The Victorian Government has announced that it is again capping council rate increases at the forecast Consumer Price Index, as part of efforts to ease cost of living pressure.
Minister for Local Government, Nick Staikos, announced the rate cap of three per cent for the next financial year under the State Government’s Fair Go Rates System.
The government accepted the recommendation of the Essential Services Commission regarding the cap, which is equal to the forecast Consumer Price Index for 2025-26. The rate cap limits the amount all Victorian councils can increase their total revenue from general rates and municipal charges.
Rates are set by each local council to fund services and facilities like local parks, libraries, community centres, roads and footpaths, kindergartens and sporting facilities. 2025’s rate cap aims to ease cost of living pressures for Victorian families, while still allowing councils to continue providing these services.
In the decade before the introduction of the State Government’s Fair Go Rates system in 2016, council rates were increasing by an average of six per cent each year. Since the introduction of the cap, the average rate cap between 2016-17 and 2024-25 is 2.3 per cent, limiting steep successive increases for Victorian rate payers.
Councils may apply to the Essential Services Commission for a higher rate cap if they can demonstrate a critical need for spending on services or projects that would require a rate rise above the capped amount.
Minister Staikos said that Fair Go Rates are there so families have certainty over their council rates, and that in the new financial year the increase will again be in line with the inflation rate.
“This rate cap will mean local councils are able to raise necessary revenue for the services they provide, without adding cost of living pressure on households,” Minster Staikos said.
“The rate cap has made a real difference to household budgets since it was introduced – on top of other cost of living support for families like free kinder, capped V-Line fares and the School Savings Bonus.”
Local government response
The Municipal Association of Victoria (MAV) has warned that the State Government’s rate cap announcement of three percent again highlights the significant financial challenges facing councils and local communities in 2025.
When councils are financially sustainable, they can invest in their neighbourhoods, towns and communities to deliver the services that people depend on like safe roads, libraries, sports fields, parks, kindergartens, and arts and culture.
While it’s a slight increase – up from 2.75 per cent in 2024-25 – councils will have little relief from the extreme financial pressures they have faced in the last four years.
The MAV will continue to call for a significant review of the rate capping system. MAV President, Jennifer Anderson, said that the local government sector is ready and willing to work with the State Government.
“With Minister Staikos getting his feet under the desk over summer, the MAV is very keen to have a constructive discussion about how we can reform the rate cap to be more fit for purpose for our diverse communities across Victoria,” Cr Anderson said.
“Using CPI to inform the rate cap simply doesn’t work for councils. It’s not a true reflection of the increased costs our sector faces in construction, materials, staff wages, and services.”
“The MAV is working on a more accurate Local Government Cost Index for Victoria and is keen to share this work with the State Government to improve how the rate cap can be re-imagined in the future.”
“The current rate cap does not take into account the vastly different needs of councils across the state. Some councils are still facing exhaustive repair bills from natural disasters, others are in desperate need of upgraded or new infrastructure. Setting a single rate cap does not account for the broad variety of these challenges, let alone the role that local governments play in supporting the economy.”
“Beyond a more accurately calculated rate cap, the MAV is committed to working with both state and federal government to ensure the financial sustainability of councils in 2025.”
