Limiting Rate Increases in New South Wales and Victoria

Carol Mills, Institute for Public Policy and Governance, University of Technology Sydney

Relevance of the Practice

Australia provides an interesting case through which to study the impact of restricting a local government’s ability to raise property taxes or rates.  At a national level only New South Wales (NSW) and Victoria have a rate pegging or capping system in place.  In South Australia the rate capping legislation was introduced to state parliament in 2018, however it was voted down. By examining the different practices in the various Australian states, researchers will be able to provide an analysis of the relative merits of rate capping as an approach to ensure taxes remain in line with economic growth.

Description of the Practice

Since 1977, certain council revenues have been regulated in NSW under an arrangement known as ‘rate pegging’. Rate pegging limits the amount which councils can increase their general income. General revenue mainly comprises rates revenue, but also includes certain annual charges (excluding  stormwater and waste, and water and sewerage). The rate peg refers to the maximum percentage amount that a council may increase its general income for the year. Since 2011-12, this amount has been set by the NSW Independent Pricing and Regulatory Tribunal (IPART) under a delegation by the Minister for Local Government. 

In 2016 the Victorian state government also introduced rate capping. The cap placed on rate increases is intended to provide Victorian councils with a clear framework to guide their budget planning and decision-making. The framework is also designed to ensure that essential services continue to be delivered and that councils invest in necessary local infrastructure to meet community needs. Only the general rate and municipal charges section of a rates bill are subject to the rate cap. All other elements, such as waste charges and other user fees and levies, remain uncapped. The rate cap applies to the council’s total rate revenue and not individual properties. In many cases, individual rates bill may increase or decrease by more (or less) than the capped rise amount.  

In both NSW and Victoria, there are provisions in place should a council wish to increase its rates above the percentage approved by the state governments. In Victoria, councils must demonstrate to the Essential Services Commission that an increase is warranted and that they have engaged and listened to ratepayer and community views. Similarly in NSW councils can apply to IPART for a special rate variation for higher percentage increases.

Assessment of the Practice

The NSW Independent Local Government Review Panel undertook a study in 2013, reviewing revenue and rates over a nine year period,  2001-02 to 2010-11. Growth in total revenue of NSW councils was 5.7 per cent per annum in comparison to an average 8.0 per cent for the other mainland states. Rates revenue increased by 4.4 per cent per annum in New South Wales compared to an average of 8.0 per cent elsewhere. A study by the Productivity Commission on Development Contributions (2020) found that rate capping can act as a disincentive for councils to accommodate growth in response to population growth.

References to Scientific and Non-Scientific Publications

Drew J and Dollery B, ‘A Fair Go? A Response to the Independent Local Government Review Panel’s Assessment of Municipal Taxation in NSW’ (2015) 30 Australian Tax Forum <>

NSW Productivity Commission, ‘Review of Infrastructure Contributions in NSW’ (issues paper, 2020)     <>

Tiley I, ‘Australian Local Government Sustainability and Transformation: Structural Reform and the fit for the Future (F4F) Reform Initiative in New South Wales – Forced Council Amalgamations’ (2017) 2 International Journal of Rural Law and Policy    <>

Yarram SR, Dollery B and Tran CTT, ‘The Impact of Rate Capping on Local Government Expenditure’ (2020) 49 Policy & Politics 391