Modest rate increase underlines need for rate cap review

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A modest increase in the rate cap announced today will at least avert the financial stress of the previous few years on Victorian councils. It is however short term relief and pressure will now be on The State Government to provide fair increases in its upcoming budget for the key services councils deliver on its behalf

The rate cap, announcement at 3.5 percent for 2023/24, will mean councils have some relief from the extreme financial challenge when it was previously set at 1.75 percent against an underlying inflation of 7 percent across the economy.

This modest increase has been welcomed, however the Municipal Association of Victoria (MAV), continues to call for an independent review of the way in which the cap is allocated.

MAV President Cr David Clark said an increase was the start of what is needed to help councils feeling the financial pain of the current inflationary environment, combined with staff shortages, and cost shifting from the State Government.

Key service areas like Maternal and Child Health (no funding increase since 2015), School Crossing Supervisors (modest increase for one year after no increase since 2016), and early years infrastructure (where the State Government has provided only 40 percent of the funding required for its proposed expansion) are key areas the local government sector will now pursue in the lead up to the 2023 state budget.

“Each year councils spend between 20-40 percent of their budgets on new infrastructure, be that roads, aquatic facilities, streetscapes, or playgrounds and parks,” Cr Clark said.

“In the current year costs for these works have escalated in the order of 35 percent, something the rate cap doesn’t deal with, hence the need for the review.”

“Further, the rate cap system treats all council’s as homogonous organisations, whether they have significant non-rate funding streams or not. For many councils, service delivery is tied almost exclusively to its rate income capacity,” Cr Clark said.

“This also requires review and flexibility to be applied.”

“Councils are not complex, they raise funds from the community and spend it all back in the community.  Less money over time means less services that we can provide,” Cr Clark concluded.