Victorian Councils have a funding crisis. A sector commanding over $12 Billion a year in rates and fee income that has over 54,000 staff to support.
We know that inflation is running around 7% at the moment and that the cost of some materials and products has increased by up to 50%.
Local Councils use a lot of materials – wood, steel, cement – and these costs have soared exponentially of late.
Staff contracts have annual pay rises of at least 2% within them.
This year’s rate cap was 1.75%. This cap is set by the Essential Services Commission which looks extensively at what local government “needs” to sustain itself. It’s a handbrake on councils taking massive increases and spending their way to nirvana.
Rate capping was introduced by the Labor government in 2016.
It was designed with consumers (residents and ratepayers) at the forefront, after years of horror stories of the majority of Victorians being slugged with 5-15% increases in their rates as the norm.
So, why must it end? Let’s be clear we DON’T want it to end, we are saying it will and must end for a number of reasons (excuses).
Despite us advocating LOUDLY that it should not end, and that Councils should learn to be efficient, it seems that Councils have finally lobbied hard enough and just might be getting their way, and soon.
The Andrews Government Commissioned a report by Grosevenor Performance Group to look at the effectiveness of rate capping. Rate capping is reviewed every 4 years and is next due to be reviewed in 2025. The report authors are no slouches and have extensive commercial experience in advising Government and corporates on complex matters.
It is alarming that the Andrews Government has said it will not release this report until the end of the year (after the state election). This is an important statement.
As keen studiers of the Local Government sector, our team believes that the tide has finally turned and that the recommendation (due to so many external factors like inflation and cost of goods) will force the Governments hand to dump rate capping.
Welcome to the wild west. We see that Councils will be given back their autonomy to decide what level of increases they need to keep the organisation ticking.
We estimate that the old days of 6-15% increase year on year will become the new norm, just like before. Once financial pressures like inflation and costs of goods settle we see that the increases will have been entrenched and there will be no going back.
So why do we believe rate capping must inevitably end?
Councils have no KPIs around cost efficiencies
Councils have no legislated requirement to use technology to drive consumer-led solutions
Councils have no external oversight of their spending
Most Councillors are likely unfit to sit on a board running organisations with budgets in the hundreds of millions annually
Councillors make many political decisions to spend on ridiculous NEW projects instead of investing limited resources into staff and technology
Ratepayers and residents have become complacent in accepting the status quo (Councils have literally beaten us into submission)
No political party has the will to take on and reform the system despite it being the most complained about sector in Victoria
Quite simply Local Government is an unimaginable governance and probity disaster.
It seems to me that we have all become too comfortable, that is why Councils continue to get away with outrageous decisions and practices, not to mention spending that makes our eyes water.
Many councils’ meetings are lucky to get 10 people watching them, people literally don’t seem to care about our Councils anymore, and it's mostly because we all feel helpless in a system that is best described as its own echo chamber.
We regularly see councils spend $20-100 Million on Projects that have little to no business case, whilst footpaths, roads, drains, parks, open space, and local businesses are neglected by Council executives. The photo opportunities are always nicer when councillors and executives are seen to be “building things”. Never mind the cost to build, nor the cost to operate.
We need rate capping to end. We need it to end so that it shatters our complacency and focuses our detailed attention on everything councils do and say once again.
Until we are slugged with massive increases in our rates, the system won’t change.
When we are all furious at astronomical rate increases, maybe, just maybe, Council executives and Councillors who have taken us all for a ride for far too long will find themselves in quite the position, facing thousands of angry stakeholders who demand to be heard and demand that something be done.
Just maybe then we will finally see someone step forward with the courage to dramatically reform Councils and fix the utter madness. It will take someone with the guts and determination of steel. Sadly something currently lacking in all Victorian politicians.
We can live in hope, can't we?