On rate capping, lessons from across the Tasman
That's the warning from experts in Victoria as Local Government Minister Simon Watts works on a plan to tackle soaring rate rises here.
Rate capping, or rate pegging, has been in force in New South Wales and Victoria for several years and is loosely based on the rate of inflation or the consumer price index.
Victoria's rate cap this year is set at 3 percent, while NSW has a wider range from 3.6 percent to 5.1 percent. In both states councils can apply for higher caps but the process is complicated and deeply controversial with ratepayers.
Watts is looking closely at the Australian model as a way to control runaway, double-digit increases, but Victoria Municipal Authority president Jennifer Anderson says that an across-the-board cap could damage councils that have kept rate increases down and reward those that have imposed hefty increases.
'Rate capping is here to stay. It does offer a sense of security to the community,' says Anderson.
It was brought in 10 years ago after outcry from ratepayers over years of big rate rises.
'The difficulty was [that] the base from which you've taken it will vary from different councils. So there may have been councils that were working off a low base because they hadn't put their rates up very much, versus some councils that may have had higher rates to begin with and more reserves when they brought it [rate capping] in,' she says.
It has meant that many smaller councils are now seriously underfunded because they had less money to start with.
Anderson says pegging it to the CPI or rate of inflation is also problematic.
'The difficulty for councils is we're not like a home base where it's a shopping basket of the cost of bread and eggs and milk.
'We've got many other costs that aren't based on CPI.'
Australian local body journalist Michael Giles agrees that ratepayers have embraced Victoria's Fair Go Rates scheme but there are unfair elements of it that the New Zealand Government should be aware of.
'These [New Zealand] councils that are increasing by 15 percent, that'll be locked in, so that any increases in following years of 2 and 3 percent, that just goes on top of those hefty increases that those local councils have brought in at the time,' he says.
Giles, the publisher of the South Gippsland Sentinel-Times in Wonthaggi, has covered local government for 40 years and says his capped rates bill does not cover everything. He also has to pay a waste levy and an emergency services levy.
That differs from the NSW rate peg formula which includes the emergency services levy and takes into account population growth in the council area.
Councils that have applied for variations on the caps or pegs have faced angry revolts from residents, including one Sydney authority where ratepayers rallied over an attempt to raise its rates by 40 percent over three years and another that voted to raise them by 87 percent over two years.
In Victoria, Anderson says the rules have also made it too difficult for councils to apply for variations to the cap.
'The mechanism through which it has been delivered and the difficulties that councils face when they need to apply for variation, there are things that could be approved there to make it a more workable system that the community can understand and it makes the councils more financially sustainable to provide the services that the communities expect them to provide.'
She says many councils in a funding crunch are starting to cancel services, such as aged care.
After 10 years of rate capping in Victoria, Giles says councils and ratepayers will start to feel the cumulative effect of lower rates incomes.
'I think we're coming to a squeeze point,' he says.
'The sorts of things communities want to see – sports facilities, swimming pools, other increases in lifestyle infrastructure – these things are getting further and further away from local councils to deliver because of that cost squeeze.'
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A move to cap council rates in the style of Australia could punish the councils that have worked hardest to keep their rates low. That's the warning from experts in Victoria as Local Government Minister Simon Watts works on a plan to tackle soaring rate rises here. Rate capping, or rate pegging, has been in force in New South Wales and Victoria for several years and is loosely based on the rate of inflation or the consumer price index. Victoria's rate cap this year is set at 3 percent, while NSW has a wider range from 3.6 percent to 5.1 percent. In both states councils can apply for higher caps but the process is complicated and deeply controversial with ratepayers. Watts is looking closely at the Australian model as a way to control runaway, double-digit increases, but Victoria Municipal Authority president Jennifer Anderson says that an across-the-board cap could damage councils that have kept rate increases down and reward those that have imposed hefty increases. 'Rate capping is here to stay. It does offer a sense of security to the community,' says Anderson. It was brought in 10 years ago after outcry from ratepayers over years of big rate rises. 'The difficulty was [that] the base from which you've taken it will vary from different councils. So there may have been councils that were working off a low base because they hadn't put their rates up very much, versus some councils that may have had higher rates to begin with and more reserves when they brought it [rate capping] in,' she says. It has meant that many smaller councils are now seriously underfunded because they had less money to start with. Anderson says pegging it to the CPI or rate of inflation is also problematic. 'The difficulty for councils is we're not like a home base where it's a shopping basket of the cost of bread and eggs and milk. 'We've got many other costs that aren't based on CPI.' Australian local body journalist Michael Giles agrees that ratepayers have embraced Victoria's Fair Go Rates scheme but there are unfair elements of it that the New Zealand Government should be aware of. 'These [New Zealand] councils that are increasing by 15 percent, that'll be locked in, so that any increases in following years of 2 and 3 percent, that just goes on top of those hefty increases that those local councils have brought in at the time,' he says. Giles, the publisher of the South Gippsland Sentinel-Times in Wonthaggi, has covered local government for 40 years and says his capped rates bill does not cover everything. He also has to pay a waste levy and an emergency services levy. That differs from the NSW rate peg formula which includes the emergency services levy and takes into account population growth in the council area. Councils that have applied for variations on the caps or pegs have faced angry revolts from residents, including one Sydney authority where ratepayers rallied over an attempt to raise its rates by 40 percent over three years and another that voted to raise them by 87 percent over two years. In Victoria, Anderson says the rules have also made it too difficult for councils to apply for variations to the cap. 'The mechanism through which it has been delivered and the difficulties that councils face when they need to apply for variation, there are things that could be approved there to make it a more workable system that the community can understand and it makes the councils more financially sustainable to provide the services that the communities expect them to provide.' She says many councils in a funding crunch are starting to cancel services, such as aged care. After 10 years of rate capping in Victoria, Giles says councils and ratepayers will start to feel the cumulative effect of lower rates incomes. 'I think we're coming to a squeeze point,' he says. 'The sorts of things communities want to see – sports facilities, swimming pools, other increases in lifestyle infrastructure – these things are getting further and further away from local councils to deliver because of that cost squeeze.' Check out how to listen to and follow The Detail here. You can also stay up-to-date by liking us on Facebook or following us on Twitter.
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