Impact of Rate Capping on Service Provision

In Victoria, Council rates will be capped from mid-2016. In addition Councils will have to justify any increases above the inflation rate.

“[T]his should not be seen as an opportunity to raise rates above inflation prior to the implementation of the rates cap … Unnecessary rate rises in 2015-16 may affect your eligibility for future rate cap exemptions,” she warned.  ”However, the public’s support for our election commitment is a clear message that they expect councils to provide […] services while keeping rates at an affordable level.”

Councils must now send their budgets to the Essential Services Commission for permission to raise rates above inflation under Labor’s new policy….

The current rate cap in NSW and a previous cap in Victoria had “devastating long term consequences, including a reduction in capital spending on necessary maintenance and assets”, such as roads, parks, sport facilities, footpaths and community centres, Mr McArthur said.

The Kennett government capped rates in 1995 after reducing the number of councils from 210 to 78 and forcing rates down by 20 per cent. It then imposed a cap of one percentage point below inflation, which was running at 1.5 per cent in 1996. The cap was lifted in 1997 to allow increases of up to 3 per cent – with Ministerial approval – to help councils raise money to fund pension obligations. In 1999 the Bracks government scrapped the cap altogether.”1

So what could this mean for Local Government in Victoria? The pressure on Councils will be to provide sustainable services whilst maintaining the condition of the infrastructure. The future cost to Councils and the impact on their long term financial plans could be horrendous. One can only surmise the total impacts however a likely scenario could be to remove services that were previously implemented through grants that are no longer available and to focus on the essential services. So the decision becomes which are the important services.

The Australian Nursery and Midwifery Association Victorian Branch2 is an example of one association already putting their case forward for maintaining services.

“ANMF (Vic Branch) is cognisant of cost of living pressures faced by our members and is therefore broadly supportive of objectives within the Local Government – Rates Capping and Variation Framework (the Framework) Terms of Reference to ensure greater accountability and transparency in local government budgeting and service delivery….”

It is imperative that the Framework:

  • Ensures funding is quarantined to implement the Victorian MCH Service Framework as stipulated by State Government and as detailed in Maternal and Child Health Service Guidelines (Department of Education and Early Childhood Development, 2011) and other relevant Department of Education and Training MCH Service Guidelines and Standards
  • Contains mechanisms to ensure Local Government sets aside adequate funding to meet its obligations arising from within the Memorandum of Understanding between Department of Education and Early Childhood Development and Municipal Association of Victoria In relation to Maternal and Child Health Services July 2012 – June 2015
  • Contains incentives for Local Government to continue to allocate funding to implement additional important public health initiatives such as opportunistic immunisations provided by MCH nurses
  • Contains measures to ensure that MCH and Immunisation Nurses continue to provide Immunisation Services within Local Government. This is an essential public health measure required by the State Government
  • Does not lead to an erosion or disparity of wages and conditions of employment, or loss of employment opportunities for council employees when Local Government is required to renegotiate new enterprise agreements with the unions”

This implies the importance of service plans will become even more important as Councils have to make decisions on the future funding of services.