Lake Macquarie City Council (LMCC) councillors have unanimously expressed concerns regarding the existing rate-pegging methodology that is imposed on all 128 councils in NSW given the rapidly changing and unprecedented economic environment in which costs are rising across all areas of the economy.
Many of these costs are directly affecting council services across all councils in NSW.
LMCC has forecast that, if the issue is left unaddressed, the total cumulative impacts across the next two financial years could be $20 million on our operational plans, $63 million on our four-year delivery program and $159 million on our long-term financial plan.
The Independent Pricing and Regulatory Tribunal (IPART) in NSW is undertaking a review of the rate-pegging methodology.
However, any changes to the approach arising from the review will not apply until at least Financial Year (FY) 2025, which is a significant concern.
The sheer size of the financial impacts forecast over FY 2023 and FY 2024 have the capacity to decimate council budgets across NSW and require the immediate attention of IPART and the NSW government.
The magnitude of the inflationary pressures and impact on financial forecasts across all 128 councils in NSW when extrapolated is in the many billions of dollars.
To address the financial challenges facing all 128 councils over the next two financial years, a genuine partnership between local government, the NSW government and IPART is essential.
Given the quantum of financial impacts forecast to be experienced across all councils, it is likely that the federal government via additional direct grant funding will be needed to help.
A large proportion of councils receive the lion's share of their revenue through rates.
At LMCC, the percentage of total revenue derived from rates now equates to 44 per cent.
IPART has pegged rates at 2.5 per cent for FY 2023, despite the current level of inflation of 7.3 per cent.
This equates to a 4.8 per cent discrepancy and will affect councils across NSW in their ability to deliver the planned services and infrastructure.
IPART has also pegged rates at 3.7 per cent for FY 2024.
This is despite the Reserve Bank of Australia (RBA) predicting inflation to be 5.75 per cent this time next year. Again, this equates to a potential discrepancy of more than 2 per cent.
If left unchecked, these inflationary financial impacts will lead to financial distress for many councils and an inability to deliver on the plans they have presented to their communities.
It is not in anyone's interests to have surprise or unprecedented special rate variation (SRV) increases forced upon residents in the years ahead.
It is essential that all councils in NSW seek to immediately quantify the current and forecast inflationary impacts to their budgets over the next two financial years, lobby IPART, the NSW government and be honest and upfront with their constituents in terms of the challenges that lie ahead.
The financial pressures being experienced by LMCC are not unique, and councils are certainly not immune from rising costs across the economy.
In terms of potential solutions, this will ultimately be determined by IPART and the NSW government as they are responsible for the existing methodology and the effect it will have on all 128 councils and their residents.
If they choose to ignore councils, SRVs and/or a combination of significant service and infrastructure cuts are inevitable across local government areas in the not too distant future.
It is likely that a combination of grant funding, indexing and potential offsets to existing fees and charges imposed by the NSW government on councils over the next two financial years should be reviewed in the wake of the consequences of the broken rate pegging methodology.
If IPART were to now immediately index rates simply to current levels of inflation it would directly impact and potentially hurt our most vulnerable and disadvantaged and those on fixed incomes.
Therefore, this should be avoided as a short-term fix.
Ultimately the broken rate-pegging methodology was created by IPART and endorsed by the NSW government, and they should bear responsibility for it and work with councils across NSW in finding solutions.
Adam Shultz is the deputy mayor of Lake Macquarie City Council
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