IPART Review of Local Government Rating System

In December 2015, the Independent Pricing and Regulatory Tribunal (IPART) was requested by the Premier to undertake a review of the local government rating system of New South Wales.

A draft report containing a number of recommendations was released and is currently available for public comment. The main change that they propose is an integration of the Capital Improved Value (CIV) method into the local government rating system. This is a system whereby rates can be set using the value of the property based on the market value, or the value inclusive of all capital improvements. Under IPARTS proposed plan councils would be able to choose either a rating system based on Unimproved Value (UV) or CIV.

The Property Council opposes this change as it will lead to disproportionate rates within properties from the same category and create instability in local government revenue due to fluctuations of capital improved values.

This review also presents a good opportunity to remove “rate pegging” – an outdated system whereby IPART determines the maximum percentage by which a council may increase its general income (primarily from rates) each year. Rate pegging was designed to encourage and indeed force councils to manage their capital and service expenditure in the context of a constrained and relatively inflexible revenue stream.

This constrains local government’s ability to raise sufficient rates to sustainably maintain and renew asset backlog pressures, limits their participation in new infrastructure and reduces their capacity to deliver basic community services. It has also kept revenue in NSW councils below the level of other states. Allowing councils to increase their revenue in a responsible manner in line with increased demand for services and amenities in their areas would be a positive step for NSW.