Victorian council rate rises will be capped to the rate of inflation,  2.5 per cent, for 2016-17.

Minister for Local Government Natalie Hutchins announced the Fair Go Rates cap today, keeping an election commitment to cap council rate rises to the Consumer Price Index (CPI).

Having passed the Parliament earlier this month, the Andrews Labor Government's Fair Go Rates system will protect ratepayers from uncontrolled rate rises, which have on average risen six per cent every year for the past decade.

Ms Hutchins set the cap based on Melbourne CPI for the next financial year, as forecast by the Victorian Treasury.

Fair Go Rates is just one part of the Labor Government's local government reform agenda, which also includes a review of the Local Government Act, an overhaul of council governance standards and

Any council wishing to apply for a higher cap has until 31 March 2016 to apply to the Essential Services Commission and will be expected to demonstrate extensive consultation with their local communities.