The Victorian Government’s council rate cap is unrealistic and will risk delivery of services, says the peak body for local government.
On 23 December last year, the Allan Government announced that council rates will be capped in line with the forecast Consumer Price Index at 3% for the next financial year.
The cap – set, says the government – “to reduce pressures on household budgets” – limits the amount Victoria’s 79 councils can increase their total revenue from general rates and municipal charges.
“This rate cap will mean local councils are able to raise necessary revenue for the services they provide, without adding cost-of-living pressure on households,” said newly appointed Minister for Local Government Nick Staikos.
While the 2025-26 cap is a slight increase from 2.75% in 2024/25, the Municipal Association of Victoria says the 3% limit is impractical.
“The current rate-capping system isn’t keeping pace with reality,” MAV president Jennifer Anderson told Government News. “There is a real risk of councils having to cease certain services where there may be no other providers to fill the gap.”
“We face mounting pressure to do more with less.”
Analysis conducted by MAV shows that since the introduction in 2015 of the government’s Fair Go Rates System, the cap has covered just 60% of the actual cost increases councils face. “Meanwhile,” said Anderson, “cost-shifting continues to strain council budgets, limiting their ability to deliver the services our communities need and expect.”
Anderson told GN that for every dollar of revenue Victorian councils collect, they manage $10 of physical assets like parks, roads and kindergartens. “Councils have large, fixed costs to maintain these assets, not to mention the desire to create new infrastructure and services for a growing population, imposing a major constraint on their budgets.”
Anderson said MAV understands that many Victorian residents are affected by the cost-of-living crisis and will be grateful of the government’s rates cap, “but at the same time people expect more from their local council”.
“Every day, Victorian councils work to strengthen our communities – building resilience, fostering social connections, addressing climate change, and tackling housing challenges,” she added. “We are the level of government closest to our communities, yet we face mounting pressure to do more with less.”
Using the CPI to inform the rate cap simply doesn’t work for councils, said Anderson. “It’s not a true reflection of the increased costs our sector faces in construction, materials, staff wages, and services.”
Anderson told GN MAV is keen to have a constructive discussion with government on how to reform the rate-capping system so that it is practical and fit for purpose.
“The MAV will continue to be vocal and active in calling for reform of the rate-capping system to accurately reflect the cost pressures facing local government, incorporate a mechanism to correct where cost increases have varied from forecasts and adopt a simplified rate variation process to address wide-scale changes imposed upon council revenue or expenditure,” she said. “We look forward to discussions with Minister Staikos, who has firsthand experience in local government and understands the needs of our sector.”
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