Victoria’s cap in local government rates is costing the Victorian government thousands of council jobs and indirect employment, a think tank says.
A new report by left-leaning Australia Institute has found the cap had cost the Victorian economy between 2175 and 7425 jobs in 2021-22, and reduced GDP by up to $890 million.
Almost half of the $11.7 billion in revenue to local councils in 2019-20 stemmed from property rates, but the Victorian government sets a rating cap each year.
The Australia Institute points out that because the cap is tied to inflation, the ability for councils to hike up rates slows when the economy is weak, with the think tank arguing that this acts as a “brake” on recovery.
“Rate caps are an arbitrary policy which ties growth in overall rates revenue to price indexes which have nothing to do with demand for services or democratic accountability,” Australia Institute economist Dan Nahum said.
“There is no evidence that rate caps makes local councils ‘more efficient’. Instead, it simply takes money out of much-needed council services and robs local communities of employment opportunities.”
Victorian councils directly employ about 50,000 people, the report says, with the workforce shrinking by at least 3000 staff in the past nine years.
The report also highlights that every 10 jobs in the Victorian local government sector support four jobs in private businesses.
Nahum, who is calling for the government to abolish its rate caps policy, says the limitations lack a “good economic reason”.
“Rate caps compromise service delivery, negatively impact employment and wages amongst residents employed in the local government sector, result in higher fees collected through other revenue tools, and reduce local government expenditures flowing back into the private sector,” he said.
The Essential Services Commission most recently set the cap at 1.5% – the lowest it has been since it was introduced in 2016.
Local governments have opportunities to apply to the Essential Services Commission to exceed the cap if budget limitations require, and can also set rates below the cap during budgeting processes.