Rate Capping, is it an inevitability for SA Councils?

As our readers will be aware the issue of rate capping is a ‘hot topic’ for SA councils.

On 6 July last year the SA Economic and Finance Committee tabled its report Inquiry into Local Government Rate Capping Policies. The committee recommended, amongst other things, that the authority of councils to have control over their own financial affairs remain unchanged. That is, the Committee did not support the introduction of rate capping in South Australia.

Only one month before the report was released, the Liberal Party had failed to gain support of the lower house for a private members bill, the Local Government (Rate Increases) Amendment Bill which sought to introduce rate capping in South Australia.

Rate capping is a State Government imposed limit on the amount that a council may increase its rates in any financial year. Usually, the cap is represented as a percentage of permitted growth and is usually consistent with inflation. Given that councils, generally, increase the cost of rates each financial year in order to reflect not only inflation but also the growing cost of providing services as well as the implementation of projects and initiatives desirable in their area, the impact of rate capping has potentially serious consequences, particularly, in relation to infrastructure projects.

In New South Wales rate capping (or rate pegging as it is known) was introduced in 1976. When it was introduced in NSW the State Government suggested it would result in increased accountability and responsibility of councils and would give ratepayers confidence that rates would not be disproportionately raised. The rate peg in NSW is determined by the Independent Pricing and Regulatory Tribunal.

Following an inquiry conducted by the Essential Services Commission in Victoria, rate capping has been introduced for the first time from 1 July 2016 for the current financial year.

In Victoria, it is the Minister for Local Government who determines the rate cap in each financial year.

Rate capping was introduced in the United Kingdom under the Thatcher Conservative Government in 1984. It was originally introduced to impose a rate cap on fifteen identified councils which were considered to be unjustifiably increasing their rates each year.

While the rate capping policy in the UK remains in force, the Cameron Government in 2011 introduced a Council Tax Free Scheme whereby instead of a national government imposed upon councils, those councils which voluntarily freeze their rates are entitled to access a cash bonus scheme. Further, since 2013 the statutory scheme is such that where a council wishes to increase rates above the limit imposed by the national government, it is required to hold a referendum of constituents. No such referendum has yet been held.

The SA Liberal Party has vowed to take its policy position on rate capping to the 2018 state elections. Accordingly, whether or not rate capping is introduced in South Australia, only time will tell. However, it would be naive of SA councils to simply and without more, oppose rate capping without giving consideration to alternative strategies. There are various alternative strategies which councils can consider, develop and propose for the purpose of constructively entering into the debate about rate capping, a concept which clearly finds favour with the majority of ratepayers. In our view, councils should commence this debate now some twelve months before the next State elections in order to ensure a constructive and meaningful dialogue with the Liberal Party as a precautionary measure. For any council wishing to take this approach, we are available and willing to assist.

For further information please contact Michael Kelledy on 08 8113 7103 or mkelledy@kelledyjones.com.au.