Victorian Rate Cap Policy Costs Economy Over 7,000 jobs and $890 million to GDP

The Victorian State Government’s policy to cap the rates of local government has cost the Victorian economy 7,425 direct and indirect jobs in 2021-22, and has reduced GDP by up to $890 million in 2021-22, according to new research from the Australia Institute’s Centre for Future Work.

Key Findings

  • The Victorian Government’s rate caps have reduced employment in Victoria (counting both direct local government jobs, and indirect private sector positions) by up to 7425 jobs in 2021-22. They have also reduced GDP by up to $890 million in 2021-22. The costs of suppressed local government revenues, and corresponding austerity in the delivery of local government services, will continue to grow with each passing year if the policy is maintained.
  • Rates on property are the largest single source of revenue to local governments in Victoria. Of total Victorian local government revenue in 2019-20 ($11.7 billion), rates accounted for $5.6 billion or almost half. Since 2016-17, the Victorian state government has capped the amounts local governments can collect from their ratepayers.
  • The rate cap policy, imposed by the Victorian state government on local governments, interferes with the mission of service delivery and expanded, secure employment.
  • The local government sector in Victoria employs about 50,000 people in a wide range of services and occupations, including road planning and maintenance, home and aged care, waste disposal, libraries, childcare, school crossing supervision, maternal and child health, the State Emergency Service, and environmental management.
  • The rate cap policy becomes more restrictive as the overall economy slows rather than less restrictive, since the rate cap is tied to inflation indexes which tend to slow when the economy is weak.
  • The rate caps act as a brake on recovery and growth by embedding a dynamic of self-fulfilling fiscal restraint and austerity.
  • Victoria’s rate cap policy has inhibited a normal trend of expanding and improving local government services in line with population growth, rising living standards, and economic expansion.

“Rate caps are an arbitrary policy which ties growth in overall rates revenue to price indexes which have nothing to do with demand for services or democratic accountability,” said Dan Nahum, economist at the Australia Institute’s Centre for Future Work.

“It’s not even the case that ratepayers necessarily save any money as a result of the rate cap. There has been a shift to other forms of revenue-raising that are less progressive and socially equitable.

“Rates bills are calculated based on relative property valuations – so even if local governments are collecting less from rates overall than they would in the absence of the cap, if your property value has gone up relative to others in your community, then your rates payments do as well.

“There is no evidence that rate caps makes local councils ‘more efficient’. Instead, it simply takes money out of much-needed council services and robs local communities of employment opportunities.

“Far from protecting ratepayers and residents, rate caps hurt them. Rate caps compromise service delivery, negatively impact employment and wages amongst residents employed in the local government sector, result in higher fees collected through other revenue tools, and reduce local government expenditures flowing back into the private sector.

“There is simply no good economic reason for rate caps. By abolishing the rate caps policy, the Victorian Government could create jobs and stimulate the economy post-COVID.”

Related research