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NSW councils to be given more flexibility over rates

May 6, 2020

Source: Sydney Morning Herald

Author: Lisa Visentin

Date: 7 May 2020

Virus-stricken NSW councils will have greater powers to increase rates under proposed changes that will be introduced to Parliament by the government next week.

The reform will let councils financially hammered by COVID-19, the summer’s bushfires and drought, and which have previously chosen not to pass on full rate increases, apply those increases in future years.

Local Government Minister Shelley Hancock said she wants to amend the Local Government Act when Parliament is recalled next week.

“The change will allow councils to apply the rate peg more flexibly and respond to changing economic conditions or crises such as bushfires or drought,” Ms Hancock said.

“With 128 councils across the state and all facing their own unique set of challenges, there needs to be flexibility in our rating system.”

The rate peg is the maximum percentage amount by which councils can increase their general income each year.

Business lobby groups have urged Premier Gladys Berejiklian to abolish the system of rate-pegging altogether, as part of the government’s post-pandemic recovery plan for the state.

The Committee for Sydney and the Sydney and Western Sydney Business chambers say the COVID-19 crisis has created the “opportunity and the urgency” to uncap rates so struggling councils can maintain staff levels, provide essential services and invest in infrastructure.

“By uncapping rates and enabling borrowing, government can provide a partial solution to prevent further layoffs and cutbacks by local government areas without having to directly fund the operations out of state revenue,” the organisations said in a joint letter to Ms Berejiklian.

“Councils would then have the opportunity to borrow money and repay the borrowing through rate increases over a number of years.”

Their pitch comes after Treasurer Dominic Perrottet revealed an ambitious plan to abolish stamp duty and reform the broader tax system, saying there was “no place for pre-pandemic thinking in a post-pandemic world.”

Ms Hancock ruled out scrapping rate-pegging, saying it “safeguards households and property owners from excessive rate rises”.

The reform is in line with a recommendation from a 2016 review of the rating system by the Independent Pricing and Regulatory Tribunal, which is responsible for setting the rate peg each year.

The tribunal has set the 2020-21 rate peg at 2.6 per cent.

Under the government’s reforms, a council that did not apply previous annual rate pegs of 2.3 per cent and 2.7 per cent respectively could, for example, adopt both increases in addition to the 2.6 per cent set for the 2020-21 financial year.

This would allow the council to hike rates by 7. 8 per cent for 2020-21, once compounding interest is factored in, providing they have first consulted with community.

Many councils have already applied the full peg for 2020-21.

NSW councils have long complained about rate-pegging, also referred to as rate-capping, which has been in place since 1977, arguing it has hampered their ability to undertake critical works such as road upgrades and has led to infrastructure backlogs.

Victoria is the only other Australian state that caps rates after it reintroduced the arrangement in 2016.

Linda Scott, the president of Local Government NSW and City of Sydney councillor, said reform was “long overdue” as councils were “squeezed at both ends by rate-capping and cost-shifting.”

“As a result, NSW councils are in a very poor financial position, with significantly less opportunities to invest in infrastructure, in comparison with other Australian state and territory local governments,” Ms Scott said.

She said cost-shifting by state and federal governments had forced NSW councils to assume responsibility for projects and services without sufficient co-funding, amounting to a $6.2 billion burden on councils over the past decade.

However, the proposal to abolish rate-pegging was slammed as “ridiculous” by the Property Owners Association of NSW.

“It’s quite shocking that the LGAs would propose uncapped rates when their constituents are struggling to survive,” the association’s president John Gilmovich said.

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