Rate peg ‘hindering councils’ ability to build new infrastructure’

NSW’s rate peg is being blamed for councils not having enough money to provide their rapidly growing communities with new infrastructure.

The State is said to have foregone about $15 billion in rates compared with Victoria (which does not cap rates) since 2000, and the NSW Productivity Commission says that except for raising user charges or extracting developer contributions, councils don’t have alternative funding sources needed to service higher populations or maintain and operate a larger capital stock.

“This leaves councils in a position where they may need to lower the services to their existing ratepayers to service the needs of new residents,” the Commission says.

“That, in turn, explains why councils, having collected infrastructure contributions, may be unwilling to invest them: the operation and maintenance of new infrastructure will impose additional costs, for which there is no funding source.

The assertions are contained in a new green paper, Continuing the productivity conversation, published by the Productivity Commission last week.

The PC says allowing the Office of Local Government to change the rate peg to account for population growth is welcome “as a necessary complement to an efficient, reformed infrastructure contribution system [with the Minister for Planning and Public Spaces expected to canvass reform recommendations shortly]”.

“Once these two changes have been implemented, an evaluation should be undertaken within the next three years to determine whether councils have the funding they need to provide the required services and infrastructure.

“If these reforms do not provide sufficient funds [for that purpose], councils should hold a plebiscite of their communities as to whether they support the abolition of the rate peg.

“Where ratepayers support abolition, this will allow their local government substantial autonomy over the tax rate applied to property within their municipality.”