The ability of Victoria’s councils to charge rates that reflect local factors will be considered as part of a wider review of the local government rating system.
Rates have been an ongoing issue for Victoria’s rural councils, some of which have been struggling to balance rising expenses with a rates cap, and are facing pushback from farmers who feel they are paying too much because of the size or value of their land.
Local Government minister Adem Somyurek says an independent panel led by former City of Melbourne CEO Kathy Alexander will conduct the $112 million review, designed to ensure Victoria’s 79 councils “are held accountable to ratepayers”.
The panel will consider a range of factors including local government rates, charges exemptions, discounts and concessions, as well as local government autonomy in applying them.
It will report back to the government in March 2020.
“This is about ensuring we have a rating system that is fair, equitable and effective for all Victorians,” Mr Somyurek said in a statement.
“The system we have now is complex and in need of review – we need a contemporary rating system that gives people a fair deal.”
Rates cap remains
Current rates cap, introduced in 2015, will remain and would be built upon, Mr Somyurek said.
Since coming into force in 2016-17 the Fair Go Rates system has limited the ability of councils to increase rates about the rate of inflation.
The system has improved the financial accountability of Victoria’s councils and made the rating system more equitable, efficient and progressive, the state government says.
“The Victorian Government is both committed to the financial sustainability of councils and ensuring that the burden of rates falls fairly amongst all ratepayers,” the review’s Terms of Reference say.
This will include looking at the autonomy of individual local governments to apply a rating system “in accordance with their own decision making circumstances,” the document says.
A new revenue mix
Tim Harrison, CEO of Ararat Rural Council, welcomed the review, saying smaller rural councils are faced with the challenge of maintaining infrastructure with a small population base.
“The capacity to raise revenue to a level where we can actually maintain our infrastructure network is a key issue that we face,” he told Government News.
He described the current rates system as “a defacto wealth tax” that was based on old ways of doing council business, but said the problem should be framed as a revenue issue, rather a rates issue.
“The bottom line is people in rural communities pay too much in rates compared to our city cousins,’ he said.
“There has to be a wider eye cast around revenue for local governments in rural towns rather than it just being a rates problem.
“We’re not going to solve it through rates because we can’t continually increase rates beyond the capacity of our people to pay. We’ve got to look at things like grants commission funding to help us meet that infrastructure gap.
“The rates cap is a moot point in many ways because we don’t have an infinite capacity to raise rates. We really need to look at equity issues between urban and rural Victoria that can only be dealt with by looking at the revenue mix.”
Inequities in the system
The review comes in response to the final report of the parliamentary inquiry into the Sustainability and Operational Challenges of Victoria’s Rural and Regional Councils tabled last March.
That report said inequities in the rating system had to be addressed, and found that “large rates increases were not an appropriate or practicable solution to councils’ financial challenges, but rate capping is not the solution by itself”.
It also recommended decreasing councils’ reliance on rates via the introduction of a State Government grants program. However, other sources of funding, including state and commonwealth grants, are out of the scope of the current review.
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Local governments need to live and operate within their means, and, should be answerable to rate-payers at a much more granular level.
The start point for being able to maintain infrastructure is to ensure that the infrastructure is right-sized. Once-off infrastructure grants and spending on un-necessary traffic lights, signs, lighting, and roadworks come with a maintenance cost – these ‘assets’ don’t produce income.
Sources of revenue beyond rates sounds like code, e.g., for flogging off public land and reserves for housing .
One step in the right direction would be to legislate for full transparency of local government accounts.
Hi Adam I agree with you on transparency issues but lets not apply it to Local Government alone. How about Federal and State Governments as well. Have all Government Accounts plastered all over all media formats particularly at election times and when budgets are set. After all they are all agencies of the people looking after the money of the people.
You should know Adam that having worked at Local and State Government Level for the past 50 years I can tell you that of these two levels local government delivers the best value for the dollar and has the most accountable reportable transparent structure in place ( at least here in Victoria ) and do live within their means to the absolute best they can with what they get. Sure there is disparities that need to be addressed as you so rightly said but be careful, this story sounds like the beginnings of a takeover over Local Government finances by the State and therefore the end of Local Government as we know it. Remember Local Government does not have Constitutional recognition and operates only under licence from State Governments
Are we all missing the point re Property Rates,Property Rates based on potential use of property is a broken and unfair system, add to this cheap money from the big banks property speculation and negative gearing have created FICTIONAL house prices resulting in doubling property rates in less than ten years, those on fixed incomes, pensioners and others have lost the ability to pay, forcing some from their homes.
Long standing residents through their rates have in most cases built municipalities to the standard we see today yet the are punished the most.
Hi Jerry. I agree with you that there have been many outside influences that have created unrealistic property prices in particular in the last 5 – 10 years which thankfully are in the process of returning to more normal levels thanks to the Royal Commission and other interventions made. As has been experienced in the past 100 years people though have been experiencing capital gains on there properties including farming properties and investor properties and business properties and nothing has been said in the past ( apart from a few grumbles) about valuations or rate rises.
Like I said to Adam there are inequities that can be addressed and should be but what would you like to bring in instead of rates by property value – land tax on everyone by charging so much per square metre of their property. Pensioners and other low income families could have a land tax rebate granted on a sliding scale to offset the costs. The possibilities are endless .To get the right mix is the tricky part.
The talk about rate reviews seems to ignore the most obvious question, that of the way property values are determined. What value should apply, the price paid for the property or the price you actually get should you decide to sell?
I would like to talk about my experience in a loan-lease retirement village where, based on operator figures the impact of deferred management fees, capital gains sharing and refurbishment costs, a $488,000 loan-lease up-front payment is expected to return a little over $400,000 after 10 years. This despite an operator estimated value in excess of $700,000!!
Contrast this to our freehold house, the capital gain would have been 100% ours (or our estate) and there would have been no mandated refurbishment requirement.
In regard to Council Rates. Residents are solely responsible for council rates based on the value as determined by the valuing authority with no consideration for the actual value to the resident. Guidelines issued by the Valuer Generals Department in respect of retirement villages provide for such consideration if the villa is freehold but not if it is leasehold.
A handful of Victorian Councils utilising the CIV method have declared a discounted rate using the differential rate mechanism. Those who don’t, fail to recognise the savings to council where residents cover all infrastructure costs through monthly fees, often citing aged “expensive” care services provided by council. Services all aged residents in the municipality can access.