Revenue-Constrained Operating Environment

Increasingly the community voiced that it was no longer prepared to pay more for council services. A few years back we reached the tipping point where the community was making it clear it would consider reduction in levels of service rather than introduction of fees and charges or increases in rates.

Our two most populous states (NSW and Victoria) have a rate cap in place. We almost had a third state when Marshall’s Liberals won Government in SA, with a mandate to introduce a rate cap, which was denied by Opposition parties.

Rate-capping talk around the country resulted in some councils self-imposing rate caps. Some have gone to the extent of adopting zero percentage rate increases while others have adopted rate increases at lowest levels we’ve seen in over a decade. This has been largely driven by elected members trying to avoid a mandated rate cap.

For the decade prior to the rate cap being introduced, Victorian councils have been adopting budgets with 6% rate increase on average. The cap, which is 2% for the 2020/21 financial year, continues to leave councils with a revenue gap that must be addressed.

There are many ways towards sustainability, here are five steps councils could consider:

1. Reduce levels of service delivery and reduce headcount;
2. Prioritise delivery of essential services and reduce discretionary services;
3. Explore alternative/regional models of service delivery;
4. Borrow funds for intergenerational capital works/projects; and
5. Implement a strategy to increase own-source income.

The councils’ revenue-constrained operating environment was exacerbated in a COVID-interrupted 2020, due to various government imposed restrictions. Councils found themselves closing facilities and withdrawing services, which resulted in:

• significant loss of income and additional COVIDsafe compliance costs; and
• introduction of community relief measures and local economic stimulus packages.

Sustainability will be achieved by councils realigning levels of service against what their communities are prepared to pay.