Councils have the power to levy rates and charges under the Local Government Act 1989 in order to fund and deliver essential community infrastructure and services.
The rates councils collect are a form of property tax. The value of each property is used as the basis for calculating what each property owner will pay.
Calculating how much each property owner pays in rates involves determining the total amount of rate revenue required and dividing this across the total value of all rateable properties to establish a rate in the dollar. The rate in the dollar is then applied against each individual property value to calculate how much each property owner pays.
The rate cap
In 2015, a system to cap rates was introduced to limit the amount of revenue increases a council can levy through rates.
All of Victoria's 79 councils have been operating under rate caps since 1 July 2016.
Each year the Minister for Local Government sets a cap on rate increases based on that period’s Consumer Price Index (CPI) and advice from the Essential Services Commission (ESC). The decision must be made by 31 December each year to apply to rates in the following financial year
For the 2021-22 financial year, council rate rises have been capped at 1.50%.
Councils can apply for a higher cap if they can demonstrate community support and a critical need for spending on services or projects that requires a rate rise above the capped amount.
How the rate cap works
The rate cap limits the total amount a council can increase its rates each year based on the amount it levied in the previous year.
The cap on rate increases provides Victorian councils with a clear framework to guide their budget planning and decision making. The framework ensures essential services continue to be delivered and that councils invest in necessary local infrastructure to meet community needs.
Only the general rate and municipal charges part of a rates bill are subject to the rate cap. All other parts, such as waste charges and other user fees and levies, remain uncapped.
The rate cap applies to the council’s total rate revenue and not individual properties. In many cases, individual rates bills may increase or decrease by more (or less) than the capped rise amount. This may happen because:
- the value of the property has increased or decreased in relation to the value of other properties in the council
- other charges and levies that are not subject to the cap, such as the waste charge, has risen. The capped increases apply to the general rates and municipal charges only
- the amount of rates levied from properties of that type (residential, commercial or rural) has changed through the council’s application of differential rates
Find your council and more about the payment of rates or how projects are funded in your area on the Know Your Council website.
The rate cap does not stop councils improving or providing new services or infrastructure projects.
If a council wishes to raise rates over the cap to deliver essential projects and services, they must demonstrate to the ESC that an increase is warranted and that they have engaged and listened to ratepayer and community views.
Six councils were given ESC approval to adopt rate caps higher than 2.5% in the first year (2016-17).
Four were given approval for higher caps for 2017-18 and one council was given approval for a higher cap for 2018-19. Two councils were given approval for higher caps for 2019-20. No councils applied for new higher rate caps for either the 2020-21 or 2021-22 years.
Essential Services Commission (ESC)
ESC provides advice to the Minister for Local Government on setting the rate cap each year and administers the system by assessing and accepting or rejecting council applications for a higher cap.
For more information visit the ESC’s council rate caps page
Page last updated: 15/09/21