Local Government Amendment (Fair Go Rates) Bill 2015

Ms DUNN (Eastern Metropolitan) — I rise to speak on the Local Government Amendment (Fair Go Rates) Bill 2015. The bill amends the Local Government Act 1989 and the Essential Services Commission Act 2001 to provide a mechanism to set a cap on the increases in rate revenue able to be levied by a council in a financial year as well. It also makes consequential amendments. This bill allows the minister to set a cap on the increases in rate revenue that can be levied, it allows councils to apply for a variation to the cap — and in that a council would need to make an application for variations to the Essential Services Commission — and it ensures that rate capping is based on CPI.

In terms of the Greens view in relation to this bill, there is no doubt we support efficient and well-managed councils as the voices of local communities. However, we oppose this bill in its current form due to the lack of transparency and the significant constraints imposed on councils. We are very concerned about the impact on services and infrastructure, particularly in relation to new infrastructure, infrastructure renewal and maintenance of that infrastructure.

The Greens will continue to encourage councils to prepare budgets in consultation with local community as that is the most appropriate way to engage with rate setting and the long-term aspirations of a community. In a climate of cutbacks to local government and reduced funding from other tiers of government, the proposed rate cap raises a real risk of severe cuts to council services that will hit hard in many communities.

The bill proposes that the minister set a cap on rate increases. Under these amendments the minister may impose a cap on all councils, a class of councils or a specified council. The flexibility that this provides to councils could be welcome; however, it could be sinister. The capacity of metropolitan councils is very different to that of cash-strapped interface, regional and rural councils.

The minister is required to request advice from the Essential Services Commission (ESC) but is not compelled to act on this advice, only to take it into account. Under the bill the minister could set the cap as they wish. While safeguards are in place to ensure that politics do not come into the minister's decision-making, this places enormous power and discretion directly in the minister's hands. It is essential that the community and local government sector have confidence in the process, that there is transparency and consistency as well as disclosure of the factors that the minister will take into account in making their decision and that there is transparency and disclosure in the factors that are not being taken into account. What is not clear is how transparency and consistency will be applied in setting the cap.

The bill has provisions around councils being able to seek variations to the rate cap. The Greens welcome the opportunity for councils to do that, but it presents an interesting conundrum because applying to the ESC for a variation means the ESC will be going against the ministerial directions in setting the cap. The Greens are concerned that the variation process is effectively an appeal process against the stipulated annual rate cap and it appears the ESC is being put in the position of overturning the minister's decision in relation to variations.

We are concerned about the time frames that the bill proposes. The time frame for seeking a variation is tight. The minister sets a rate cap by 31 December, a council must advise the ESC by the end of January of its intention to apply, the council must apply for a variation by 31 March and the ESC takes two months to make a decision. This will see some councils needing to run two budgets for their community consultation while awaiting the decision of the Essential Services Commission — one budget based on a variation being successful and another if it is not. In relation to variations and those councils that are not successful in achieving a variation, we question the right of appeal. If the ESC knocks back a variation, it appears the only avenue for appeal is the ESC.

In relation to the fee proposed for applying for variation, the Greens do not support councils having to pay a fee to lodge an application for variation. It is important that such a process is open, available and not out of reach for resource-strapped councils. There will already be a cost to councils in developing an application. A fee is an additional burden on their budgets and on ratepayers. We want surety that current reporting arrangements provide a sufficient basis to demonstrate that transparency, community engagement and value for money are being exercised.

In relation to the rate cap being pegged to the CPI, we are concerned that pegging rate increases to CPI is not a reasonable reflection of the unavoidable cost pressures facing councils. For example, rural councils with roads of significant length have far higher costs in relation to this infrastructure than metropolitan councils have. Interface councils, as have been mentioned by Mr Davis, face two different pressures. Firstly, there are those interface councils in growth areas, so they have burgeoning populations and enormous pressures on them in terms of providing infrastructure. Even though they have a greater rate base, the pressure to deliver on behalf of those communities is exacerbated by the enormous growth in those areas.

Then there are those interface councils that are not growth councils, those councils such as the Mornington Peninsula Shire Council, the Yarra Ranges Shire Council and the Nillumbik Shire Council. These councils have highly dispersed populations which stretch council resources, and they need to maintain over 60 footy grounds, seven pools and seven libraries — enormous infrastructure burdens for those types of councils because of the make-up of them. They are not growth councils but they are very large. They are considered metropolitan but face enormous challenges in terms of how they provide infrastructure and services for those communities because of the highly dispersed nature of their populations.

The Greens are concerned that in her second-reading speech for the bill the Minister for Local Government referred to the cap being adjusted above or below the forecast change in the CPI to provide flexibility for other matters such as wage pressures or efficiency dividends to be taken into account where appropriate. We are gravely concerned about the enormous discretionary powers in the hands of the minister. If we look at the current CPI — and yes, we have already heard debates about CPI, what is the measure and who is providing that measure that Mr Davis provided for the house — we see that the Department of Treasury and Finance website indicates that the current CPI rate is 1.5 per cent and projects in future years it will be 2.75 per cent. However, is the CPI an appropriate measure to use in relation to local government expenditure?

We know that the CPI is a weighted basket of household goods and services, but council services are quite different to household services since a greater proportion of costs are directed to providing infrastructure and social and community services. These costs generally exceed other costs in cost increases in the economy. When we look to what a council spends money on, we see that it spends money on wages, service provision and construction. It is not buying a basket of goods, it is not buying insurance for a home. Its cost structures are quite different and it seems completely inappropriate to the Greens that you would use CPI as a measure for a sector that simply does not purchase household goods and services.

We know that the sector itself provides what is called a local government cost index. In relation to the work done around that, and generally done by the Municipal Association of Victoria, local government costs typically increase by 1 per cent above the CPI, and that is a reflection of the fact that councils are not purchasing that basket of household goods and services.

We note that the wage price index has been removed from the rate cap, and this is of concern to the Greens. Wages are a substantial part of council operating costs and many councils are still covered by enterprise bargaining agreements. Up to 60 per cent of these agreements will need to be renegotiated in 2015 and 2016. The wage price index is generally higher than the consumer price index. Therefore the government needs to give due consideration to wages in the sector when setting the annual cap, but there is no surety or certainty that wages will be a factor.

To put a bit of perspective on exactly how much rates contribute to taxes generally when you compare across the tiers of government, we have heard that the rate notice is a big bill and the rate notice slugs household budgets. I do not disagree with that. The rate notice is an incredibly large bill for a household to have to deal with. However, what we need to keep in perspective in relation to this is that rates make up 3 per cent of the tax dollar.

When we look at the three tiers of government and the tax they collect on behalf of the people of this country, local governments get 3 cents in the dollar, state governments get 16 cents in the dollar and the federal government gets 81 cents in the dollar. Imagine if you got a federal rate notice for that 81 cents in the dollar — that would be an enormous bill. Yet we do pay that and do contribute taxes across three tiers of government. The difference with local government is that you get it in an annualised account, so that makes it quite transparent in terms of what you are paying. I do not doubt it is a big bill for households, but when you put it in perspective of the taxes that people pay across the nation to different tiers, 3 per cent is not a great deal.

In terms of cost of living I do note — and Mr Davis talked about this a little bit — that we have seen a fire services levy increase of 7.1 per cent and also continuing increases in the waste levy. They are increases that impact on household budgets, and they are state government charges that unfortunately flow on to rate notices. There is a view in the community that they are in fact local government charges. They are not that at all; they are state government charges.

I did attend the other place when this bill was introduced and sat in on the debate in the other place. I heard many impassioned speeches from the opposition in relation to the issue at hand about the infrastructure that councils had brought to their own local electorates and what a wonderful job local government had done in relation to infrastructure improvements and community services. However, when push comes to shove it is all very well making an impassioned speech, but I note that the opposition is not opposing this bill. Methinks a little bit they were crocodile tears in relation to those impassioned speeches about it.

In terms of council budget processes, they are very open and very consultative. Councils start in October or November in terms of determining the outline of their budget. They look at their council plan on which they have engaged with their community over a long time. That sets out the aspirations for their community and how council will deliver those aspirations. Councils consult the community on their first draft budget. It is reviewed by the community, and the community has a chance to submit their concerns around the budget. Then council has an opportunity to amend its budget however it sees fit in relation to those submission processes. It is a very open process, it is a fair process and it is a transparent process.

Not all councils get it right. Not all councils do the best they can do in relation to consultation, but many of them do get it right and do have the right sort of dialogue to know that they are getting it right on behalf of their communities. I am not suggesting, when I talk on this bill, that occasionally there is not wasteful spending by local government. In my time as a local government councillor I always had concerns in relation to spending around the mayoral ball.

For me this is a piece of frippery. There are far better ways to recognise community contribution than a mayoral ball. I know some councils actually run their mayoral balls on a cost-recovery basis. I do not have a problem with that, but the use of ratepayers money, I agree, in that instance could be far better spent on other things. But this is not the only tier of government that might go towards frippery and unusual spending in relation to taxpayers or ratepayers money. I draw your attention, Acting President, to the acting classes undertaken earlier this year by ministers of the state. I would have to think the Lara Bingle drama coach was probably a matter of frippery at another tier of government, as was the immovable bookshelf of our federal Attorney-General — yet another instance of unusual expenditure at a different tier of government. I am not suggesting that local governments do not have their issues, but on the whole they get it right and do well in terms of consulting with their communities.

I will talk a little bit about the impacts that councils are currently facing in terms of costs and what always seems to be the moving feast in relation to local government. The biggest one is cost shifting, and I am only going to talk about two examples, the first one being libraries. Victoria is funded to the least amount by state government for its library services. I am just going to use averages. Local governments are picking up 80 per cent of the cost of those services, while the state government is picking up less than 20 per cent. I think we are on about 18 per cent at the moment in relation to libraries. It is a valuable service. Every year we see that funding eroded for library services, with the burden falling more on local government, and I do worry, in a rate capping scenario, what is going to happen in relation to those library services.

The other one I want to highlight is school crossing supervisors. Interestingly, the 20-80 rule applies in relation to school crossing supervisors. Once upon a time they were funded in the order of 80 per cent by state government. We have seen a complete flip around of that, and now they are only funded 20 per cent by the state government and 80 per cent by local government. They are enormously important services, well valued by the community, but I do wonder how long local government can continue to prop up what should be a state government-provided service and originally was provided by state government.

The other issue that is always looming for councils is superannuation liability. For those councils that have a defined benefit superannuation scheme — and I think that is all councils — the liabilities in relation to that vary from council to council depending on how many staff they still have where those defined benefits apply. I am going to use a known local reference in relation to this. When there was the last call-in, Yarra Ranges had to find a spare $13 million for its council services and $1.4 million for its library services.

We are not talking about loose change; we are talking about enormous amounts in relation to what councils may be called on to find money for. I am concerned how that will play out in a rate capping scenario.

I was delighted to see the Minister for Local Government release a second round of interface funding of $7 million for investment in community facilities and spaces across interface council areas. It was to ensure that communities across the state have access to the community facilities they need. However, there is a downside to this funding because any infrastructure a council builds it needs to maintain into the future. It is the ongoing maintenance of that infrastructure that is critically at risk. I believe that we will see councils start to short-change maintenance on infrastructure as rate capping starts to bite their budgets.

I was delighted also to see that the government had announced $1.15 million to help Victorian councils respond to the challenges of climate change. It is looking at building resilience in communities. It talks about the local government sector being a critical contributor to addressing climate change and says that it has already made significant progress in driving local action. I suspect that driving that local action might now be at risk because of rate capping, and as that budget hits these are the things that get the squeeze.

It was interesting to see the government put out a media release in relation to the federal government cuts costing Victoria's local councils $118 million, essentially talking about the damage inflicted by the federal coalition government's cuts to funding for local services. I say that rate capping is even worse and will bite harder than the non-indexation of financial assistance grants.

Another issue is landfill levies. This is a significant cost burden for local government. I want to draw the attention of the house to the recent Victorian Auditor-General's report Local Government — 2014–15 Audit Snapshot, which talks about landfill remediation and rehabilitation provision. The Auditor-General is explicit in saying:

Local councils need to define and plan for remediation liabilities so they do not expose ratepayers to the marked rate increases to cover costs that could have been foreseen.

This will be another hit on budgets that seem to be being hit left, right and centre.

In terms of how we think councils should go about consulting with their community, the Greens note that the minister says that this system she proposes gives citizens a real say in determining their council's funding priorities. The real way to achieve this is through deliberative engagement and participatory democracy. For examples of that we only have to look to Darebin, where they had a citizens jury in relation to infrastructure spending; the City of Melbourne, which ran a people's panel on allocating their budget; or the City of Yarra, which ran a citizens jury process in relation to the municipal strategic statement review. They are wonderful examples of deliberative engagement. That is a far better way to engage with your community on setting rates and delivering on the aspirations of the community.

The timing of this is interesting, of course. We know that next year is a revaluation year, so properties across Victoria will be revalued as part of a two-year process. I think ratepayers are going to be very surprised, particularly if they live in an area where their property has increased quite significantly in value. They are not going to be paying an increase based on the CPI but are going to be paying a far bigger slice of the pie when the rates are cast across the entire municipality.

The other thing that is interesting in this is that next year is a local government election year. What I suspect is going to happen is that any cuts in relation to services are going to be delayed until after the local government elections, because I am sure those councillors who are standing again really do not want to go anywhere near cutting any services. I think what we are going to see is cutting around infrastructure and things that are not so visible and that services will hang in there for next year, but in year 1 of the new term we will see enormous changes in relation to the provision of community services.

There is, of course, a great way to measure the success of our councillors and how they set budgets. It is through an election, and it comes around every four years. It is the real measure of successful engagement with their community. If they are not representing their community appropriately, then I suggest the real way for people to show that this is what they think is for them to vote out their councillors — or even better, run for council themselves and do a better job. That is the test of whether local government councillors are responding to their community. It is certainly the test that the Greens subscribe to.

In relation to this bill, the Greens have consulted with a number of peak groups. Firstly I would like to turn to what the Victorian Local Governance Association (VLGA) has said in relation to this bill. I will quote from the VLGA's newsletter. The president, Cr Sebastian Klein, refers to the fact that he was quoted in the other place in relation to what he had said, which was:

… that 'the best councils keep a tight rein on budgets and only spend what it takes to get a job done well'. However, as the ongoing commentary of the VLGA has made clear, due consideration must be given to the underlying financial situation of councils. It is also important that rate capping must not have the unintended consequence of reducing services and infrastructure for communities nor undermine the democratic role of councils.

The Greens could not agree more with Cr Klein in relation to that.

I note, too, the comments of Roberta Ryan, associate professor and director of the University of Technology Sydney's Centre for Local Government, who points out in the November edition of Company Director:

Nothing — big or small — happens in Australia without local government playing some part. Local government is not just another stakeholder. It is a democratically elected arm of government with a deep understanding of its community and is uniquely placed to shape the delivery of services to meet the community's needs.

I turn now to the Municipal Association of Victoria (MAV), which has provided to us some commentary particularly highlighting what Mr Davis has already mentioned as well — that the minister already has the power under the Local Government Act to set rates. The MAV has also raised concerns about the variation process that is outlined in the bill. The MAV is concerned that it does not mention the delivery of services or infrastructure for ratepayers, and nor does it refer to best value principles that are in sections 208B and 208C of the current act. Best value is, of course, about meeting terms of quality and cost of services, being responsive to the community, accessibility to the community, continuous improvement in the provision of services, regular consultation and regular reporting. I thank the MAV for its comments in relation to that.

Lastly, I refer to the Australian Services Union (ASU), for whom Ms Patten presented a petition in this place earlier this week. Certainly we welcome that petition as well. The ASU points out clearly:

It is important to reflect on the cost to communities across the state rate capping will inflict. Make no mistake, this cost will be measured in these terms: service cuts, infrastructure neglected and jobs lost.

The ASU sought advice from various councils projecting the hit to their revenues. In relation to that, City of Greater Dandenong funding would be cut by $50.1 million over the next five years and $219 million over the next 10 years; Darebin City Council funding would be cut by $170 million over the next 10 years; and Hume City Council funding would be cut by $71 million over the next five years.

As part of this debate I think it is important to look at history, because history reveals an interesting story. I am talking about the Kennett era and the consequences of rate capping in that time. In 1995, after amalgamating councils from 210 down to 78 — there are now 79 — the Kennett government forced rates down by 20 per cent. That government then imposed a cap of 1 per cent below inflation, which was running at 1.5 per cent in 1996. The cap was lifted in 1997 to allow for increases of up to 3 per cent.

Premier Bracks scrapped the cap in 1999. When last introduced, rate capping was a disaster for the elderly, the young and minority groups. It slashed basic services for the most disadvantaged, cut jobs and created a huge backlog in infrastructure maintenance, and some councils are still recovering from that backlog.

There are a number of reports available in relation to the value of local governments and what they provide to their communities. It is worth looking at the report of a recent inquiry into local government in New South Wales. As part of its commentary around what has been a significant inquiry, the report states that the financial sustainability of councils has been of significant concern, particularly in relation to infrastructure backlogs, underspending on asset maintenance and operating deficits.

The report goes on to say:

The committee considers that communities should be able to decide the level of services provided by their local council and the rates they are willing to pay for such services. We therefore recommend that the government evaluate the option of removing rate pegging and allowing rates to be set by local councils in consultation with their community.

The committee also recommended that, as part of the New South Wales government's planned review of the rating system, the government should evaluate the option of the removal of rate pegging and allow councils to determine their own rates conditional on the delivery of a local works plan outlining the expenditure associated with any proposed rate increases and demonstrated community support. The Greens would contend that that committee is spot on and got it right.

The Australian Centre of Excellence for Local Government has just released a report entitled Why Local Government Matters. On the role of government, the report states:

Australians overwhelmingly want their governments to play a role in providing many of the services the community needs, with 93 per cent of respondents agreeing to this statement.

Australians believe that local government is the tier of government best able to make decisions about the local area, with 75 per cent choosing local government compared to 16 per cent for state government and 2 per cent for federal government.

When surveyed on a range of responsibilities and their importance to residents, Australians rated how important particular things were to them. Of all the services, over 50 per cent of the survey respondents believed that these services were very important or important: water, sewerage, stormwater drainage, street cleaning and waste management, planning for the future, emergencies and disaster management, health and environmental management, parks, footpaths, roads and bridges, land use planning and development applications, libraries, community development, sporting and recreational facilities, youth services, economic development, aged care, promoting the benefits of the local area, child care and cycleways. From that we can see that communities really value the role of local governments.

It is also important to highlight the Victorian Auditor-General's report Asset Management and Maintenance by Councils, which was released in February 2014. The findings of that include:

The audited councils have not yet fully developed and applied sound strategic asset management frameworks and have not yet met the better practice requirements …

There is wide variation in the adequacy of council governance arrangements for asset management.

Asset management strategies were generally underdeveloped.

Significant underexpenditure of capital works budgets for several of the audited councils suggests there is scope to better integrate capital works programs with asset management and long-term financial planning to minimise such variations.

These are important recommendations and findings by the Auditor-General, because what we will see into the future is that the infrastructure that councils are responsible for will be under fire again as a result of a decreasing budget that can be spent on them.

I turn to yesterday's Local Government — 2014–15 Audit Snapshot. The Auditor-General highlights that last year the local government sector generated a net surplus of $1.5 billion; however, that was driven by the fact that there was an advance payment of commonwealth grants. The Auditor-General expects:

This strong position may be impacted by the introduction of rate capping in 2016–17.

He goes on to say:

Local councils face the challenge of meeting higher costs associated with the maintenance and management of infrastructure assets over time …

What is important in relation to the Auditor-General's most recent report on local government is that it highlights in relation to the capital replacement ratio that there are councils — metropolitan, large shires and small shires — that have already escalated to a medium-risk assessment. There is more risk coming their way. In relation to renewal gap ratios, the regional councils were highlighted as a medium risk. There is no joy coming the way of those councils, because their budgets are going to be even further impacted on than they are now.

In relation to the bill itself, I find it very curious that the minister may set an average rate cap by a general order. Before the minister makes that general order, councils must request advice from the Essential Services Commission. However, they only have to have regard to any advice received from the ESC. To me it appears that perhaps there is a bit of tokenism in relation to how big a role the ESC will play in providing that advice to the minister. It is all very well to ask for it, but if you do not have to implicitly accept that advice and only have regard to it, unfortunately that puts powers into the minister's hands that are very concerning in the long run.

We should remember that this act is going to be in place probably across many colours of government and not just this government. We should remember that this arrangement will apply across the board. Do we want a scenario where ministers have all-encompassing and enormously wide discretionary powers? I do not think that is good for local democracy. I certainly do not think it is good for local councils. I will be exploring that matter and many others during the committee of the whole.

Mr Davis mentioned the Standing Committee on the Environment and Planning inquiry into rate capping. An enormous amount of evidence has been produced as part of that inquiry and is on the public record through public hearings. In that evidence councils over and over reiterate their concerns about the erosion of service level standards, the deferral of capital expenditure on maintenance renewal and new infrastructure, the need perhaps to introduce or increase usage charges greater than the increase of the cost of providing the services, and ultimately cuts to services. That story appears time and time again across the sector. It does not matter whether you are a large metropolitan, a small regional, a growth interface, a non-growth interface or a peri-urban council; the fact is that your budget is going to be impacted on. For those very small councils, that is going to be significant, because of the rate base and the make-up of those small rural councils. It will hit them a lot harder.

I turn now to my conclusion. Ultimately, the Greens ask: will the benefits of rate capping flow to ratepayers? From our perspective, no they will not, so the Greens will be opposing Labor's imposition of a rate cap on councils because it undermines local communities and local democracy.

The Greens think councils should be run efficiently on behalf of ratepayers, but rate capping is a blunt tool that does not take into account local needs and priorities. The 79 metropolitan, regional and rural councils employ 42 500 Victorians and provide a range of essential services. A fixed rate cap puts many of these services that we all use at risk, including arts and culture, libraries and sporting facilities — pools, footy grounds, pavilions and tennis courts, and the list could go on. There are endless sporting facilities that local government looks after.

We are concerned about risks to infant immunisations and maternal and child health, children and youth services, Meals on Wheels, family support and counselling services, road repairs and drainage maintenance, animal regulation and statutory planning. Of course the bill does not even take into account the role of local government in relation to long-term urban planning and the development of structure plans, in which it plays a significant part. This may be under threat because councils will not have the capacity to fund that long-term planning on behalf of their ratepayers and their constituency.

We know when rate capping was last introduced in Victoria in the 1990s by the Kennett government it was a disaster for the elderly, the young and minority groups. That government slashed basic services for the most disadvantaged, cut jobs and created a huge backlog in infrastructure maintenance. There is no doubt that this time around Labor's rate cap will have a similar effect. Many councils already face enormous financial pressures, and I have spoken of some of them. That is by no means an exhaustive list. It is just a slice of what local governments have to deal with in relation to their local communities.

Local government plays an important role in Australian democracy as the third tier of government. The Greens want councils that support and represent their local communities; we want innovative and efficient councils that meet the needs of residents. Councils should develop budgets in partnership with their constituencies, building trust and engagement. Councils should also have enough revenue for basic services and infrastructure. Cutting revenue to councils with Labor's rate cap without making up the shortfall will only leave our most disadvantaged out in the cold.

Rate capping is anticommunity and antidemocracy. Rate capping does not take into account local needs. Rate capping makes it impossible for councils to provide the essential services and infrastructure maintenance their communities aspire to. Rate capping means higher fees and charges for the community at the pool, parking and footy grounds. Will we see that eventually those services are priced out of the hands of families? That would be a very sad indictment indeed. Will we see councils forced to turn to charging for immunisation, library services, public toilets or even school crossing supervisors?

Disadvantaged communities will be the most affected by rate capping as local services start to close. It is these communities that utilise many of the services, which are in fact the safety net for those of disadvantage. Communities should have a big say in what they want in their areas and how much they are prepared to pay for it. Communities should be able to decide the level of services provided by their local council and the rates they are willing to pay for such services. How many years will it be before we look back and acknowledge what a mistake this latest iteration of rate capping has been as we see infrastructure crumble, services lost and communities taking the brunt. The Greens oppose the Local Government Amendment (Fair Go Rates) Bill 2015. It is anything but a fair go for communities.