Councils in NSW are rejoicing after the state government ordered a review of the local government rate peg taking into account inflation, population growth, and the cost of procuring goods and services.

Releasing the terms of reference on Tuesday, local government minister Wendy Tuckerman said she had directed the independent pricing regulator IPART to recommend a methodology that reflects changes in inflation, local government costs and population growth.

IPART will also investigate:

• how to stabilise volatilitiy in the rate peg and capture changes in a timely manner

• Various ways of measuring council costs

• The effectiveness of the Local Government Cost Index (LGCI)

• Whether the population growth factor introduced in 2022-23 is working

• Differing circumstances across metropolitan, rural and regional areas

• Making the peg easy to understand and administer

IPART Chair Carmel Donnelly said the review would look at new approaches to setting the rate peg that reflected, as far as possible, changes in inflation and local government costs.

“We need to make sure that local councils can continue to provide services to their communities, while at the same time protecting ratepayers from unnecessary rate increases,” she said.

IPART, which has been setting the rate cap for councils since 2010, capped rate rises at 0.7 per cent for 2022-23 but later allowed 86 councils to increase rates by up to 2.5 per cent.

‘A win for the sector’

LGNSW Darriea Turley claimed the announcement as a win for the local government sector, saying IPART’s decision to reduce a ‘record low rate cap’ just before inflation began to spiral was evidence the methodology being used was wrong.

“This review will provide the opportunity to closely examine how the rate peg is calculated and what improvements could be made to prevent future financial shocks to the local government sector,” Cr Turley said.

“Councils are determined to keep rates as low as possible, but we are also required to deliver services and infrastructure that our communities expect and deserve. We simply cannot do this with a system that appears to be incapable of pre-empting or reacting to a rapidly changing economic landscape.”

IPART says it wants to hear from councils what is and isn’t working with the rate peg, and how it could be improved.

It will publish an issues paper and call for submissions as part of the review in September, with a draft report due to be released in February and a public hearing to be held in 2023.