Rate cap sets benchmark for all in COVID recovery

Given the rate cap, it’s only right that every Victorian business and household seek to keep the increase in these state government-controlled levy charges capped to 1.75 per cent as well.

While council rates have been capped at an average 2.1 per cent per year since 2016, state government’s landfill levy (11.7 per cent) and the fire services levy (5.4 per cent) have both increased by significantly more over the same period.

In a time of COVID recovery, councils are conscious of their role to minimise financial imposts on families and businesses, while we play a leading part in the community’s recovery and supporting those most vulnerable.

However, since the introduction of the rate cap, additional ratepayer costs have actually been driven by these state government charges, levied through rates – rather than local governments.

The impact of ongoing rate capping is that councils around the state are now making serious decisions about service levels and resourcing for programs.

While operating costs continue to rise, the restraint on rates will likely only capture around 40 per cent of the upward cost pressures. In 2022/23, we anticipate staff wage pressures around 2.5 per cent, while materials and services are likely to escalate by 4-5 per cent in the coming year, as these are the trends playing out in the broader economy.

Many councils are facing a double hit of escalating cost pressures in the new financial year combined with major operating deficits in many councils for the last two years. This is particularly the case for those councils that operate significant community and leisure facilities.

With multiple cost pressures in mind, local government is stuck in a parallel universe on expectations. Completing deliberative engagements with our 79 diverse communities across the state, not one community has asked their council to do less.

The sector’s concerns were recently backed up by The Centre for Future Work study Putting a Cap on Community: The Economic and Social Consequences of Victoria’s Local Government Rate Caps Policy, which was released before the rate cap announcement in December.

The report describes the rate cap as “a one-size-fits-all, blunt instrument, which paid no heed to the budgetary positions of individual councils when it was introduced; and it has compounded any revenue shortfalls since.”

It calculates that “the rate caps have reduced employment in Victoria (counting both direct local government jobs, and indirect private sector positions) by up to 7425 jobs in 2021-22. They have also reduced GDP by up to $890 million in 2021-22.”

The Fair Go rating approach has no capacity to link into the aspirations of local communities for their councils, or to build council revenue to levels that reflect the needs and concerns of individual communities.  Instead, it uses irrelevant indicators like CPI to determine the rate. Costs for maintaining road networks, collecting rubbish and managing kindergartens don't increase at the same rate as groceries, rent or going to the movies.

MAV is calling for the state government to objectively review the rate cap and its implications, with the clear goal to restore financial independence for local government, in order that it can deliver on local community needs and aspirations.

For further information, contact the MAV Strategic Communications team on (03) 9667 5590.