Rate rise cap pushes councils to crimp services, cut jobs, report says

A report from a progressive think tank has found that the Victorian government’s policy of capping rate increases has cost almost 5000 local government jobs over the past five years and forced councils to look to fines and other fees to replace lost revenue.

The Australian Institute’s Centre for Future Work report also claims that the cap has wiped as much as $890 million from the state’s GDP and reduced the quality of council services across the state.

The cap on rate increases has hit the bottom line at town halls across Victoria.Credit: Justin McManus

The Andrews government capped the increases local governments could impose on ratepayers in 2016, tying hikes to the consumer price index, rather than being set at councils’ discretion, in a bid to force them to run more efficiently. Rates on property are the largest single source of revenue to local governments in Victoria, equalling almost half of total revenue in 2019-2020.

The report, commissioned by the Australian Services Union, found revenue from other sources, including user fines, fees and charges, had grown by more than 6 per cent each year since the cap was introduced. That growth is more than twice as fast as it was before 2016.

“Local governments have been pushed to replace foregone rates with more costly and less fair revenue sources,” said the report’s author, economist Dan Nahum.

“Rates [are] essentially a wealth tax. [Revenue sources] like fees and charges and fines and, and so on, [have] no respect for your level of welfare, no respect for your level of income.”

The report shows that overall local government wage costs per Victorian have flatlined since the cap came into effect. While Victoria’s population grew by more than 20 per cent from 2010-11 to 2019-20, local government employment fell by 5.3 per cent.

The report says that if local authority revenue had continued to grow at the rate it had been without the rate cap, 4900 more council workers would be employed. Adding private jobs created by the wages of those workers, the number increases to 7425.

“It’s less workers, it’s less wages overall,” Mr Nahum said. “There’s a shift towards part-time and casual work. Essentially, we’re talking about a larger caseload for each … local government worker.”

The union reports the council services most impacted are childcare and home and aged care.

Mr Nahum said the situation would worsen with each year if the policy was continued.

The report also argues that rate capping will hinder COVID-19 recovery at a time when stimulus projects are being used to boost the economy.

“Rates caps tie growth in rates revenue to economic indexes that contract when the economy contracts,” Mr Nahum said.

“Local governments under current rate policy are actually more restricted during times of economic crisis than they are in normal times.

Childcare worker Carol Wockner says she has seen the impact of the rate cap firsthand after one of the council-run centres she worked at was closed down in 2017.

Childcare Carol Wockner fears losing her job as councils are forced to cut services due to the Victorian Government’s rate cap.Credit: Justine McManus

“Council, because of rate capping, has felt like they’ve had to cut back on services,” she said.

“I feel like my job is under threat. It’s not necessarily because my council wants to close our centres, but they feel like they’ve got to rationalise everything.

“Their hands are tied behind their back because at the same time they’ve got this pressure to be a business rather than a public service.”

Ms Wockner, who has been a child educator for 20 years, the last 10 at council-run centres, said childcare was a target as councils could instead rely on private-run centres.

The council she works for, which The Age has chosen not to name to protect Ms Wockner, has shut down three services in a decade.

Municipal Association of Victoria president David Clark said the cap was constraining the capacity for councils to fund crucial local infrastructure and community services.

“Year-on-year, the cap imposes significant limits on flexibility for councils to fund major asset renewal projects, particularly where capital may need to be consolidated to take advantage of grant programs from different levels of government,” he said.

Ratepayers Victoria declined to comment before the report was released.

The association has previously argued that councils should prioritise freezing or cutting rates over non-essential capital works projects as the state recovers from the pandemic.

“We live in times of severe financial distress for many businesses and residents who simply don’t know how they will make their rates payments,” former president Dean Hurlston said.

Port Phillip Council recently laid part of the blame for its closure of leading independent arts organisations, including Red Stitch and Theatre Works, on financial pressures caused by rate capping.

Meanwhile, Moonee Valley’s draft 10-year financial plan predicts the council will be insolvent in two years due to rate capping.

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. The cap was lifted in 1997 to allow increases of up to 3 per cent - with ministerial approval – and in 1999 the Bracks government scrapped the cap altogether.

A spokesperson from the Department of Jobs, Precincts and Regions said the capped rates system was designed to reduce cost of living pressures.

“It was introduced to limit uncontrolled rate hikes and in 2021-22 the rate cap was the lowest it has been since it was introduced in 2016,” the spokesperson said in a statement.

Councils individually set rates for their municipalities every year through their annual budget process. These are based on property values, as set by the State Government under the supervision of the Victorian Valuer General.

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