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.
Local Government Rating Reviews
Local Government Rating System Review
The Victorian Government is committed to the financial sustainability of councils and wants to ensure local government rates are fair and equitable for all of the community.
An independent panel was appointed in 2019 to review all aspects of Victoria’s local government rating system. The Local Government Rating System Review made 56 recommendations, of which 36 were supported (in part or full) by the Victorian Government. The Review’s Discussion Paper, Consultation Report and the supplementary information are all available below, which includes the panel's final report and the Victorian Government's response which was published on 21 December 2020.
The Local Government Rating Reform program will be rolled out from 2021 onwards. Some key reforms – centred on the arrangements for financial hardship – will also be informed by the Victorian Ombudsman’s 2021 report ‘Investigation into how local councils respond to ratepayers in financial hardship’.
You can stay updated by clicking on the 'Follow' button under the heading at the top of the page.
Local Government Rate Capping Mechanism Review
In September 2021, the Victorian Government engaged Grosvenor Performance Group (GPG) to undertake the independent review of the local government rate capping mechanism as required under section 185G of the Local Government Act 1989.
The review considered:
- whether the mechanism for setting a cap on rates set out in Part 8A of the Act is still appropriate; and
- whether Part 8A of the Act is effective or needs to be amended.
The review assessed all parts of the rate capping mechanism, with specific reference to:
- the provision of advice by the Essential Services Commission (ESC) and Government agencies to the Minister for Local Government in the setting of the rate cap (s 185D of the Act);
- the use of the base average rate as the basis for applying the rate cap (s 185B of the Act); and
- the process by which councils apply to the ESC for a higher cap and a decision is made by the ESC, including the timing, appropriateness of guidance and other communications provided by the ESC as part of the process (s 185E of the Act).
GPG submitted their report on findings and recommendations to the Minister for Local Government and the Assistant Treasurer on 20 December 2021.
The Victorian Government is considering the report. The report and the Government’s response will be made public in 2022.
The Rate Cap Mechanism
In 2015, a system to cap rates was introduced to limit the amount of revenue increases a council can levy through rates.
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 2022-23 financial year, council rate rises have been capped at 1.75%.
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.
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