The Independent Pricing and Regulatory Tribunal (IPART) has told NSW local councils to further rein in their spending by forbidding them from increasing their rates by more than 1.5 per cent next year, citing low inflation and minimal growth in costs.

The rate peg has fallen continuously for NSW councils. Last year’s cap was 1.8 per cent. In 2003 the cap was 3.4 per cent.

The cap is set by examining the price changes for goods, materials and labour that councils typically use over the past year, called the Local Government Cost Index. It is similar to the Consumer Price Index for households. 

The measure spells further financial pain for the state’s councils, which have laboured under ratecapping since 1978 and put up with a growing infrastructure backlog and cost shifting from other levels of government, leaving them struggling to contain costs while keeping services running.

IPART Chair Peter Boxall said the figure was fair given low inflation and slow wage growth.

“Ratepayers would benefit from the modest rate of public sector wages growth in recent years, as well as the continuing low inflationary environment. This has seen the cost of some items used by councils fall, including fuel, gas and telecommunication services,” Mr Boxall said. 

But Local Government NSW President Keith Rhoades said that the rate peg was a “financial noose which continued to tighten” around councils.

“In the five years to 2014/15, it averaged 2.9 per cent per annum – yet the cap for 2017/18 is half that,” Mr Rhoades said. “That means every year councils slip further and further behind,” he said. 

He vehemently disagreed with Mr Boxall’s conclusions, especially where wages were concerned.

“IPART has come to the 1.5 per cent figure despite an increase of 2.3 per cent in employee benefits and on-costs and an increase of 2.7 per cent in non-residential building construction costs, saying those price rises were partly offset by decreases in gas and fuel prices.

“But that just fails to recognise the ongoing squeeze on councils that comes from the combination of rate-pegging and cost-shifting, and deteriorating infrastructure.”

Councils that wish to set rates above the rate peg must apply for a one-off special rate variation, which many councils use to fund a particular projects, such as a new aquatic centre.

This is not a straightforward process. Councils must consult their communities and prove that any increase over the cap is justified, as well as show evidence of long-term financial planning and productivity improvements.

But the 19 new NSW councils created in May 2016 will not be able to apply for a special rate variation. These councils have already been told by NSW Premier Mike Baird that they will not be able to increase their rates beyond the normal trajectory for each of the old council areas for four years.

Mr Rhoades said the measly rate peg was not good news for any of NSW’s local councils.

“The reality is that rates have not kept pace with the cost of services and infrastructure that local government is expected to deliver,” he said. “The whole system is set up to make councils look inefficient and financially profligate, when the opposite is true.”