Councils pitch flexible rates to tackle ‘alarming’ funding woes

Cash-strapped Victorian councils say they will be forced to let roads deteriorate, sell off assets and ditch aged care and kindergarten services unless the state government loosens its grip over how much they can increase rates.

The peak body for councils want​s to move to a “multi-year approach”, giving councils a rate cap over four years instead of one – and the ability to charge more in one year and less the next.

Local roads will deteriorate without a change to the status quo on council funding, a parliamentary inquiry has heard.Credit: Luis Enrique Ascui

Kat Panjari, the Municipal Association of Victoria’s director of strategic foresight and partnerships, said that without such changes local areas would be diminished.

“There will have to be those hard decisions made about what local government ceases to do. Councils don’t want to have to make those decisions, but they just won’t be able to fund those ongoing services that are so important to community – the libraries, the kindergartens,” she said.

Since 2016 the state government has set an annual cap on the amount local councils can increase rates.

Rate caps in Victoria since they were introduced in 2016

• 2016-2017: 2.5 per cent
• 2017-2018: 2 per cent
• 2018-2019: 2.25 per cent
• 2019-2020: 2.5 per cent
• 2020-2021: 2 per cent
• 2021-2022: 1.5 per cent
• 2022-2023: 1.75 per cent
• 2023-2024: 3.5 per cent
• 2024-2025: 2.75 per cent

The increases are set based on a forecast of the consumer price index, which measures inflation, to reduce pressures on household budgets. But local government bodies and councils have complained that actual inflation often easily surpasses the cap, leaving them struggling to keep up.

For the past four years, the annual rate cap for all local councils has been set at 1.5 per cent, 1.75 per cent, 3.5 per cent and 2.75 per cent.

Under the MAV proposal, if the cap were 10 per cent over four years, for example, a council might choose to keep rates on hold for two years, followed by increases of 5 per cent for the following two years.

​​​The proposal emerged on Wednesday at a Victorian parliamentary inquiry into the financial sustainability of councils.

MPs should be alarmed by the financial trajectory of councils in the state, the group Local Government Finance Professionals (FinPro) told the first day of hearings.

Most councils had an “adjusted underlying deficit” that was being compounded by state-imposed rate-capping and cost-shifting from state and federal governments, according to FinPro.

“It is not just in small rurals or large rural or regional cities. All council cohorts since 2016-17 have seen a deteriorating trend in [their] underlying surplus,” said FinPro president Bradley Thomas, who is also CEO of Hepburn Shire Council.

FinPro warned that maintenance of assets such as bridges and stormwater drains was slipping, and argued that rate-capping should not be set by CPI estimates, which are based on the price of consumer goods, but instead a “local government index” that took in the true cost of council expenses, such as skyrocketing construction costs.

But local government activist Dean Hurlston, from ratepayer group Council Watch, told the inquiry council costs were running up because the core services and responsibilities of local councils were not clearly defined in the Local Government Act.

“If you want to be funded to be everything to everyone, you will never have enough money,” he said.

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