What is rate capping?
In 2015, the Victorian Government introduced rate capping legislation in the form of its “Fair Go Rates System” (FGRS). The FGRS or rate capping introduces an annual rate cap set by the Minister for Local Government which controls general rate increases for all councils during that financial year.
On 22 December 2015, the Minister for Local Government, the Hon Natalie Hutchins MP, advised an annual rate for the 2016/17 financial year of 2.5 per cent. Councils can seek approval to raise an increase above this figure through a variation with the Essential Services Commission (ESC).
In response to State Government policy, the Victorian Local Governance Association (VLGA) developed twelve principles around rate capping to help guide the discussion. This document was informed by the advice and experiences of Victorians councils, complimented by our commissioned research and an analysis of practice locally and in other jurisdictions. The VLGA continues to support the underpinning principles put forward in this document as a guide to improving the Fair Go Rates System and providing a fairer, more sustainable fiscal framework for the local government sector.
How will rate capping impact local government?
Rate capping inhibits local government’s ability to deliver services to local communities and seeks to control democratically-elected councillors.
Similar policies carried out in the 1990s by the Kennett Government resulted in a significant cut in spending, especially for infrastructure maintenance and renewal. The current Government’s rate capping policy would likely see a widening of Victorian local government’s asset renewal gap, a focus of a recent Victorian Auditor-General report, and force local government to reconsider its role in the delivery of many community services.
What is a variation to the rate cap?
A large number of councillors have expressed a concern at their ability to manage community infrastructure and service delivery under rate capping; and question how to support growth which is better aligned to community expectation and their agreed Community Plan.
Councils have the option to seek a variation above the annual rate cap, through the ESC, to support vital community services and infrastructure.
There are many reasons councils may choose to seek a variation:
- Funding vital infrastructure
- Supporting community services
- Asset and infrastructure renewal
The VLGA will work with those that seek a variation.
In December 2015, the Essential Services Commission released its Fair Go Rates System (FGRS) Guidance for Councils (2016-17). The VLGA has provided fourteen key points from this report which are accompanied by a brief comment from the VLGA.
Councils have until 31 March to formally apply to the Essential Services Commission (ESC) with their application. The VLGA has provided a toolkit to assist councillors to review their application. This toolkit can be found through the VLGA Resource and Publication portal.
Key questions to consider
As Councils implement the 'Fair Go Rates System', the following questions may help inform their views and determine their course of action.
Some councils have recently undertaken service reviews or efficiency and effectiveness reviews. These have generally been completed by officers, although other councils such as the City of Greater Bendigo have appointed external, independent reviewers to provide advice to council.
- What has been done to inform the community about the possible impact of rate capping? Rate capping will be introduced for the 2016-17 council budgets. This means councils will have to make hard decisions about community services and facilities. Councils need to start talking to their communities now to make sure locals understand the pressures facing councils.
- Can we demonstrate that our community supports our major initiatives? Providing more opportunities for community members to give their input into councils budgets makes good business sense and is good politics. Better community engagement (not necessarily more) allows councils to better align budget decisions according to community needs and wants. Many councils are doing this now.
- How much does it cost council to administer state government services and regulations like statutory planning, environmental health and animal regulation? Cost shifting means that councils and ratepayers have to cover the expense of delivery services and regulations under direction from the State Government. Examples include when services are withdrawn or reduced by the state, asset liabilities are transferred or fees and charges set by the state are not indexed properly. Some councils are now working out what the true cost is per year.
- How much rates revenue will we lose if rates are capped at CPI? Many councils have now calculated how much rates revenue they will lose if rates are capped at CPI. A number of larger metropolitan councils have estimated that they will have a budget short fall of around $3million due to rate capping.
- How much will the withdrawal of financial assistance grants cost council? Cuts by the federal government to financial assistance grants have had a serious effect on councils forward planning. Understanding the full, ongoing impact of cuts to grants funding will be important for councils seeking to plan a way forward to construct their budgets in preparation for rate capping in 2016/17
The Victorian Local Governance Association's response
Following the State Government's decision to implement its rate capping policy, the VLGA conducted two Rate Capping Forums and established a Rates Variation Taskforce to help inform the debate and provide advice and advocacy within the local government sector.
Rate capping forums
Download a copy of the Presentation
Rates Variation Taskforce
The purpose of the Taskforce is to assist in the design of a practical framework which councils can use as a basis for an application for rate variation. The work of the Taskforce will also form the basis of recommendations to both the Minister and the Essential Services Commission (ESC). Our members have expressed concern that
- the process to seek a variation to the rate cap is unclear and this has created uncertainty in the sector
- the proposed variation process seems document heavy
- the proposed rate capping framework will impose yet further forms of compliance and regulation on councils.
Evidence Framework for Rate Cap Variations
Out of its discussions, the Taskforce has developed an “evidence framework” to support a rates variation. The framework is consistent with the criteria proposed by the ESC for a variation. It is constructed from the ESC’s suggested table of evidential requirements and cites the types of evidence required verbatim.
'The Fair Go Rates System' - A Quick Guide for Mayors and Councillors
Key issues in the final debate - 26 November 2015 (69.45 kb)
14 things to know about the guidance provided by the ESC on rate capping