Rate capping has had ‘limited impact on services’

By David Donaldson

May 24, 2019

State government-imposed limits on how quickly Victorian local councils can increase rates have had “limited impact on services to ratepayers”, says the agency that administers the policy.

A report by the Essential Services Commission, released Thursday, found annual growth in council rates per property has slowed significantly since rate capping was introduced on 1 July 2016.

Commission Chair Ron Ben-David says this first report on the outcomes of rate capping shows that on average, the increase in rates has halved compared to the three years before.

“Our analysis shows the growth in per property rates revenue has fallen from an average of 5.2% per year in the three years prior to rate capping to 2.4% in 2016-17 and 1.9% in 2017-18, roughly in line with the rate caps,” he said.

But while per property growth was down, population increase had meant total growth in revenue had remained relatively stable.

All of Victoria’s 79 councils are subject to rate caps. Each year, the minister for local government sets a cap on increases based on that period’s consumer price index and advice from the Essential Services Commission. For the 2019-20 financial year, council rate rises have been capped at 2.5%.

Councils can apply for a higher cap if they can demonstrate community support and a critical need for spending on services or projects that requires a rate rise above the cap. Applications are accepted or rejected by the ESC.

Councils have been concerned the rate-capping policy has led to under-investment in capital infrastructure and discretionary services. The ESC says spending on capital and services “has increased overall”.

“Asset-renewal expenditure increased in the first two years of rate capping, although it remained below the level of depreciation,” the report notes.

While some councils continue to run deficits or have high levels of debt, all are able “to meet their financial obligations and, in general, the financial health of the sector remained strong.”

Rate caps do not appear to have led to a notable increase in waste charges, which fall outside the cap, adds the commission.

And if you’re wondering why your rates went up more than expected: Ben-David says while rate capping has kept a lid on average rate rises, factors such as property revaluations meant nearly half of ratepayers had received bigger increases in 2016-17.

“Because rates are based on property values, increases in individual values that are comparatively higher than average will mean rate increases above the average.”

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