Municipal Association of Victoria calls for review of legislated rate rise cap

Local governments are feeling the pressure of rising costs across their services. Should they be able to set their own rates to make up for new expenses?

A Victorian body representing the state’s local governments is calling for the Andrews government to review its legislated cap on rate rises as cash-strapped councils are hit by rising costs in transport, construction, and interest rates.

The call comes as more than half of all Victorian councils budget for deficits in the 2022-23 financial year.

But a ratepayers association opposes the idea of giving councils independence in setting rates because of the burden it could impose on elderly, poor, or otherwise vulnerable ratepayers.

Local governments across the state are exploring ways to generate more revenue while abiding by the mandated rate rise cap of 1.75 per cent.

The City of Melbourne and the City of Greater Geelong are looking at selling property to alleviate recent income loss.

Geelong’s customer and corporate services acting director Karen Olesnicky said Covid restrictions reduced revenue from cultural and sports venues, parking, and the council’s events program.

“Like all organisations and businesses, the city is dealing with inflationary pressures across its service areas,” she said.

“The costs of maintaining our services and delivering our community funding is expected to rise by almost eight per cent this year.

“Four properties that do not need to be under community ownership are set to be sold this year, which will help us cut our borrowing levels and bring forward investment in priority projects.”

Covid dealt a $120m blow to the City of Melbourne over two years for similar reasons.

It too is looking at selling four properties in Carlton, Kensington, and the CBD to boost revenue.

And it was a similar story in the City of Monash, where, according to mayor Stuart James, fuel for the council’s fleet was costing 34 per cent more than in mid-2020.

“Costs of construction, waste management, and other services have escalated well in excess of 1.75 per cent,” he said.

“Where expenses growth outstrips revenue growth, simply maintaining the status quo will see services and resources eventually reach breaking point.

“An annual percentage cap rise on rates means that the rich get richer, while the poor get poorer, and as the lowest rating council, Monash falls further behind financially compared to other councils.”

Other councils contacted said Covid had not had a material effect on their budgets, but inflation and interest rates posed a threat to plans made earlier in the year.

City of Ballarat corporate services director John Hausler said the regional council had not yet been forced to make any major decisions to cut spending or raise costs, but the city’s budget would nevertheless need to be regularly re-assessed.

“We have a number of borrowings that were planned for this year that we haven’t taken out yet, but when we do take those borrowings out, they will come at a higher rate than what we initially projected,” he said.

“The challenge with the rate cap at the moment is probably around the timing of when it’s been set: the rate cap was set over six months ago when there were different levels of inflation within the economy, and now six months later when we’re starting to deliver outcomes, deliver projects, inflation’s a lot higher than what it was assumed when they set the rate cap.

“We expect that through our review processes that we do of the budget throughout the year, we might see a number of inflationary pressures, because 1.75’s probably nowhere near what inflation is at the moment.”

Municipal Association of Victoria president David Clark said, especially in the past two years, the rate cap had not kept pace with council costs.

“In 2016-17 just 23 per cent of councils budgeted for an underlying deficit,” he said.

“That number has jumped to 58 per cent for 2022-23, highlighting the far-reaching impact of the pandemic on council finances.”

Cr Clark called for a review of the rate cap, with the goal of “restoring financial independence for local governments, in order that they can deliver on local community needs and aspirations.”

The Geelong and Monash councils supported such a review or similar reform.

Victorian Ratepayers and Residents Association secretary Joan Kelson said she would “definitely be opposed” to allowing councils to set their own rate rises.

She said councils should stick to foundational local government responsibilities, such as roads, rubbish, and rates, and not needlessly spend money elsewhere, to lessen financial strains.

“Many councils failed to provide any relief to ratepayers during the Covid lockdowns and should have had a rate freeze,” Ms Kelson said.

“With the increasing interest rate charges, many are going to be doing it very tough and increases need to be kept as low as possible.”

Last week, 10 rural cities launched a joint election platform urging the state government to invest more in Victoria’s regional areas.

The Regional Cities Victoria group, comprising Mildura, Ballarat, Bendigo, Geelong, Horsham, Latrobe, Shepparton, Wangaratta, Warrnambool, and Wodonga is seeking, among other priorities, a ‘regional spend guarantee’, ensuring at least 20 per cent of public agency and government entity investments are regionally-based.

Mildura Rural City Council deputy mayor Jason Modica said: “For too long we’ve seen regional Victorian councils needing to shoulder what I believe to be an unfair burden to fund the critical services and facilities our community needs and deserves.”

A state government spokeswoman said the rate cap was introduced to “help limit uncontrolled rate hikes and reduce cost-of-living pressures for Victorians”.

The rate cap system is reviewed every four years and will next be reviewed in 2025.

In September 2021, the state government engaged Grosvenor Performance Group to independently review it, and is considering the consequent report, which will be released by the end of the year.