Local government leaders are warning the current rate cap is putting growing pressure on councils and communities.
The Victorian Government’s rate cap of 2.75 per cent is expected to create further challenges for councils and local communities in 2026.
The Municipal Association of Victoria (MAV) has renewed its call for a comprehensive review of the rate capping system, arguing that the link to the Consumer Price Index does not reflect councils’ real cost pressures.
The association said the current system fails to keep pace with rising costs in areas such as construction, materials and services, compounding the financial strain faced by councils.
The case for change was outlined in the MAV’s The Future is Local paper, which argues councils are being asked to deliver more complex services with less certainty and increasing financial pressure.
The paper states that financially secure councils are better placed to invest in their communities and deliver essential services such as roads, libraries, sports fields, parks, kindergartens and arts and culture.
MAV President, Cr Jennifer Anderson, said both local and the state government needed to work together to secure the long-term financial sustainability of the sector.
“Using Treasury forecasts of Consumer Price Index growth to inform the rate cap simply does not work. It is not a true reflection of the increased costs our sector faces in construction, materials and services,” Anderson said.
“We are calling for the Victorian Government to adopt the MAV Local Government Cost Index, proposed in our pre-budget submission, which would provide a more accurate cost model to inform the local government rate cap.
“Victoria is the only Australian jurisdiction without a current local government cost index.
“Councils are the most trusted level of government and the custodians of more than $140 billion in infrastructure assets, yet the operating context has shifted dramatically.
“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. Households pay around $2,000 annually in rates but receive an estimated $4,000 in avoided costs and wellbeing benefits from public open space alone.
“Our The Future is Local paper offers fresh thinking to help councils respond to the major forces of change shaping local government, including financial sustainability. It is essential to review the current rate cap system to ensure a future-fit local government sector capable of serving changing communities.”
