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LGA Rate Capping FAQ

Local Government Association of South Australia Rate Capping FAQ

Rate capping is an externally imposed maximum percentage that a council’s total rates revenue may increase from one financial year to the next.

There is considerable evidence in NSW, the only state where rate capping has been in place for many years, to show that rate capping has resulted in significantly higher council fees and charges, and decaying infrastructure as maintenance levels decline and costs are shifted onto future generations.

About 70% of funding for South Australian council services comes from the only tax councils are allowed to collect – rates. The remaining 30% is made up of:

  • 3% Statutory charges
  • 9% User charges
  • 14% Grants and subsidies from the state and federal governments
  • 1% Investment income
  • 3% Reimbursements and other.

This revenue is used to provide many services to the community – some of which are legislated and others which are provided to meet community needs. Councils in South Australia operate under the Local Government Act 1999 and 67 other pieces of legislation.

Whether a service is a legislated requirement of councils or is provided by local choice, the Local Government Act 1999 requires that a council is “responsive to the needs, interests and aspirations of individuals and groups within its community” and that it must “seek to ensure that council resources are used fairly” (section 8(b) and (h)).

Sometimes council rates are compared with CPI. A CPI is a measure of the average change, over time, in the prices paid by households for a basket of goods and services in each capital city. The basket of goods includes items such as milk, bread, clothing and household furnishings.

Unlike households, councils spend a large proportion of their budgets on construction of roads, drains, environmental projects and footpaths, and salaries for staff providing services for the community. The prices for these items move in different ways to how average household prices move, and this is reflected in council budgets along with changes in standards of service and
infrastructure delivery.

Council rates have increased more than CPI primarily because the price of goods and services is only one component of council expenditure. Local government rates are set in response to various factors, not necessarily tied to consumer price inflation.

Other factors accounting for council rate increases include:

  • communities choosing more and better services
  • properly accounting for and maintaining important infrastructure
  • the impact of falling government grants and cost shifting
  • limits on other revenue sources including user pays fees, and
  • different issues in each council area such as repairing flood damaged roads or responding to other extreme events.

Applying and processing applications for rates increases above the rate cap (known as special rates variations) does not come without cost to both local and state government.

Research undertaken in NSW by the Independent Local Government Review Panel (the Panel) indicates that rate capping has been very costly relative to the benefits it delivers. Millions of dollars are spent each year by NSW councils and state agencies on preparing, reviewing and determining applications when the actual cost impact of the proposed rate increases on households would often have been no more than $1 per week. The Panel concluded that, as a result of rate capping, the financial sustainability of many councils in NSW - and their capacity to deliver the services that their communities need - had declined, and a significant number were near crisis point.

In 2016/17, the cost to Victorian taxpayers for the State to administer a rate capping system was around $3 million.

South Australian councils believe that this money is better spent on delivering services, infrastructure and jobs to our communities rather than filling out forms and ticking boxes.

They do. In fact, councils are legislatively required to consult with their communities on a range of matters. No other sphere of government is required to do this.

Each council in consultation with its community is required to develop publicly available plans, including long-term financial and infrastructure plans. These plans set the long-term objectives and priorities for the community. Councils also prepare Annual Business Plans, which includes income sources, infrastructure needs, service needs and what the council believes the community
can afford in rates. Unlike other levels of government, councils release their Annual Business Plan and budget for community consultation prior to being adopted.

This consultation influences the annual budget that is presented to council for consideration and adoption. The budget can only be set at councils meetings, which are open to the public.

Constituents are encouraged to not only participate during the Annual Business Plan consultation, which typically occurs around April/May, but throughout the year. Consultation helps councils to understand the services their communities need. All councils have a community consultation policy that guides how they will seek and consider the views of ratepayers and residents. Contact your council to ask them about their public consultation policy.

Wrong. Experience interstate has demonstrated that this is not actually the case. New South Wales councils have become increasingly dependent upon service fees and charges (eg parking fees, developer contributions, facilities rentals etc) which are not subject to rate capping. As a result, NSW residents actually pay more per capita to their councils than South Australian residents. In fact, South Australian councils have the lowest per capita revenue in the entire country.