Malcolm Lewis
Associate
On the 9 August 2022 the new Local Government Amendment (Rating and Other Matters) Act 2022 received royal ascent. The new Act is mainly in response to the recent Rating System Review as well as the Ombudsman’s investigation into how councils respond to ratepayers in financial hardship.
In essence the new Act places further restrictions on how a council may recover unpaid rates and charges by:
- Focusing on the financial hardship of ratepayers.
- Formalising payment plans as an alternate way for ratepayers to pay outstanding rates.
- Legislating that the Minister now sets the penalty interest rate.
- Limiting the use of court orders including the need for rates and charges to be outstanding for 24 months prior to recovery action.
Contrast these new Act provisions with a recent news release from the Municipal Association of Victoria (MAV) lobbing the state government to provide Local Government with more financial independence and to better recognise the economic challenges faced by sector. The MAV news release listed a range of issues facing councils including the need for reform of the rate capping system and support the ongoing financial sustainability challenges faced by councils.
So, what is the status of the rate capping system and its impact to Local Government?
Since the inception of rate capping, during the 2016/17 financial year, there has been a gradual reduction in the number of council applications seeking to increase rates by more than the ministerial directed ceiling of the consumer price index.
The current higher rate cap application process requires significant council resourcing that is often outside the capacity of many councils to manage. The loss of spending power resulting from the rate cap, and flow on impact to council services including deterioration of community assets, is now a key issue for the future of local government’s financial sustainability.
While the MAV lobbies for financial independence and rate caping reform, the state is gradually implementing greater control over the Local Government sector using legislation such as the new LG Amendment Act.
However, there are opportunities to leverage recently introduced state legislation to enhance Local Government financial independence. The new Local Government Act 2020, with its integrated framework approach, includes important strategic documents such as the long-term financial plan. While this plan is mandated within the legislation and adds an additional layer to the annual reporting process, it is also an important strategic tool to articulate a council’s long-term planning and long-term funding needs.
The lack of council appetite to seek variations to the state-imposed rate cap is partly due to deficiencies in the ability to articulate a longer-term financial framework. Such a framework is necessary to demonstrates sound strategic financial management principles that is a key determinant in the rate cap assessment process. The ongoing challenges to articulate sound financial management principles could be improved by developing the mandated financial plan model into a more strategically focused document.
To the extent that the sector continues to take a compliance-based approach to the long-term financial plan, often means this documents’ primary function is restricted to satisfying an annual box ticking exercise to meet legislative obligations.
So, while the recent focus may be on rating related matters, the broader approach is to focus on developing more robust financial management practices across the sector including the need for a more strategically focussed long-term financial plan.