Local Government (Rate Oversight) Amendment Bill

Second Reading

The Hon. D.W. RIDGWAY (Minister for Trade, Tourism and Investment) (11:43): I move:

That this bill be now read a second time.

I seek leave to have the second reading explanation and explanation of clauses inserted in Hansard without my reading it.

Leave granted.

The Local Government (Rate Oversight) Amendment Bill 2018 (the Bill) will amend the Local Government Act 1999 (the Act) to introduce a rate capping system in South Australia. The Bill will establish much needed oversight on council rates, restraining increases and requiring councils to make a clear and convincing case for an increase above the cap to both their communities and to an independent regulator.

Setting taxes—determining the contribution that our citizens make to the services we provide—is one of the primary responsibilities of government. The taxes we impose have a huge impact on how families live and how businesses operate.

Setting taxes is therefore a great responsibility. All governments must be truly accountable for these critical decisions, and highly responsive to the needs of their citizens.

Local government should be no different. Every year, ratepayers across South Australia make their contribution to the vital services that councils provide to their communities.

On the whole, people are prepared to pay their rates as they recognise and value these services. But the evidence is that councils have not held to their end of the bargain. While councils may claim that they make every effort to restrain rates increases—the fact is, that over the past decade, council rates have increased at a rate that is three times the level of inflation.

I can think of no other sphere of government that can increase its main tax to this level in disregard of the views of their communities.

Clearly more oversight is needed—and this is exactly what this Bill will deliver. The Bill will cap the amount of revenue that councils can gain through their primary rating tool, general rates. This will require councils to carefully consider the decisions they make around their own operations, and seek efficiencies ahead of greater revenue.

Of course I recognise that, from time to time, councils may have a need to increase their rate revenue above the capped amount. So I emphasise that councils will be able to do this – if they can make the case to the independent regulator that this increase is necessary, and that they have made every effort to engage their community and explain the reasons why an increase is necessary.

I now turn to the key elements of the Bill.

Firstly, the Bill establishes the critical role of the Essential Services Commission of South Australia (ESCOSA) in the rate oversight system. As the independent regulator under the Bill, ESCOSA will be responsible for the administration of the rate oversight system; determining the rate cap; receiving and assessing application from councils for variations to the cap; and undertaking the necessary compliance monitoring and reporting on the effect of the system.

The Bill clearly states the objects of the new Part 1A that the Bill proposes to insert into Chapter 10 of the Act to establish the rate oversight system.

The objects of the rate oversight system are to firstly ensure that the financial contributions ratepayers make to council services are subject to appropriate oversight.

This means that rate increases will be subject to the oversight of the regulator through the application of a cap – and that council requests for increases above this cap will be subject to the appropriate oversight of their communities.

The objects also clarify, that councils must have the financial capacity to perform the duties, functions and powers that are expected of them both by the Act and by their communities.

This reflects the fact that the rate oversight system has two key components – the cap that is set to restrain rate increases, and the ability within the system for councils to apply for individual variations on this cap. If a council feels it needs a greater increase in rates to ensure it financial capacity to deliver for its community, then it can apply for one.

In accordance with these objects, one of the most important elements of the Bill is the clause that enables ESCOSA to determine a primary rate cap. This is the mechanism that will cap the amount of revenue that councils can collect over a capped year from their general rates.

However, the Bill does not simply cap councils' total general rate revenue. One of the chief criticisms of rate capping schemes is that they do not allow councils to manage additional costs that can come from growth in their areas.

To ensure that this is not the case, the Bill proposes that the primary rate cap will apply to a 'base standard rate'. The base standard rate is a nominal single rate level that is calculated each year prior to applying the cap, by dividing a council's total annualised revenue by the number of rateable properties in the council area.

This method of calculation will mean that if the number of rateable properties within a council area increases, this growth will be captured in this council's annual calculation of the cap. While councils may apply for a variation of the cap if growth causes an extraordinary need; they should not need to do so simply to incorporate normal rateable property growth within their capped revenue.

ESCOSA will be able to make a rate cap determination for all councils, for a class of councils, or for a particular council. This will enable ESCOSA to vary the cap if there is a need to recognise differences within varying classes of councils (such as regional differences), or to make a determination for an individual council, should the specific circumstances of that council warrant it.

Additionally, the Bill determines that the primary rate cap applies to councils' general rate revenue. While councils can also receive revenue through the application of separate rates for particular purposes, or through service rates and charges for prescribed services, this revenue is effectively constrained through existing provisions within the Act.

However, the Bill does require councils to inform ESCOSA if they are planning to introduce a separate rate, or a service rate or charge, or change the basis on which rates are assessed against land before they take these actions. This will ensure that councils cannot effectively generate a rate increase above the cap through the establishment of an alternative revenue raising mechanism, or by changes to its rating policy.

Along with the establishment of a rate cap, the Bill recognises that the ability for councils to apply for a variation above the cap is critical to the rate oversight system.

It is a common concern from councils that capping council rates will inevitably lead to a reduction in services available to communities. However, the Bill establishes a process to enable councils that need to increase their rates can do so.

Councils that wish to do this simply need to make a case to ESCOSA that the increase they propose is necessary and show that they have undertaken proper community engagement on the proposed increase, so that their ratepayers understand why they are asking for it.

Councils will also need to show that they have made efficiencies within their organisation, fully considered their spending priorities, and explored alternative funding options before an increase above the cap can be agreed to.

The final key clauses of the Bill are the processes it proposes to ensure that ESCOSA can undertake the monitoring and reporting of the system that is needed, on both compliance with the system (which will be the subject of annual reporting) and on the outcomes of the system —the effect that rate oversight has on councils and their communities, which ESCOSA will report on every two years.

In line with the Government's commitment to a transparent and independent system, all reports received from ESCOSA will be required to be laid before both Houses of Parliament.

Transparency under the system also extends to include requests and directions from the Minister—the Bill proposes that ESCOSA must publish on its website Ministerial requests and directions it receives. A council that applies for a rate cap variations will be required to publish its application on its website, and to also report this fact in the annual business plan that it consults on with its community.

The Bill also proposes an amendment to the Act that will enable the Minister to take action based on a report from ESCOSA, to address any instances of non-compliance.

In summary, this Bill proposes sensible reform. It will restrain increases in council rates, while also providing councils with the tools that they need to continue providing the services and facilities that are important to their ratepayers and communities.

I commend the Bill to Members.

Explanation of Clauses

Part 1—Preliminary

1—Short title

2—Commencement

3—Amendment provisions

These clauses are formal.

Part 2—Amendment of Local Government Act 1999

4—Amendment of section 3—Objects

A reference to providing for appropriate financial contributions by ratepayers to (local government) services and facilities is included in the objects of the Act.

5—Amendment of section 123—Annual business plans and budgets

A council must ensure that an annual business plan also contains a statement (if relevant) relating to any application for a rate cap variation determination that it has made, or intends to make, or any rate cap variation determination relating to the council made by ESCOSA under Chapter 10 Part 1A.

6—Insertion of Chapter 10 Part 1A

New Part 1A is inserted into Chapter 10:

Part 1A—Rate oversight

187C—Objects of Part

The objects of the Part are set out.

187D—Interpretation

Definitions are prescribed for the purposes of Part 1A. Key definitions in the section are base standard rate, capped standard rate and varied rate cap.

187E—Primary rate cap determinations

ESCOSA may determine that the capped standard rate for a specified financial year must not exceed the base standard rate by more than the primary rate cap specified in the notice (a primary rate cap determination).

ESCOSA may make a primary rate cap determination that is to apply to councils generally or a class of councils and the matters that ESCOSA must consider before making such a determination are set out.

Section 187E also provides that ESCOSA may make a primary rate cap determination that is to apply to a particular council in certain circumstances and sets out a list of matters that ESCOSA must consider before making this kind of determination.

A primary rate cap determination must be set by 31 December each year, or by another date set by ESCOSA by notice published in the Gazette.

187F—Rate cap variation determinations

A council the subject of a primary rate cap determination applying to councils generally or a class of councils (but not one that applies to a particular council) may seek a rate cap variation determination from ESCOSA.

A rate cap variation determination specifies a varied rate cap (being a cap that is different from the primary rate cap applying to the council under the primary rate cap determination) for 1 or more specified financial years (up to a maximum of 5 years).

The matters that ESCOSA must consider before making a rate cap variation determination are set out. In particular, one matter that ESCOSA must have regard to is whether requirements given by ESCOSA under section 29 of the Essential Services Commission Act 2002 relating to the council giving information relevant to the application (if any) have been complied with.

187G—Rate cap variation determination applications

The requirements relating to an application for a rate cap variation determination are set out.

187H—Publication of Ministerial requests and directions

If the Minister makes a request of ESCOSA, or gives ESCOSA a direction, under specified provisions of Part 1A, ESCOSA must publish a copy of the request or direction (as the case requires).

187I—Council must notify ESCOSA of proposed separate rates, service rates or charges

Section 187I provides that a council must not change the basis on which rates are assessed against land under section 148 or declare a separate rate under section 154 of the Act or impose a service rate or an annual service charge under section 155 of the Act, unless the council notifies ESCOSA, in the manner and form determined by ESCOSA, of the proposal before 31 October of the year before the first financial year in which the change, rate or charge is to apply.

187J—Compliance with rate cap determinations

A duty is imposed on councils to comply with primary rate cap determinations and rate cap variation determinations.

Provision is also made that a failure to comply with a primary rate cap determination or a rate cap variation determination does not affect the validity of any rate, charge, interest or fine recoverable under Chapter 10 in respect of the financial year in relation to which the failure occurred.

187K—Administration

ESCOSA's functions relating to monitoring compliance with, and reporting generally on, the scheme set out in Part 1A are provided for.

7—Amendment of section 273—Action on report

This clause includes a report of ESCOSA under Chapter 10 Part 1A of the Act as an additional basis on which the Minister may take action in relation to a council under section 273.

8—Amendment of section 303—Regulations

The power to make regulations of a saving or transitional nature is amended so that such regulations may be made in relation to the amendments proposed by the measure.

9—Review

The Minister must ensure a review of new Chapter 10 Part 1A of the Act is completed by 31 December 2023.

Debate adjourned on motion of Hon. I.K. Hunter.