Why are my rates going up? It could be the fault of the state — not local — government

The average New South Wales ratepayer is coughing up $497 a year for services that should be performed by the state and federal governments, an independent report commissioned by Local Government NSW has found.

On Monday evening, Willoughby City Council moved a motion to work with the NSW Government and other local councils in order to work out how to address this problem, seeking to deliver “fair and sustainable funding arrangements for local government.”

What is cost-shifting?

The Australian government has three different levels: federal, state or territory, and local. 

Each of these levels performs different functions via different revenue streams. 

While the federal and state governments are able to generate revenue through taxes, local governments rely on rates and charges (such as those placed on pet registration) in order to finance themselves. 

Cost-shifting occurs when the responsibility for doing a job is placed on local governments without the corresponding funding to make this possible. 

As such, the cost is passed onto the ratepayer: local government’s main revenue of income.

What does it mean?

Cost-shifting is listed as a key factor in rate-rise requests for local councils across NSW. 

According to the report by Local Government NSW, the average amount of costs shifting onto local councils in the 23/24 financial year was $1.5 Billion. 

This is a 10 percent increase from the previous financial year, in which the figure estimated was $1.36 billion.

What costs are being shifted? 

While costs are spread across a variety of services, according to the report the biggest burden on local government is rate exemptions. 

In NSW, a variety of property owners are not required to pay council rates due to exemptions. This includes land owned by other levels of government — because the government does not need to pay itself tax — as well as exemptions given on land used for purposes like education, religion and health.

Government entities excluded from paying rates include State Owned Corporations such as Sydney Water and the NSW Forestry Corporation. Private property owners exempt from paying rates include private schools, hospitals, retirement villages, and religious organisations.

In the Willoughby City Council meeting, Mayor Tanya Taylor emphasised the urgency of the matter, stating that “cost shifting is happening as we speak”.

Speaking to the Lorikeet earlier this year, Warringah MP Zali Steggall described the impact of cost shifting as “unsustainable” on local councils.

“State governments, to make their budgets look better, put costs onto local governments, and they have no avenue other than to pass it on to rate payers.” 

According to the audit office of NSW, about 40 percent of councils did not break even in the 23–24 financial year.

Image credit: Joshua Hoehne via Unsplash