Local Government (Rate Oversight) Amendment Bill

Second Reading

Adjourned debate on second reading.

(Continued from 6 September 2018.)

The Hon. C.M. SCRIVEN (16:26): I rise to oppose the bill. In doing so, I emphasise that the Labor Party did not make this decision lightly or without thorough deliberation. We have witnessed the waste and rorts that have occurred in some South Australian councils. Council-funded Apple watches and iPhones, and a CEO's Kooyonga Golf Club joining fee, valued in excess of $6,000 I am told, were some of the staff and member perks and rorts that have rightly shocked and appalled South Australian ratepayers in recent years.

We have heard the public's disgust and disappointment at these practices. These examples do not meet community expectations of appropriate governance standards. Furthermore, under the leadership of Peter Malinauskas, the Labor opposition has also embarked on a process of policy reassessment. We assess each policy on its merits, but when policies are assessed we consider several relevant factors, which include the important question of: what problem is the policy proposal attempting to solve?

It is this policy assessment process which reveals the first major flaw in the rate oversight bill. One of the major objectives of the bill was to deal with the waste and rorts evident at some councils. The theory was that if you constrain the revenue available to councils they will be more prudent with their expenditure. I will deal in a moment with how this bill does not even deliver an effective model for constraining council revenue, but the important point here is that the logic is flawed.

Evidence shows that constraining council revenue does not lead to better council expenditure practices. Research from the University of New England's Brian Dollery has found that the experience of the rate pegging system in New South Wales demonstrates that when council revenue is constrained council expenditures remain high and council debt is increased. New South Wales councils expend more money than South Australian councils per head of population, despite a system of rate pegging having been operational there for more than 40 years.

Poor governance practices are never going to be effectively dealt with through an ineffective revenue policy, which is what is proposed in the bill. The best method to deal with poor governance and expenditure practices is to address these problems directly through measures designed to empower ratepayers. This is why the Labor Party last year put forward measures in its ratepayer protection bill that would have increased the transparency and disclosure requirements on councils for major expenditures, annual budgets and member and staff expenses, as well as proposing constraints on the remuneration of the CEOs and a number of other reforms designed to improve council governance practices. But the Marshall Liberal government refused to support those reforms.

In this bill, the government has chosen not to trust ratepayers. Rather than equip ratepayers with the information necessary to hold their councils to account for how they raise and spend their money, the government wants to place an unelected bureaucracy in charge of how much revenue South Australian councils should raise through rates each year.

The Hon. J.E. Hanson: How much would that cost?

The Hon. C.M. SCRIVEN: How much would that cost, the Hon. Mr Hanson asks—a very good question. It is both undemocratic and ineffective. As the Leader of the Opposition has previously emphasised, this bill does not contain a rate cap. Despite the rhetoric around rate capping, this bill does not contain a rate cap.

The Hon. J.E. Hanson: Then what was it about?

The Hon. C.M. SCRIVEN: Indeed, as honourable members ask, what's it about? Instead, under this bill, ESCOSA is left in charge of a process which lacks guidance on the price index to be used to calculate the rate cap each year or the criteria to be used for assessing variation requests received from councils. ESCOSA is trusted to determine these key variables and the processes.

It is surprising that ESCOSA would be trusted with this responsibility, given its patchy record in constraining the prices charged for essential services in this state. As an example, between 2003-04 and 1 February 2013, ESCOSA had responsibility for regulating the electricity standing contract (or the residential retail safety net price) provided by AGL. In the final two financial years, under ESCOSA's regulation, the standing contract price for electricity increased by approximately 40 per cent for residential customers and 36 per cent for small businesses at a time when the consumer price index increased by only 6.3 per cent over the same period.

There are also a number of notable flaws in the mechanics of the bill. The costs of administering the scheme—equivalent costs being some $3 million annually in Victoria—is not addressed in the bill, and the costs of variation requests fall exclusively on councils, so more costs for councils.

The timing of council rate cap variations, falling due on 31 March of each year, including mandated public consultation processes, does not allow for flexibility for unforeseen events and will likely lead to increased administrative costs. The rate cap mechanics, which allow for council rate revenue growth to accommodate increases in the number of allotments, does not allow for rate revenue growth to accommodate an increase in the capital value of existing allotments. This would therefore penalise metropolitan councils which have invested in attracting capital investment.

However, perhaps the bill's most basic flaw is the government's underlying assumption that the annual determination and publication of a rate cap will constrain the rates charged to ratepayers. It will not. The flaw in this logic is simple, and one would think it would be obvious to those who are pushing this bill: if you publish a cap, councils will raise their rates to meet that cap, regardless of the need or merit for them to do so, because they have been provided with political cover.

Under this bill, because the rate cap will be published annually, councils will not risk forgoing rates for which they have political cover, as they will not know the level of rate increases that they will be permitted to charge the following year. Put simply, they will store the rate revenue for a rainy day, resulting in increased costs to ratepayers, possibly unnecessarily. This flaw was evident in the publication of the cap that ESCOSA would have enforced across South Australian councils for the 2019-20 year had this bill already been passed by both houses of parliament and assented to by the Governor.

Despite the minister's impassioned plea in the media for South Australian ratepayers to blame Labor for all council rate increases above ESCOSA's notional 2.9 per cent rate cap, the minister neglected to mention that all but four of the state's 68 councils publicly consulted on rates that were below this cap. They were below the cap that apparently ESCOSA would have been implementing. Some large metropolitan councils actually consulted on rates significantly below the 2.9 per cent notional cap. In fact, six metropolitan councils consulted on average residential rate increases of below 2 per cent.

If it was not for the Marshall Liberal government's shocking 40 per cent increase in the solid waste levy—the bin tax—

The Hon. J.E. Hanson: Bin tax.

The Hon. C.M. SCRIVEN: Bin tax bad—all but one metropolitan council would have delivered rate increases at or below ESCOSA's 2019-20 cap. Put simply, ESCOSA's so-called rate cap would have produced significantly higher rate increases than those being delivered across the vast majority of South Australian councils without it. For those few councils who have increased their rates above the 2.9 per cent cap, they would likely to have either been covered by a rate cap variation or been covered by an adjustment to the rate cap made to accommodate the 40 per cent bin tax hike.

Indeed, the Minister for Environment and Water, the Hon. David Speirs, in the other place indicated on ABC radio that the effect of the bin tax hike on council rates would have been factored into an increased figure for the 2019-20 rate cap, had a cap been in place. But remember, this rate capping bill does not include a rate cap.

The truth is that this so-called rate oversight bill confirms that the Marshall Liberal government does not have a rate capping policy; it has a rate capping slogan in search of a policy. It has a rate capping slogan in search of a policy; it does not contain a rate cap. The bill lacks detail. The bill contains a process that leaves most of the detail in the hands of an unelected body with a patchy record of restraining prices for essential services.

Most importantly, the logic underpinning the rate oversight system is flawed. Instead of ESCOSA's rate cap leading to lower council rates, it would have led to significant rate increases across the state, including the larger metropolitan councils. The rate oversight bill is poor policy, which will cost South Australian ratepayers if it is implemented. For these reasons, the Labor Party opposes the bill.

The Hon. M.C. PARNELL (16:35): This bill has been languishing on the Notice Paper for 12 months and now it is time to lance the boil. The Greens are pleased that today the government's rate capping legislation will be defeated. The commitment that we made before the last state election was that we would work constructively with local government and with other political parties to legislate reforms to improve the effectiveness and accountability of local councils. Our view remains that attention should now focus on improving accountability for rate spending and a host of other reforms that the local government sector has been calling for since before the last election.

Whilst the government was off sulking, the Greens and other parties were hard at work developing an alternative model, which passed this chamber many months ago and now sits languishing on the lower house Notice Paper because the government refuses to support it. Rate capping was bad public policy. It risked causing great harm to local communities without doing anything to improve accountability and transparency for how councils manage their budgets.

The campaign to oppose rate capping was very broad, with support from public sector and other unions as well as community organisations. For example, the Australian Services Union ran a 'Protect our local services' campaign that reminded people how much we value the local services that make our communities vibrant, inclusive and safe. Whether it is taking your kids to the local library or playground, swimming laps at your local pool, playing at your local sporting club, taking the dog to the local dog park or enjoying local food festivals and street parties, there is so much more that local councils do for the community that goes beyond the cliché of roads, rates and rubbish.

The state Liberal government's plan for rate capping would have been an arbitrary one-size-fits-all limit on council rates that restricts the ability of councils to provide essential community services that their residents and ratepayers want. Rate capping would have resulted in a reduction in services, reduced investment in infrastructure and backlogs in crucial maintenance. It would mean that the services that contribute to building strong and vibrant communities were either reduced or discontinued entirely. Rate capping also means communities pay more for the things that they love.

The Greens unashamedly support local services. We are committed to supporting local councils to provide the best services they can for their communities. That is why we have consistently opposed rate capping. Our view has always been to support local councils being able to raise the amount of revenue they deem sufficient in exactly the same way that state governments and the federal government do. In the aftermath of the last state election, much was said about mandates. The Greens' mandate includes opposing rate capping. We took it to the election and now we are following through. The Greens will be opposing this bill.

The Hon. F. PANGALLO (16:38): I will be brief in my comments about this ill-conceived bill, as I have already made my comments known in this chamber about rate capping in the Local Government (Ratepayer Protection and Related Measures) Bill introduced and passed in the upper house by Labor, which was supported by SA-Best and the Greens.

Let me start with this quote from the Minister for Local Government, the Hon. Stephan Knoll, when he was trying to sell his fallacious bill last year:

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.

I am not sure on what planet or in which world the minister was when he made that breathtaking remark. He only needs to look at what his own government and the Treasurer have done in recent weeks by upping taxes and charges, to quote him again, 'in disregard of the views of their communities', to conclude that here is the classic case of the biggest pot in the larder of government calling the little kettle black, so I viewed the return of this bill on the agenda with the cynicism it deserves.

Back in June, after months of delays, the minister finally released ESCOSA's report on setting a primary rate cap at 2.9 per cent that he said would have been effective from the 2019-20 financial year, which is now. To quote the minister again:

Now that we know what the rate would have been, we know which councils are hurting their ratepayers with above the odds rate hikes.

The rate…proposed by ESCOSA is approximately the same as the Local Government Price Index.

If only the state government played by those rules, too, by applying the CPI to their own cost hikes. As we know now, they have not done that with the waste levy, which has gone up a massive 40 per cent, forcing many councils to readjust their budget forecasts and their rates, which, before this shock, would have seen very moderate to zero increases. All that has changed. While some councils have decided to absorb the cost this time around, others had no choice but to cop it and lift their rates beyond the minister's mythical 2.9 per cent, as proposed by ESCOSA.

To add to the pain for ratepayers, the government, through the Valuer-General, is now rolling out new valuations for every commercial and residential property in the state. One Unley resident received his new valuation from the Unley council last week. It was bad news. Due to the revaluation initiative, the value of his property was increased by 89 per cent, meaning an 83 per cent increase in his new council rates. Some may go down, but the majority in this leafy, affluent area will rise, as they will in other areas, which in turn is going to impact on charges associated with them: water and sewage rates, the ESL, the NRM and, of course, the tax that has caused a huge backlash against the government of late—land tax.

Contrary to the Marshall manifesto going to the last election, they have increased taxes and charges and, with them, they will have broken their promise to bring down the cost of living. Their track record so far in government is not anything to write home about either. They will talk up some scientific and cultural knick-knacks at Lot Fourteen, a defence spend that is a long way from cranking up, and major infrastructure road projects using a lot of commonwealth money. Meanwhile, the jobless rate yoyos to depressing levels, business confidence is down, depending on who you talk to, and there are concerns that the land tax slug is going to batter investment confidence.

This has a ripple effect on the entire community because these costs inevitably must be passed on. So, as we have seen, council budgets have been readjusted beyond the 2.9 per cent set by ESCOSA. That is a strong argument against rate capping because the councils would then have needed to go cap in hand to the regulator seeking exemptions, and compiling those exemption reports would have cost councils a considerable amount of money without knowing whether or not they would be successful.

New South Wales has had rate capping since the 1970s. It has been a dismal failure, confirmed in a report by University of New England professor Brian Dollery, as outlined by the Hon. Clare Scriven, who compared New South Wales to non-rate capped South Australia. The mess it has created in that state is irreversible. Reduced revenues have caused higher levels of debt and large backlogs of infrastructure works. The proposed South Australian model is based on the Victorian one, which has been following a similar trajectory to NSW for the past three years.

Last year, a Victorian regional mayor, David Clark, told a South Australian LGA forum here that, if the state starts pushing up levies and charges, 'you'll be screwed'. Well, that prophecy has come to pass thanks to the Treasurer's money grabs in his second budget, and we are starting to see the signs of being screwed over.

The state government has continued to ramp up cost shifting to our local councils: the EPA levy, community housing, ESL and other costs that impacted on council revenues. With community housing, rates costs to Housing SA have been shifted to all councils when properties are transferred to community housing associations. I know of one council where frozen indexation of the federal government's financial assistance grant has cost them $400,000.

The City of West Torrens has been saddled with a government-owned white elephant called Cummins House, which needs a $400,000 refurbishment. Attempts by the council to get minister Knoll to the table have proved fruitless. In the landscape bill currently before us, minister Speirs wants councils to absorb the costs of collecting the NRM levies, but the government wants the full amount paid in advance, leaving the councils to absorb the costs of trying to recoup shortfalls in collections. Is that fair on communities? I think not. I believe the government should collect its own levies and taxes, and I am proposing that amendment in the Landscape SA Bill.

I did mention in the speech of last year that the Productivity Commission should look at local government and rate capping. I am pleased that this has happened, and we are likely to see their report soon. Minister Knoll uses every opportunity to try to discredit local government, peeved that they rejected his proposals, and the poor turnout in council elections last year hardly raised a ripple about rate capping. But, because of the recent budget measures that have impacted on council rates, he can now come out and say: 'I told you so. We would've kept rates frozen at 2.9 per cent if you had listened to us.'

Concurrently, he has outlined his own plans for reforming local government, which he intends to start rolling out by the end of the year. Perhaps that is where he needs to explore his rate capping idea. As the Local Government (Ratepayer Protection and Related Measures) Amendment Bill covered, here is what is needed for local government reform: improved transparency, accountability and corporate governance; community engagement; financial and asset management; driving efficiencies like administrative costs; collaboration with other councils, agencies and government; regional collaborations; voting reforms; and establishing a local government commission.

A commission would be answerable to parliament; oversee local government and councils; handle matters referred to it by government or parliament; monitor performance; offer guidance, support and oversight; and also look at charges, including rates. As the much admired and respected former mayor of West Torrens and former Speaker of the House of Assembly, the Hon. John Trainer, put to me about his own debt-free council: 'Why would we want to be involved with the hindrance of a "rate capping" publicity stunt that is akin to doing delicate brain surgery with an axe?' SA-Best does not support the bill.

The Hon. J.A. DARLEY (16:49): I rise to speak on the Local Government (Rate Oversight) Amendment Bill. This bill was introduced by the government as part of their election promise to cap council rates. I want to put on the record that I am supportive of capping council rates; however, I believe that certain matters need to be taken into consideration in conjunction with rate capping.

First of all is cost shifting. We have recently seen the state government dramatically increase the waste levy, a move that will have a significant impact on councils and their budgeting. Councils are responsible for the collection and disposal of household waste, so increasing the levies that are payable for disposing of this waste at commercial waste stations will increase councils' operating costs. I understand the government's rationale for this is to encourage councils and the community to reduce the amount of waste that is produced; however, I question whether merely increasing the levy is the most effective way to achieve this outcome.

When the government dramatically increases a cost that councils have no choice but to pay, it seems very unfair to also cap the amount of revenue they can collect to cover this increased cost. If councils are unable to collect more money to cover these costs, it will mean that services they currently provide will have to be cut, undoubtedly a move that will not be popular in the community. I feel that the matter of cost shifting has not been addressed in the bill.

I do not dispute the fact that there is growing concern about the manner in which some councils spend their money. We see some council chief executive officers on salaries higher than the Premier and I have been contacted by many constituents who are alarmed at the proportion of council revenue that is attributed to salaries for council staff. We have seen certain councils embroiled in controversy over items that ratepayers have footed the bill for, such as golf club memberships, Apple watches and meals at expensive restaurants. Expenditure on these sorts of items does not often pass the pub test and it is why councils often receive criticism.

I do acknowledge that councils are not the only ones who are criticised for such matters: there have been similar criticisms of spending within the South Australian Public Service. To me, this shows that there are improvements that can be made across the board, rather than just focusing on one government area.

The second matter that does not sit well with me is the manner in which the government plans to calculate the cap. These details are not in the bill; however, a proposed strategy was presented to me many months ago. I remember it being somewhat complicated and I had concerns that much of councils' time would be occupied with applications to exceed the cap, an exercise that would cost councils time as well as money. This is not the desired effect of the bill.

In speaking to the minister, I discussed with him an alternative way to calculate the cap that involved the principle of zero-based budgeting and adding a percentage on to this each year, plus allowing the councils to benefit from natural growth from subdivision and new development. I understand the minister is not minded to change the method of calculating the rate cap.

I am surprised that the minister has decided to move this bill, as I understand not much has changed from when it stalled in the house many months ago. I eagerly await to hear from the minister as to why they are now progressing the bill, given the numbers do not seem to be there to support the passage of the bill. In view of that, I support the second reading; however, I reserve my position on the other stages of the bill.

The Hon. R.I. LUCAS (Treasurer) (16:53): I thank honourable members for their contribution to the bill and indicate on behalf of the government that it would appear, from the publicly stated positions of members, where the numbers lie, and potentially when we come to divide on the second reading we will see whether or not those numbers are indeed as have been publicly indicated. The government remains mightily disappointed in particular with the position that the Labor Party has adopted in relation to this, also supported by crossbenchers in this chamber.

The Marshall Liberal government has pledged to try to protect long-suffering ratepayers in many councils in South Australia from councils that continue to rack up significant increases in council rates without any concern in relation to some of the issues. It is disappointing to see, as we have seen in some of the contributions, members of the Labor Party continuing to defend some of the excesses that have occurred within councils and, indeed, in some cases within councils they have very close connection to.

I had a recent meeting with people representing rural media interests and they indicated to me that one of their concerns was councils who were funding their own online media outlets in competition with the local country press. I said, 'Tell me this is not true, that the ratepayers in your councils are actually funding media outlets in competition with their local country press,' and they said, 'No, that's the case.' That is one of the problems: if there are no controls over councils, if there are no controls in relation to what they can charge, then they continue to find new ways to cause grief in the community by spending money on a whole range of issues that are not their main cause for existence.

I speak up on behalf of some representatives of the country media here, the rural press. As I said to them, 'Why are you as ratepayers supporting your councils making decisions such as this and incurring ratepayer expenditure?' Some of the excesses that we have seen in the statewide media in relation to executives and office holders in councils who obviously think they are something akin to ministers in the former Labor government like minister Mullighan, minister Koutsantonis and minister Bignell.

I recounted in question time today some of the excesses of former minister Mullighan. It is a sad fact that, unless there are some controls in relation to these particular issues—and in relation to councils it comes back to the rate revenue capping option. As we have seen under the former Labor government, sadly these sorts of excesses are increasingly being reflected in office holders and senior executives within local councils.

The Hon. C.M. Scriven: You rejected the very deal that would have controlled those excesses.

The Hon. R.I. LUCAS: This bill would have controlled that and it is the Labor Party that is opposing it. In recent weeks, I have again been canvassing public opinion on this issue—not the opinion of the stakeholders, the local council mayors who are obviously agitating and the Labor Party and the unions, etc., I have been surveying actual ratepayers out in the real world and asking them, 'Do you support rate capping or don't you?'

I have been overwhelmed by hundreds of ratepayers in South Australia who strongly support the proposition of the Marshall Liberal government to cap council rates in South Australia. They wholeheartedly reject the dismal policies of the Australian Labor Party and the opposition in relation to this particular issue. They are on board.

I thought, 'Okay, there's been a very significant campaign, and the Labor Party, the crossbenchers, mayors and fellow stakeholders have been running a relentless campaign and maybe what they have done is they have convinced a lot of ratepayers that that view is right and the government has got it wrong,' but, no way in the world.

I challenge members of the Labor Party and others in this chamber to go out and run your own surveys, and talk to real people about rate capping and see what they say to you. They overwhelmingly support the position of the Marshall Liberal government, and they overwhelmingly reject the dismal policies of the failed former Labor government, supported by other stakeholders in this particular area.

So I am mightily disappointed on behalf of the ratepayers of South Australia that it would appear that this particular bill may well be defeated at the second reading. On behalf of the minister, can I indicate that the government is still undertaking a local government reform program following a round table with mayors earlier year. Online consultation on YourSAy occurred from 26 March to 26 April. Following this, the government has been working on a discussion paper to be released in the near future on the reform proposals.

The reform program focuses on four areas. First, stronger council member capacity and better conduct. Council members nominate for council to make decisions for and to act in the best interests of their community. Legislation plays an important role in assisting them to do this and to ensure that their decisions are always made with the highest standards of integrity. The government has sought ideas on the tools that councils need to ensure that relationships amongst their members are constructive and that all council members have the knowledge and skills to perform their roles.

Secondly, lower costs and enhanced financial accountability. We are interested in ideas about ways to improve the provisions that guide all councils' financial accountability, to deliver a system of local government that council constituents see as robust, sustainable and transparent.

Thirdly, efficient and transparent local government representation. The review will also incorporate a review of the 2018 local government elections. This review may consider all aspects of local government elections: for example, voting methods, the voters' role, the timing of elections, the role of candidate donations and information provided to voters.

Fourthly, simpler regulation. This review is an opportunity to identify statutory requirements whose costs outweigh their public benefits.

On behalf of the minister I also note that the government has tasked the South Australian Productivity Commission to inquire into local government costs. The commission is inquiring into local government costs and efficiency. The inquiry will examine trends in local government costs and the drivers of these costs, as well as developing and analysing measures of efficiencies. Mechanisms and indicators that might be used by local government to measure and improve performance will also be identified. The commission will provide advice and recommendations on options for improving efficiency in local government operations.

The Marshall Liberal government looks forward to the outcomes of the report and the discussion paper to inform its local government reform bill. With that, I urge members to support the second reading of the bill.

The council divided on the second reading:

Ayes 6

Noes 9

Majority 3

Second reading thus negatived.