By Rachel Borchardt

Councils in search of additional internal revenue must be prepared to overhaul their old rating systems, according to local government consultant Alan Morton.

Speaking at the Local Government Association of Queensland’s 2009 Infrastructure Symposium in Brisbane, Morton outlined ways for councils to deepen revenue pools and rethink their approach to general rates without triggering a community backlash.

He cited the Productivity Commission’s 2008 report, Assessing Local Government Revenue-Raising Capacity, which estimates councils across Australia are capturing just 88 per cent of their potential own-source revenue.

“You need to ensure that your council is making a reasonable rating effort,” said Morton, an advisor to the LGAQ.

“In one former council, a review of rating of commercial and industrial properties identified almost an additional $1 million in potential rates revenue.”

He provided symposium attendees with a snapshot of measures Queensland councils could adopt to lift revenue.

First, when setting rates, factor in cost increases to maintain services and refer to the Local Government Cost Index to get a guide to acceptable rate revenue increases. In warning councils not to lock in rate rises that merely track CPI increases, Morton noted that the retail electricity sector, for instance, has lifted prices by 30 per cent over three years.

“Some councils have hung a millstone around their necks by promising to keep rate increases at or below CPI,” he said.

Second, use differential rating powers that end the “free ride” for some ratepayers and which may lead to commercial and industrial companies paying higher, but fairer, fees.

Third, set realistic minimum rates for each category to ensure all ratepayers are making a reasonable contribution to revenue.

Fourth, do not fall for the “rate capping trap” of setting unsustainably low limits on rate hikes. And fifth, do not dismiss debt as a justifiable source of revenue.

“Remember that debt is not a bad thing when managed properly. Probably 90 per cent of us wouldn’t own a home today if we were as conservative as local government in the use of debt for asset investment.”

Separate and special charging powers could also be useful for councils seeking to utilise new revenue streams.

“There is some evidence that ratepayers prefer targeted funds such as a specified road levy because they think the general rate just funds administration,” Morton said.