Victoria’s Municipal Association (MAV) has given a lukewarm welcome to a modest increase in the rate cap announced by the state government, saying it will offer only short term relief.

A new rate cap of 3.5 per cent has been set for all councils for the 2023/24 financial year under the state’s Fair Go Rates system, which was introduced in 2016 to encourage sound financial management by local governments.

The government was guided by independent advice from the Esssential Services Commission  (ESC) which recommended a four per cent cap in line with the CPI, local government minister Melissa Horne said.

The cap was set lower than ESC recommendation to take into account cost of living pressures on rate payers, the minister said.

Review of cap allocation needed

MAV says while the increased rate cap will ease financial stress for councils, it doesn’t go far enough and the association is calling on the government to provide “fair increases” for councils services in its upcoming budget.

It also wants an independent review of the way in which the cap is allocated.

President David Clark says the  increase is only the start of what’s needed to help councils ease the pain of the current inflationary environment, combined with staff shortages and state government cost shifting.

 “Each year councils spend between 20 and 40 per cent of their budgets on new infrastructure, be that roads, aquatic facilities, streetscapes, or playgrounds and parks,” Cr Clark said in a statement.

 “In the current year costs for these works have escalated in the order of 35 per cent, something the rate cap doesn’t deal with, hence the need for the review.”

He also criticised the rate cap system for treating councils as homogenous organisations, regardless of and non-rate funding streams.

 “Councils are not complex, they raise funds from the community and spend it all back in the community. Less money over time means less services that we can provide,” he said.

The Victorian cap was previously set at 1.75 percent.

Before 2016 council rates increased by an average of six per cent a year.