IPART has made major changes to the methodology to apply from the rate peg for the 2024-25 financial year.
And it has recommended the NSW Government commission an independent review of the financial model for councils in NSW.
The new method for setting the rate peg is simpler than the old method. See screenshot at the bottom of the story.
It goes from a two year lag on actual figures to a forward forecast model.
It will measure the annual change in NSW councils’ base costs for 3 groups of councils (instead of one that includes all NSW councils) to better account for the diversity of their base cost patterns. These groups are metropolitan, regional, and rural councils. .
IPART (Independent Pricing and Regulatory Tribunal) says it will result in rate pegs that more accurately reflect changes in the costs NSW councils incur in providing their current services.
Councils complained that the 2-year lag was a problem.
“This is because, when inflation is volatile, as it has been in recent years, the lag means the rate peg can be substantially above or below actual increases in costs due to inflation,” IPART said.
“Our new rate peg methodology is designed to respond to many of the issues raised in consultation,” IPART said.
“But it cannot address all the issues people have highlighted during the consultation.”
That’s why it wants the State Government to agree to a review of councils’ financial models.
# Inequities of rate exemptions
“For instance, one council cited an aged care facility that had been constructed in their LGA,” IPART said.
“The council indicated that even though a majority of the residents were self-funded, just one resident accommodated through social housing would make the entire facility rating exempt.”
# Councils set the value of ordinary rates based on unimproved land value.
Many councils would prefer to see the capital improved value used.
“Mandatory use of the UV method means councils cannot set equitable, efficient rates for those who own apartments and units,” IPART said.
“This makes it difficult for them to raise an appropriate level of rates income from these residential and business ratepayers.
“This is an increasing problem as areas become more built up over time.”
# Statutory charges don’t reflect the full costs of service provision
The NSW Government regulates charges for certain statutory services provided by councils but councils says these have not been adequately indexed over time.
This means councils are unable to recover the full cost of providing the services.
“When this occurs, councils may need to use rates income to cover the gap,” IPART said.
“As a result, ratepayers may be cross-subsidising statutory service users, placing undue upward pressure on rates levels.”
Examples given included the Development contributions caps.
Councils can levy developers’ contributions towards the cost of providing local infrastructure such as new roads, stormwater management and open space.
However, councils cannot levy developers for the cost of providing community facilities such as swimming pools.
“We consider that the NSW Government review the amounts councils can charge for statutory services to ensure these amounts reflect the full cost of providing these services,” IPART said.
# Emergency Services Levy (ESL)
The new rate method will set council-specific ESL tol enable councils to collect an amount that reflects their actual ESL contributions.
“This will ensure they can fund these contributions – which they are obliged to pay and have no control over – so will not potentially need to trade off council services to cover this cost,” IPART said.
IPART thanked ratepayers and councils who gave feedback during their consultation period.
Central Coast resident Kevin Brooks was one of those ratepayers and his submission is linked in the appendix of the report.
IPART will release the rate peg for the 2024-25 financial year this month.
The rate peg sets the maximum amount a council, including ours, can increase its overall rate increase for that year.