Government to force councils to cap rate rises

MANAGING shire budgets is expected to become even more challenging, with the announcement that the Andrews Labor government will be implementing a cap on rate rises in line with the Consumer Price Index (CPI), commencing with the 2016-17 financial year.

The Minister for Local Government, Natalie Hutchins, recently wrote to local government authorities to advise them of the government’s plans to implement an ALP policy announced in the months leading up to last year’s state election.

Councils will be forced to cap their rates at CPI and justify any further increases. Councils wishing to raise their rates above CPI will have to appeal to the independent Essential Services Commission (ESC) and justify any rate increases. The ESC will determine whether rate increases are fair, taking into account:

• Any extraordinary circumstances (e.g. natural disasters, new functions);
• Other sources of income available to the council and their overall financial position;
• The continued maintenance of essential council services.
• If the ESC believes the rate rise is unreasonable, it will recommend to the Minister for Local Government that the increase be blocked.

The minister warned councils against raising rates above inflation prior to the implementation of the rates cap.

“Unnecessary rate rises in 2015-16 may affect your eligibility for future rate cap exemptions,” she advised.  

South Gippsland Shire Council CEO Tim Tamlin said he does not believe Council will raise rates substantially in 2015-16 to compensate.

“Council is well in advance of preparing our budget and we have been proactive with our community engagement since October 2014,” he said. ”Council has been working with the community to seek ways to reduce the increases in rate rises, while balancing the needs of the community, and it is still committed to do so.”

South Gippsland Shire Council supported the Municipal Association of Victoria’s motion – the vote was unanimous – to oppose the proposed rate capping policy at the MAV State Council Meeting in May 2014. 

At the time the MAV claimed that rate capping in Victoria in the 1990s resulted in councils deferring spending on capital programs such as roads maintenance and renewal and that this led to faster deterioration of roads and other assets and consequently imposed higher costs on future generations of ratepayers to renew and upgrade under-maintained community infrastructure.

However, said Mr Tamlin, the new government has made clear its intention to implement this core election promise. “We now have to focus on achieving the best outcome for the South Gippsland community, who rely on over 120 local services and infrastructure that we deliver.”

He said the rates rise cap has been discussed at both councillor and executive level and will be a key part of discussions over the next 12 to 18 months as Council prepares the longer term financial plan and future budgets.

Mr Tamlin warned: “Ultimately, rural councils like South Gippsland will find it the most challenging to reach these targets. We have a smaller rate base and are already under enormous pressure to maintain low rate rises and deliver the broad range of services. Things that need to be taken into account that place pressure on the CPI target include managing the real CPI figures for infrastructure costs, which are higher than CPI, the Federal budget cuts to core local government grants and cost shifting to local government.

“Each municipality is different – its community may be young or old, established or still developing, rural or urban, and its population may vary from fewer than 3,100 people to more than 281,000.  Each council collects rates from property owners in its municipality to help fund its local community infrastructure and service obligations.

“Rural council budgets average $49 million (the smallest is $8 million), while metropolitan council budgets average $150 million (the largest is $360 million).

“In summary, there is more infrastructure and number of services to deliver as a ratio of population compared to higher populated metro councils. Rural councils such as ours usually have lower population and lower number of ratepayers compared to the metropolitan councils. I believe CPI rate capping will be a bigger challenge for councils such as South Gippsland because of this fact. Moreover, our council has more community infrastructure (length of roads, culverts, drains, bridges, transfer stations, halls, recreation reserves, swimming pools, etc.) per head of population compared to metro or larger regional councils.”

Ms Hutchins said she was sympathetic to smaller rural councils which did not have revenue streams from things like parking meters to provide some flexibility in their budgeting.

“I think with appropriate planning and consultation the system is going to work fine,” she said.

“What we’re concerned about and what we took to the election with our policy is our concerns around many councils putting their rates up at two and three times the rate of CPI without justification to the local community.”

Mr Tamlin said he hoped there would be scope for the government to take into account that South Gippsland has:

• A high level of ageing population;
• Greater environmental risks and issues to manage;
• More roads, drains, bridges, halls, transfer stations, libraries, swimming pools, parks and recreation reserves, etc. as a ratio of population/rate base;
• Low population density, which means lack of commercial and industrial centres compared to metro, lacking a regional centre, etc.
• High population dispersion – distance to access services and to connect people is much more difficult;
• Lower population growth;
• Lower economies of scale;
• Above average socio-economic disadvantage compared to the state;
• Higher tourism visitation which places pressure on infrastructure and services.

“One should always remember that these challenges come with being one of the most beautiful places in Victoria, not to mention Australia!” added Mr Tamlin.

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