By Lucy Battersby
Council rates will be capped next year with the state government forcing councils to justify any increases above the rate of inflation.
The new Minister for Local Government, Natalie Hutchins, wrote to mayors and chief executives last week advising the cap would be introduced before the start of the 2016-17 financial year.
Source: Municipal Association of Victoria
"[T]his should not be seen as an opportunity to raise 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 warned. "However, the public's support for our election commitment is a clear message that they expect councils to provide [...] services while keeping rates at an affordable level."
Councils must now send their budgets to the Essential Services Commission for permission to raise rates above inflation under Labor's new policy.
Inflation - as measured through the consumer price index [CPI] - was currently running at 2.3 per cent. Last financial year rates increased by an average of 4.23 per cent, to an average assessment of $1725.
However, president of the Municipal Association of Victoria, Bill McArthur, disagreed with the government's decision to peg rates to the CPI, saying the costs of running a household were irrelevant to council's costs. He also noted the federal government had cut funding to Victorian councils by $124 million over three years.
"CPI is a measure of a common household basket of goods, they do not take into account construction costs ... It does not measure the cost of community services or construction," Mr McArthur said.
The MAV's taskforce has met the new government and wants to commission a "top tier consultancy" to create a cost index to "reinforce that CPI has no bearing on the changes to councils' underlying costs", Mr McArthur said. However, the MAV would work with the government "to achieve a sustainable outcome".
The current rate cap in NSW and a previous cap in Victoria had "devastating long term consequences, including a reduction in capital spending on necessary maintenance and assets", such as roads, parks, sport facilities, footpaths and community centres, Mr McArthur said.
The Kennett government capped rates in 1995 after reducing the number of councils from 210 to 78 and forcing rates down by 20 per cent. It then imposed a cap of one percentage point below inflation, which was running at 1.5 per cent in 1996. The cap was lifted in 1997 to allow increases of up to 3 per cent - with Ministerial approval - to help councils raise money to fund pension obligations. In 1999 the Bracks government scrapped the cap altogether.
Victorian Local Governance Association chief executive Andrew Hollows said state government interference in local government raised questions about democratic independence.
"We are not saying there should not be some moderation on rates, that is fair enough. [But] don't just look at rates, look at the whole picture," he said.