.8Nonetheless, the perceived link between the services provided to landowners by local government and revenue models was also identified as a challenge by some Norfolk Islanders. According to the No Land Rates Group:
The NIRC delivers no services to properties on the island other than electricity and telephone services, both of which are a landholder’s choice to subscribe to and are paid for directly by the landholder to the relevant NIRC business undertaking/service provider.
4.9The Department of Infrastructure, Transport, Regional Development, Communications and the Arts (DITRDCA) told the Committee that prior to the abolition of self-government, Norfolk Island did not participate in the Australian tax system. Rather, the Norfolk Island Government applied a Norfolk Island GST of 12.5 per cent to all goods and services on the island. This included basic grocery items that are exempt from the broader Australian GST.
4.10This situation changed when amendments to the Norfolk Island Act 1979 repealed self-government, and the Local Government Act 1993 (NSW)(NI) subsequently came into effect. Mr Mike Colreavy, Administrator of the NIRC, noted that this legislative framework essentially determined what revenue collection was available to the NIRC:
I, along with the Council management team, are operating the Council in accordance with what the Local Government Act provides. When we come down to what sort of revenue framework we’re operating with, we’re operating with a framework that is authorised by the local government legislation.
Land rates
4.11DITRDCA noted that the ‘requirement to levy rates was legislated by the Australian Government in 2017’, and that since then ‘rates charged have remained relatively low’ on Norfolk Island.
4.12According to DITRDCA, base rates were ‘calibrated to place a greater impost on those businesses drawing the highest income from the Norfolk Island tourist industry’ so that both the NIRC and the wider island community benefit from tourist expenditure.
4.13Like rural and remote communities in Australia, the pandemic downturn has led to increases in the land rates charged by the NIRC to allow the continued delivery of services. However, DITRDCA noted that compared to other comparable local government areas in New South Wales, the increases on Norfolk Island have been modest.
4.14According to Mr Colreavy, this property-based revenue framework ‘works effectively for over 500 councils’ in Australia and ‘is not inappropriate to be applied on Norfolk Island’. Rather, it is more a matter of it being new and ‘something people need to digest’.
Land on Norfolk Island
4.15The Committee heard from many Norfolk Islanders about the nature of the relationship that many in the community—particularly the Pitcairn descendants—have with land. The local concept of land ownership is one of the many distinct aspects of the culture of Norfolk Islanders of Pitcairn descent.
4.16The No Land Rates Group told the Committee that, for Norfolk Islanders:
Land is connection—it’s home, it’s food, it’s shelter, it’s family, it’s ancestry and it’s our belonging. Just to make that absolutely clear, land is not just the land you walk on; land is a part of you.
4.17Ms Tane Cottle, a member of the No Land Rates Group, offered a very personal local perspective on the meaning and significance of land on Norfolk Island:
Until the very recent changes, which were due to outside enforcement, the whole island was ukluns—everyone’s to share. We knew who owned which parcels of land, but the wider island was ours, I grew up fishing off the rocks and the reefs around the island with my family. Wherever we were, we would set up fires on the rocks or on the shores, and that’s where we would eat. We harvested food from our seas and on our land. This is our way.
Responses to land rates
4.18Many Norfolk Islanders shared their views on property-based taxation, or land rates. Many of these voices argued that land rates are ‘inappropriate and inequitable in the Norfolk Island context’. The Norfolk Island People for Democracy (NIPD) summarised the practical effects of current approaches to revenue on Norfolk Island, stating that it:
- disregards the extraordinarily high cost of airfares, freight, electricity, food and other consumables on Norfolk Island;
- is forcing people to sell their family land;
- is changing our traditionally proud, engaged and self-reliant society to one of government expectation and entitlement;
- is inefficient and wasteful; and
- is placing unsustainable financial hardships on many in our community.
- Mr Don Morris raised concerns about capacity to pay land rates, given the specific economic and demographic conditions on the island. According to Mr Morris ‘a characteristic of the island’s economy has always been underemployment’, not in the ‘precise sense that economists use’ but in that many Norfolk Islanders ‘cheerfully work in more than one job, where one, by itself, would generate insufficient income’. As a result, imposing land rates has ‘a disproportionately harsh effect on many local residents who may own their own home but have little disposable income’.
- Mr Morris also noted that land rates do not capture all residents on Norfolk Island, particularly temporary residents who rent their homes:
While this group equally use all the usual services, such as roads and water, and public amenities, the burden would fall unfairly on landowners. In particular, in a Territory where a significant proportion of the population is aged over 70, it would especially target elderly retirees with no income other than savings.
Family lands
4.21At the core of some local objections to the application of land rates is its impact on traditional cultural practices—specifically, land inheritance. As stated by Ms Rhonda Griffiths, Secretary of the Norfolk Island Council of Elders (CoE):
This has been detrimental to our families, who have held onto their land for their children. Forcing rates onto such a small group within our community has been abominable.
4.22The CoE characterised the use of land rates as having been ‘detrimental’ to the Pitcairn-descended families. Mr Benjamin Nobbs echoed these concerns, stating that land rates result in Pitcairn descendants ‘paying the majority of the revenue currently being raised’, and that taxing land is ‘detrimental to this portion of the population’.
4.23Similarly, the NIPD stated that the community has no aversion to paying tax as such, rather the opposition to land rates ‘is to ensure that Norfolk Islanders are not forced off their family land’. Likewise, the No Land Rates group considered land rates to be ‘a mechanism to force a people off its land’ that functions as ‘enforced cultural change’.
4.24The perceived inequity of land rates was emphasised by Mr Ron Ward, a Norfolk Islander. Mr Ward stated that many Pitcairn descendants have ‘steadfastly accepted a modest or frugal lifestyle to ensure their family lands remain’. Mr Ward told the Committee that these Pitcairn descendants were now ‘being punished with a tax that is generally considered a wealth tax’. Mr Ward stated:
In Norfolk Island, land ownership is not directly linked to a person’s general wealth or prosperity, and in general there is limited capacity to generate income from land.
4.25The No Land Rates Group raised similar objections to using land rates as a means of revenue collection on Norfolk Island:
Land rates in Norfolk Island are an inequitable revenue raising system forcing people to divest themselves of lands beyond their most immediate needs and, as such, are negatively impacting land usage and the long-held tradition of hereditary acquisition or succession of family lands through the generations.
4.26The ATA related this attitude towards hereditary land acquisition to the island identity of the Pitcairn descendants, who ‘consider land to be a cultural possession to be passed on’ to future generations.The ATA stated that:
These families have been substantially disadvantaged by land rates, often being land rich but cash poor. The imposition of land rates by the Federal Government against their will continues to be a constant source of distress.
4.27While the cultural origins of this perspective on land ownership and taxation are unique to Norfolk Islanders of Pitcairn descent, the challenges facing some residents in retaining family land are nonetheless familiar. It was noted that concerns about passing ‘land down through the generations’ also ‘applies right across Australia’, particularly in relation to agricultural and farmland.
Rural amenity
4.28According to the No Land Rates Group, the traditional approach to hereditary acquisition not only ensures that future generations have a place in their homeland, it also has practical implications for the local economy. This is because it ‘serves to protect the island’s rural amenity and environment from the effects of overuse and over-population’.
4.29Mr Ward warned of land rates leading to impacts on the local tourism market, noting that ‘rate induced divestment’ leads to a potential for overdevelopment and threatens the ‘rural character of the island’ turning it into ‘an unattractive patch of suburbia in an isolated location’.
Determination of rates
4.30The Business Council of Norfolk Island (BCNI) argued that its members ‘are not opposed to land rates’, but that:
…the initial introduction of rates could have been handled better, with increased community and business engagement prior to the establishment of rates, that land rates should be capped, similar to Australia; that rates increases be proportionate or linked to an island cost-of-living measurement that there is a need for transparency around the formula for land valuations which contribute to the assessment of rates.
4.31Similarly, another submitter, who requested that their name be withheld, stated that there are very real concerns about the ‘equity and efficacy of the new methodology’ for calculating land rates introduced in 2022-23. These changes were predicated on the basis that there was a need to ‘increase from a “very low base”’ in order to facilitate the community continuing to ‘receive the essential services and improvements to available services’.
4.32This refers to a step taken by the NIRC under administration, wherein according to the ATA:
In June 2022, without any prior risk analysis, and presumably without a clear understanding of, or regard to, the local state of the economy or capacity of the business sector to pay increased government charges, NIRC proposed to increase the base component of land rates for 2022-23 for tourist accommodation businesses by 318 per cent and the ad valorem rate by 56 per cent. Other businesses faced similar increases.
4.33While this increase was later revised to 218 per cent for the base rate and 39.9 per cent for ad valorem, according to the ATA this still ‘represented a huge increase on a fragile industry in recovery’.
4.34The ATA discussed the effects land rates had on the tourism sector on Norfolk Island, noting that tourist accommodation is a separate category that pays higher land rates. While this is ‘fair enough’, according to the ATA it is also unsustainable. This is because yearly increases place costs on business that are not supportable, and land rates have already ‘reached a point now where people are exiting’ the tourism industry.
4.35One submitter raised problems with the assumptions behind the determination of land rates being associated with the size of plots:
NIRC has chosen to assume that landowners with larger sized portions are wealthier and have a higher capacity to pay or a responsibility to shoulder a greater financial burden than those with smaller sized plots.
4.36In regard to varying the land rates charged, Mr Fred Howe told the Committee that in his view, ‘no practical alternative’ to land rates exists ‘as an equitable’ source of revenue. Given that scope exists to ‘vary rates based on land use and a range of other matters’, Mr Howe stated that the use of land rates is ‘a tried and tested system’ that ‘is fair and should continue’. Mr Don Morris stated that land rates should be ‘restricted only to commercial properties’.
Alternative sources of revenue
4.37Evidence to this inquiry raised a range of alternative revenue mechanisms that would be appropriate for Norfolk Island. For example, the United Kingdom’s Norfolk Island All Party Parliamentary Group noted that in the past Norfolk Island has created ‘a broad range of revenue streams, island-based taxes, levies and fees-for-services industries’.
4.38The Norfolk Island People for Democracy stated that alternative revenue streams to property-based taxation must be identified through ‘a comprehensive, well-designed long-term plan for the future’. It argued that this plan must involve consultation with Norfolk Islanders, and take account of:
- advice from the Norfolk Island community;
- advice from the Australian Taxation Office and the Commonwealth Grants Commission, independent econometric analysis;
- the need to develop a more appropriate form of Government for Norfolk Island, and the level of funding required to ensure that Norfolk Island’s new governance arrangements are financially sustainable;
- the level of Federal and state-type contributions available to the community through Norfolk Island’s participation in the Australian taxation system;
- cost-of-living impacts;
- Norfolk Island’s population density;
- Norfolk Island’s geographic remoteness;
- Norfolk Island’s legal and constitutional status;
- social, economic and cultural impacts (including Pitcairn descendants’ affinity to their land);
- the level of services provided to Norfolk Island; and
- the revenue raising capacity of our community.
Goods and services levy
4.39Many submitters from Norfolk Island raised the possibility of applying a goods and services levy or tax (GSL or GST), which is a familiar form of revenue collection on Norfolk Island.Mr Ron Ward noted that a Norfolk Island GST had been used during the period of self-government:
Up until 2015, the Norfolk Island Government collected between 6-7 million dollars per annum through this form of taxing. Given the community now pays income tax which facilitates the Commonwealth extending social security and other services (and thus relieving Norfolk Island from raising the revenue to cover these costs), the target GSL rate should be set significantly lower.
4.40Mr Benjamin Nobbs, a Norfolk Islander, argued that the local GST in place under self-government was ‘paid by all residents’, and ‘proved to be a fair and equitable method of raising revenue’. The CoE also supported the reinstatement of a local GST as a ‘far better’ option.
4.41The No Land Rates Group was supportive of the concept of a consumption tax replacing both land rates and waste management charges, relating it to the perceived need to move past a user pays system for waste processing and removal. According to the No Land Rates Group, a user pays system encourages illicit dumping, and moving towards a GSL (provides a more equitable and viable solution to collecting revenue. Ms Cherie Nobbs also raised the possibility of a 10 per cent Norfolk Island levy, to apply to both residents and visitors.
4.42Conversely, the BCNI did not support the application of a local GSL or GST, as ‘it was really nothing more than a sales tax dressed up as a GST’.
4.43DITRDCA advised the Committee that the Australian GST does not extend to Norfolk Island, consistent with the arrangements applying in Australia’s other external territories. It identified the following concerns with applying GST to Norfolk Island:
- the cost of administering the scheme for government;
- increased administration costs and complexity for local businesses;
- increases to the cost of living on the island; and
- that such an arrangement would be inconsistent with other external territories.
- DITRDCA did note however that in 2020 a consultancy report had raised the possibility of applying a GST again.
- Mr Colreavy told the Committee that other revenue mechanisms were not available to the NIRC, and that it was unable to ‘consider things other than fees and charges and property-based rates’, despite the dissatisfaction they cause. As discussed above, the current legislative framework does not provide for the application of a GST by the NIRC, and enacting a GST would require either legislative change or action by the Australian Government.
Import duty
4.46Mr Ron Ward suggested the application of a duty on all imported items to Norfolk Island. According to Mr Ward:
As most goods are manifested on freight carrying aircraft or ocean-based vessels this can be achieved at a relatively low cost to administer. This system is less favoured by retailers as they are required to pay up front for their imports irrespective of how long the stock takes to sell on.
4.47Similarly, Ms Alma Davidson argued that a customs duty on all private imports should be applied alongside a GST, as it would ‘ensure all residents and visitors to the island are contributing’ to the cost of services, rather than just landholders.
4.48Another submitter linked the import levy concept to encouraging a more circular economy by proposing a waste importation levy. According to their submission:
…consideration needs to be given to the volume of house-hold goods etc ordered through the mail from the likes of Amazon and Catch, which currently do not have this levy applied, as any increase in the levy could further disincentivise buying local. The waste importation levy should remain, and consideration could be given to increasing it and/or improving its equitable application.
Tourism levy
4.49The idea of a tourism levy, given the reliance of the Norfolk Island economy on tourism, was raised as a potentially problematic source of revenue for any governing body on Norfolk Island. The BCNI urged caution about applying a tourism levy. It argues that ‘trying to tax the visitor too much’ is ‘likely to scare them off’. Taking such a step without first changing arrangements so that Norfolk Island was no longer considered an international destination—which would reduce flight costs by as much as $100—should be approached with caution.
4.50Similarly, the ATA noted that the application of a tourism levy on air travel to Norfolk Island has to consider the price elasticity of demand. This metric ‘measures how sensitive tourists are to changes in prices of tourism-related goods and services’, and is estimated as meaning that a 10 per cent increase in price would lead to a six to eight per cent decrease in demand in relation to international tourism. The ATA urged caution in applying any form of levy to air travel to Norfolk Island despite its perceived efficiency, due to the risk of reducing demand for tourism.
Other revenue sources
4.51Several other alternative revenue sources were shared by stakeholders. These included sharing proceeds from the Norfolk Island Exclusive Economic Zone (EEZ), a sustainability levy, defence facilities, tourism industry development, alternative land tax arrangements, and a refugee processing facility.
4.52The ATA put forward a proposal for a sustainability levy. It envisaged the application of a levy on 0.5 per cent on all goods and services to yield roughly $4 million per annum. As a broad-based consumption tax, this would spread the burden widely and ‘also captures a portion of the tourist spend’. However, some issues with the proposal have been identified. For example:
- the collection costs and industry overheads are high;
- it is regressive and ‘unrelated to income levels’;
- it is inflationary; and
- without proper safeguards the ease of raising it risks ‘destabilising the tourism industry’.
- The possibility of siting a defence base on Norfolk Island was highlighted as a potential economic benefit to the community. According to the ATA, this idea has been raised by the Australian Government in the past:
The 1998-99 Australian Cabinet documents revealed that the Federal Government recognised the strategic value of Norfolk Island in its sphere of influence in the South Pacific Ocean. Establishing an Australian defence force base on Norfolk Island would bring economic value to the island and reinforce Australia’s strategic interest.
4.54Mr Alistair Innes-Walker also noted the possibility of siting defence facilities on Norfolk Island, however, he acknowledged this would require ‘significant start-up capital’ and the costs of doing so on Norfolk Island would be much higher than in Australia.
4.55In addition, Mr Innes-Walker argued that a temporary refugee processing facility, data centres, medical marijuana cultivation and developing the tourism industry would all offer new opportunities for revenue sources.In regard to developing tourism, Mr Innes-Walker told the Committee that:
Some preliminary planning work has been done on what it would take to build a connected bike track network on Island but again moving from planning to implementation is costly and NIRC does not appear to have the funding for this. Bike/walking tracks would also potentially encourage a younger and more cashed up visitor to come to the Island and allow Norfolk to take advantage of this fast growing and dynamic tourism sector.
4.56The ATA noted the example of the Falkland Islands, a United Kingdom territory, which ‘derives approximately 50 per cent of its revenue from fishing licences’. According to the ATA, exploring the possibility of mineral explorations licences and royalties for the Norfolk Island EEZ presents another revenue opportunity.
4.57As an alternative to land rates, one submitter who requested their name be withheld proposed a vacant property tax. According to this submitter:
A significant number of property purchases in recent years have been by those with a primary place of residence elsewhere who are seeking to buy a holiday home on Norfolk Island. As a result, this established dwelling is vacant for much of the year and frequently unavailable to the rental market, and as such, the result is fewer residents on Norfolk Island contributing to the community or its economy.
4.58This submitter noted that, in other jurisdictions, charging a fee to such property owners acts as an attempt to remedy the effects of owning vacant property. They proposed the introduction of a vacant residential property tax on Norfolk Island as soon as possible.
Committee comment
4.59The pandemic, post-pandemic inflation, and increasing interest rates appear to have had a disproportionate impact on the Norfolk Island community, as they have on many Australians communities. Any steps towards establishing a long-term approach to revenue collection on Norfolk Island needs to take this financial distress, and the financial capacity of the community, into account.
4.60As raised extensively in evidence, for a portion of the Norfolk Island community, land rates are deeply unpopular and carry the potential to be disruptive to the culture, lifestyle, and economy that has developed since their early ancestors settled on Pitcairn Island. The cultural arguments raised regarding the connection that Pitcairn descendants have to their ancestral lands, and the desire to pass this land on to their own descendants, is deeply felt on Norfolk Island and was clear to the Committee. While cultural perspectives differ, the problem it leads to is familiar to many Australians who face similar dilemmas regarding their children ’s inheritance of land. The Committee recognises that for Norfolk Islanders, the impact of the loss of family land, and the resultant loss of place in Norfolk Island society, may lead to a more drastic form of social dislocation than would usually be seen in Australia more generally. The Committee understands that opposition to land rates is not derived from any local reticence for citizens to pay their own way as much as possible. This is demonstrated by local revenue sources used during the period of self-government. It appears that all the component parts of the Norfolk Island community—Pitcairn descendants and more recent arrivals alike—are willing to pay their fair share to ensure that Norfolk Island continues to receive the appropriate levels of services and infrastructure.
4.61The basis for the argument against land rates is that in the Norfolk Island context it is inequitable. In particular it asks for contributions that some landowners would be unable to pay, which would force them to divest land and sever the connection between land and family for future generations. Whereas in Australia, the ownership of land is generally associated with wealth—the more land they own, the more wealth a person is considered to have—on Norfolk Island the connection between land ownership and wealth is not so closely linked.
4.62Suggestions that exemptions to land rates be considered on the basis of ancestry are, however, not appropriate. The creation of a class of resident that is exempt from the requirements placed on their fellow citizens as essentially a birthright is deeply inequitable and would ultimately be detrimental to any society or community. Such an approach would only deepen the existing social divides on Norfolk Island, further entrenching the divisions between parts of the Pitcairn descendant community and other parts of the Norfolk Island community.
4.63There is a strong argument in favour of levying land rates on the basis of land usage. The construction of a land rates model which apportions higher rates to land subject to productive use—be it rental properties, agriculture, tourism, or other forms of business—would be appropriate. However, this capacity to pay land rates requires some effort to establish an effective capacity to pay on the part of Norfolk Island businesses.
4.64The Committee notes that prior to the implementation of land rates, and their subsequent increase, no comprehensive assessment of household income and expenditure was undertaken. The introduction and increase to land rates was predicated on the basis of the financial requirements of service provision by the NIRC. Given this, before the final settlement of matters relating to future land tax arrangements, two key steps are required. The first is a comprehensive assessment of the capacity of the community to pay whatever form of revenue is ultimately adopted by any new governing body.
4.65The second required step is a comprehensive consultation and co-design process that incorporates the views of all sectors of the Norfolk Island population. It is noteworthy that this inquiry did not hear from a broader section of the Norfolk Island population, with more recent residents being particularly underrepresented in the evidence. Opportunities for those residents to participate in a consultative process is necessary and important.
4.66From the evidence received, it appears that land rates are of limited utility in the long term, as they have never formed a large portion of the revenue raised by the NIRC. While reforming the governance arrangements on Norfolk Island, there is an opportunity to also reform the revenue base of any future local governing body to include a range of measures that spread the tax base across the community more widely, measures which include tourists in this revenue base, and measures that provide a greater quantum of funding for the governing body.
4.67The recent formation of the Norfolk Island Governance Committee presents an opportunity to conduct deeper consideration of how the various proposals can contribute to the future revenue base on Norfolk Island, and the legislative changes required to give effect to these revenue opportunities.