Local Government Rating Reform

New rate peg methodology to raise funds for growing councils and communities

The NSW Government will introduce a population growth factor in the annual rate peg from July 2022 to raise much-needed additional revenue for councils to fund key infrastructure in growing communities.

On 5 October 2021 the Minister for Local Government released IPART’s final report following its review of the rate peg methodology to accommodate population growth and accepted IPART’s recommendations.

Councils with growing residential populations will be able to raise notional general income by an additional population factor as part of the rate peg from 2022-23.

IPART estimates that this population growth factor would have generated an additional $287 million in rates revenue for local government in NSW over the past four years, with individual councils having received up to $86 million in extra income. 

The new population factor will be different for each council, adding any increase to its residential population, as published by the Australian Bureau of Statistics, and then deducting revenue that council has received from supplementary valuations.

IPART’s review of the rate peg methodology

In its response to the IPART’s review of the local government rating system, the Government committed to allow rating incomes to grow in line with population growth to generate additional revenue for councils based on any increase in residents. 

In late 2020 the Government then commissioned IPART to develop a methodology for population growth to be taken into account when it sets the rate peg which caps council rating revenue increases each year. As part of this review, IPART released an issues paper and a draft report as well as holding an online public hearing in 2021 before completing its final report.

To prepare for this important reform, an amendment was made to the Local Government Act in May 2021 to allow multiple rate pegs to be set.

More information about IPART’s review of the rate peg to accommodate population growth can be found on its website here.

Recent legislative changes

The NSW Government is committed to strengthening the performance and sustainability of local government. To deliver on that commitment, the Minister for Local Government introduced a Bill containing a series of sensible reforms developed collaboratively with the local government sector as part of an extensive public consultation process.

That Bill, now the Local Government Amendment Act 2021 was passed by the NSW Parliament on 13 May and assented to on 24 May 2021.  A copy of that law as passed by the Parliament made be viewed here.

This law provides for changes that implement the Government’s commitments to rating reform and enables superannuation contribution payments for councillors. It also aligns terms of office of chairpersons for county councils and joint organisations to their member councils and allows greater flexibility in the administration of elections.

Immediate changes to the rating system

There is now greater flexibility for councils formed in 2016 to harmonise rates from 1 July 2021. Each council can choose, in consultation with their communities, to harmonise their rating structures gradually over up to 8 years.

All councils, including those harmonising their rating structures, may also:

  • set separate residential rates for different residential areas
  • set different rates for farmland based on geographic location

Further information about IPART’s review may be found here.

When changes to the rating system come into effect

While the Local Government Amendment Act has been assented to, not all changes have come into effect. Some changes took effect on 24 May 2021 and may be implemented by councils and others will commence in future by proclamation, once regulations and guidance may be made to support implementation.

The following table sets out when each rating change commences.

ReformCommencesApplies toRegulations required?
Gradual rates harmonisationOn assentMerged councilsNo
Separate residential rates in urban areasOn assentAll councilsYes
Farmland rates by locationOn assentAll councilsNo
Multiple rate pegsOn assentAll councilsNo
New environmental land rating categoryBy proclamationAll councilsYes
Change to exemption for conservation agreementsBy proclamationAll councilsYes
More flexible business ratesBy proclamationAll councilsYes
New special rate for joint infrastructureBy proclamationAll councilsNo
Exemptions for special ratesBy proclamationAll councilsNo
Limiting postponementBy proclamationAll councilsNo

Local government webinar on rating reform

On 25 June 2021 the Office of Local Government held a webinar for local government about changes to the rating system arising from the Local Government Amendment Act 2021.

A recording of the webinar may be viewed here and a copy of the presentation slides is available to download here.