More money for NSW councils?

The pricing regulator wants bigger increases in council rates and a four-year rate-setting term as part of an overhaul of the way they are determined. The proposals follow more than 30 years of rate capping in NSW, during which time there has been a continued shift of services from the federal and state governments to councils, leaving them hamstrung financially. Councils have turned increasingly to developer levies to fund their spending programs, which has made new homes more expensive in NSW than other states and slowed housing construction.

The chairman of the Independent Pricing and Regulatory Tribunal, Dr Michael Keating, said rate pegging had not checked council revenues, "partly because of the increased reliance on user charges and partly because of the many exemptions allowed". As a result, the tribunal said a more transparent rate-setting process was needed. Rates make up about a third of council revenues. They rose, on average, 4.4 per cent in 2008-9. Yesterday it outlined two alternatives: to maintain rate capping while implementing measures to assess council's costs, or alternatively, to exempt councils from rate pegging for four years if they can show strong support from ratepayers for the move. "We don't prefer one [option] over the other," Dr Keating said. "We see the two running in parallel, and the councils deciding which way to go. "Some councils may feel comfortable not having plans, and letting someone else set the rules, shifting the responsibility to the Government."

If implemented, the proposals would pave the way for councils to increase rates well above the present, in tandem with improved accountability to ratepayers. The president of the Local Government Association of NSW, Genia McCaffrey, said: "We would urge Premier [Nathan] Rees, who has said he is willing to review rate pegging, not to oppose these changes." The tribunal also wants councils to adopt longer-term planning such as a four-year financial plans as an "integral part of increased financial autonomy". As part of the proposed overhaul, the tribunal would develop an annual cost index for local government, reflecting changes in council costs and productivity. Under the first option, the annual rate cap set by the Government would be determined after reviewing this annual index. And councils that establish four-year planning and rate-setting program may be permitted to raise rates faster than the annual rate cap.

Over the past decade council revenue in NSW has risen at twice the rate of inflation, and earlier work by NSW Treasury found that between 1995-6 and 2003-4 rates in the state rose 29.2 per cent, less than half the 66.1 per cent rise in Victoria and well below the 55.6 per cent rise in Queensland. One thing "we want to test is the practicality of option B," Dr Keating said, which would give government the role of checking whether a council had support for its spending plans, before allowing them to raise rates. This could be done by having the plans put forward at council elections, with all councillors elected agreeing to them, indicating broad support for bigger rate rises than could be obtained otherwise.