The peak body for NSW local councils has welcomed the Independent Pricing and Regulatory Tribunal’s (IPART) draft report on council rates but says the Tribunal is “fiddling around the edge” by leaving ratepegging untouched.

IPART released the draft report, Review of the Local Government Rating System, last week putting forward a number of suggestions on how to rejig the state’s council rates. These included letting councils set rates based on the capital improved value (CIV) of land, rather than its unimproved value (UV), reducing the number of rate exemptions and setting rates based on land use, not ownership.

Other recommendations including allowing councils to set different rates for different parts of their local government area, scrapping some pensioner concessions and deferring rates and introducing new rates categories, including some for environmental and vacant land, business and farmland.

Local Government NSW President Keith Rhoades said he was encouraged by the recommendations, particularly those around lifting rate exemptions for commercial and profit-making enterprises on what was currently categorised as unrateable land.

Rhoades said that another bright spot for councils was the ability to base council rates on the improved value of land, redressing the situation where unit and apartment owners paid relatively lower rates than housing owners.

“This flexibility has the potential to make it easier for councils to be more responsive to the service and infrastructure needs of residents and ratepayers, particularly as we look ahead to a significant increase in the density of many metropolitan areas,” Rhoades said.

But nowhere in the recommendations is there any mention of dumping the hated ratepegging regime, a system which has placed an annual cap on NSW local council’s rates since 1979 and forced councils to grovel for a special rates variations when they wish to exceed the cap.

Rhoades said: “I commend IPART for seeking to address the very real revenue issues facing local government, but it is unfortunate that the terms of reference under which they are operating only allows the Tribunal to make recommendations which fiddle around the edges of the problem.

“IPART Chair Dr Peter Boxall has made it clear that the draft recommendations are more about spreading the rate burden more equitably among ratepayers, rather than increasing the revenue councils need to deliver the infrastructure and services demanded by their communities.

“This does not address the core issue facing councils, which is how to fund the services and infrastructure communities’ demand while being squeezed at both ends by rising costs and capped revenue.”

Ratepegging is always a hot topic at every local government gathering, the recent LGNSW Finance Summit being no exception. Councils once again raised the system as being a significant revenue problem and called for it to be abandoned.

The NSW Local Government Independent Review Panel identified ratepegging as problematic in their 2013 Revitalising Local Government Report.

The Panel found that ratepegging in NSW had “significant unintended consequences” for the state’s local councils, which included setting up unrealistic expectations that rates should be contained indefinitely, despite rising expenditure; deep spending cuts leading to a mounting infrastructure backlog and councils being reluctant to apply for SRVs, even when necessary.

“The Panel’s conclusion is that, whilst there is certainly a case for improving efficiency and keeping rate increases to affordable levels, the rate-pegging system in its present form impacts adversely on sound financial management,” said the report.

“It creates unwarranted political difficulties for councils that really can and should raise rates above the peg to meet genuine expenditure needs and ensure their long-term sustainability.”

The panel instead suggested taking a lighter regulatory approach and giving councils the flexibility to raise rates up to 5 per cent above the cap, provided there was consultation with the public and a strong case was made.

The draft report, which was released for feedback from councils and other stakeholders, will not be finalised until December.  The deadline for feedback is October 14.

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