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House of Assembly - Fifty-Fourth Parliament, First Session (54-1)
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Bills

Local Government (Rate Oversight) Amendment Bill

Second Reading

Debate resumed.

Mr BROCK (Frome) (16:54): I rise today to speak on the bill. The bill being debated today, in my opinion, is being discussed without a complete understanding of how it would work, and I will explain a little bit further on. The merits or otherwise of the concept of rate capping have, I believe, not been fully explained to the community itself. To the general community, this idea sounds excellent and very attractive, but I do not think they really understand the consequence that may eventuate from it.

What on the surface seems to be a really obvious move on the third tier of government might well prove to be, in the end, only a cost-shifting exercise. South Australian councils, as with Victorian councils, can introduce a service charge, and South Australian councils have already had that opportunity.

I know from experience during my time on council, when we experienced a couple of years where the Port Pirie Regional Council had to do exactly what we are proposing to do today—that is, we had a rate capping situation there for a couple of years due to the amalgamations going on there—this created not only extra red tape, time delays and extra costs but was also very frustrating for the administration not being able to get their budgets out on a regular basis. We need to ask ourselves: will this bill really and truly reduce the cost-of-living pressure we are all keen to curb in this house?

The Hon. T.J. Whetstone: Yes, it will.

Mr BROCK: Thank you to the member for Chaffey. Is there a better way to work with local government to achieve this end? Will councils need to reduce their all-important community services, implemented to ensure that people have access to vital services not provided elsewhere? How will councils cope with the additional costs in dealing with waste collection, disposal and recycling?

I am asking this because I think that we need to really seriously look at the consequences of this. I am not saying that all councils are operating effectively and efficiently, because some of them are not doing that and they need to look at themselves. Local councils, or local government, are currently responsible for what they extend to their ratepayers in the way of services and costs and they have to answer for their actions.

If this bill comes into effect and the situations become drastic due to not being able to raise sufficient funds, then the councils themselves will not be held responsible because they are being told by an outside authority what funds can be raised. Again, I am not saying that councils all operate efficiently, as they are all varied and, in my view, the whole of the Local Government Act needs to be given a complete overhaul. I had a discussion with the Minister for Local Government today regarding that.

Many of the details of the rate capping model are not completely defined in the bill and are yet to be established by the proposed regulator, which I understand will be ESCOSA. There is no detail provided on the methodology or the formula in determining how a price index will be determined. I also understand that ESCOSA has indicated that an issues paper will be released in August 2018 on these additional details; however, we are debating this bill here today without this issues paper.

I also understand that there has been an agreement with the Local Government Association where they have gone out to all their councils asking for their view of acceptance or non-acceptance of this form of the bill, to be returned by Friday 3 August. I have heard from previous speakers that the government have fully consulted local government and the community. I question whether the current situation, where this information is not coming back until August, is a complete and honest consultation.

Do not get me wrong, local government needs to have a close look at their operations and how they communicate with their constituents to try to increase the community's confidence in councils. There has been over many years lots of cost shifting from state governments to local councils. One of the areas where governments can assist is with the appearance of rate notices, which is what people look at. They look at the total rate notice, which also includes the natural resources management fee, which, I believe, and I have said this before, should be collected by governments as they do with the ESL.

There have been comments that this will eliminate the excessive moneys that councils may expend, such as on presents, flowers, legal fees, etc. These costs currently may not be seen directly by the elected members, but are authorised by the administration and may still not be made directly visible to the elected members who, by the way, are the board of directors. That is why I am saying the Local Government Act needs to be completely changed to give more autonomy back to the elected members.

The proposed bill could be referred to the newly established Productivity Commission, providing extra scrutiny and an opportunity for better public understanding and awareness and enabling them to make a well-informed decision. I have had consultation within my electorate, during which time the rate bill did not come up, though the issue of council communication did. I have been listening very closely to this, and I will be listening very closely in the debate session, bearing in mind that, although the government has the numbers in this house, whatever will happen in the Legislative Council will be the deciding factor.

As previously mentioned, local government is unique, in that the system allows councils to decide their spending before adjusting their income. This bill reduces their accountability. There have been many occasions over the years when governments have given grants to councils to provide for certain projects over a certain period of time. The councils then establish those projects or services and, after a period of time, the government subsidy is withdrawn.

This happens at both the state and federal levels. When that subsidy has been taken away, the community still requires and requests that those services continue. Who picks that up? The councils continue to provide the service and, again, that is a system we really need to look at very closely—cost shifting in another form. Again, I believe that local governments themselves need to take a close look at their operations.

As has been mentioned, not all councils are going to be affected by this; it is a minority. I think there is a better way of doing this than implementing rate capping. I will certainly be listening very closely to all the discussions. I have just printed off all today's Hansard and will be going through that, but I will be listening very intently during the committee stage.

The Hon. V.A. CHAPMAN (Bragg—Deputy Premier, Attorney-General) (17:01): I rise to speak on the Local Government (Rate Oversight) Amendment Bill 2018. In doing so, I would first like to acknowledge the provision in the Constitution Act 1934 and in particular section 64A, which was inserted in 1980. It was designed to provide a constitutional guarantee for the continuance of local government in this state.

In particular, it provides that there shall be a system of local government in our state, of which the powers are set out by the parliament as considered necessary. Secondly, the manner in which the local governing bodies are to be constituted, and their powers, functions, duties and responsibilities, shall be determined by this parliament. Thirdly, no bill, in respect of applications before this parliament, essentially can act to cease a system of local government in the provisions of the aforementioned subsections (1) and (2), unless it is passed by an absolute majority of members of each house of parliament.

Local government exists essentially within the parameters of what this parliament determines it is to do. Essentially, that is outlined in two significant pieces of legislation: the Local Government Act 1999 and the Local Government Act 1934. Why do I mention this? I think it is important for us to remember that having an oversight principle added to the legislation is consistent with what this government had committed to do in the lead-up to the election if we were successful—that it is something we would do. Its purpose was to ensure that there was some management of what had clearly been identified as unacceptable expenditure on behalf of some councils in South Australia and, most importantly, to provide financial relief and certainty to those in the community who pay the rates.

In that respect, can I say that, yes, I am a ratepayer. I confirm that I am a ratepayer in three councils in South Australia: the City of Adelaide, Kangaroo Island Council and City of Burnside Council. As you might expect, all of these are varied and reflect the diversity of councils we have across the state. I hear other speakers contributing to this debate and being somewhat critical from time to time of some councils members and, in particular, their reasons for being there.

I am sure there are examples of that, but on the whole in my experience, even though I have never been a member of the council board or aspired to be, I have very high regard for those in the community who put themselves forward in pretty much a voluntary capacity to provide leadership within the terms we have identified here in the parliament. I commend them for doing that work.

In the time I have been here in the parliament I have been deeply disappointed in having been asked to amend the local government legislation from time to time, and in having sought advice and indications of the work and views of councils via the Local Government Association, which is essentially the union for councils. They have been challenged from time to time because sometimes their published view was consistent perhaps with some of their large metropolitan councils but not consistent with smaller regional councils, and there has been much debate over that time as to whether in fact they are an effective body in being able to provide a unified view that is for the benefit of their membership, diverse as it is.

All that said, this side of the house gave a commitment to provide this oversight provision, and that is exactly what we intend to do by pursuing this legislation. I also want to point out that in the Local Government Act 1999 the functions of the council include many things, and the principles to be observed by a council are detailed. They are a bit like the Ten Commandments, I can tell you. The last two paragraphs in section 8 are:

(j) achieve and maintain standards of good public administration;

(k) ensure the sustainability of the council's long-term financial performance and position.

The question of good public administration has been repeatedly brought into question in respect of examples. I do not vote for my local council in expectation that they are going to provide the CEO with a golf course membership. I vote for my local councillors on the basis that they will administer their area of responsibility, as per the principal role, functions and principles outlined in the act and that they ought to be complying with them. When they have not done so, as a parliament we have not only a responsibility but an obligation to provide for some variation to those rules. That is, as I say, exactly what we are doing.

I will refer to one of the issues that has been raised with me during the course of this debate. I am perfectly satisfied not only that this measure is necessary but that the formula that has been presented is achievable and is a sensible way to deal with the issue. It does have the supervision of ESCOSA. Members should read the legislation carefully, and of course members may have some questions of our minister in relation to the particular workings of it, by all means. It is important that if, for example, the member for Light is a bit clueless as to how it is going to work, of course his opportunity is to ask some questions during the committee to make sure he is fully apprised and fully understands how it is going to work.

My issue, which I bring to the parliament and which has been reported to me is: how do we ensure, even with rate oversight legislation, that councils will not subvert this process, if they wish to, by borrowing significant amounts of money—that is, they will not use debt financing to essentially avoid this? They could, by borrowing a significant amount of money, for a period of years have some servicing arrangements which are still achievable within their annual budget but which would enable them to explode into the debt financing of significant projects or pursuits that they want to follow.

Obviously, the answer to that is that ultimately they would be caught up because they would still have to service these debts, but a lot of damage could be done in the meantime. A council could obtain millions of dollars worth of debt, secured on the assets within its region, and then not be able to avoid some capping in relation to it. We have to consider whether they might attempt to do that. If they do, I remind them that there are obligations under the act already with respect to their financing and the representation they have in respect of their obligation. I am just going to go to the objects of the act again, and section 3(f) provides:

(f) to encourage local government to provide appropriate services and facilities to meet the present and future needs of local communities—

and of course then areas in relation to a sustainable manner in their operations and the like.

I suggest to the parliament that there is already a framework of legislation which would fundamentally be breached if a council were attempting to borrow significant moneys to support some profligate spending that was unacceptable in the objects and pursuit of supported services to its community, and that is a matter which, of course, then may attract the attention of the minister and certainly this parliament. I am sure that the ratepayers in those circumstances would be outraged, and they would have every right to come to us and seek support for even further reform.

In any event, this is a modest means by which the identified, I think, breach of trust of some councils in respect of some of their expenditure will be brought to attention and arrested and which would be a helpful and protective measure against inappropriate spending by councils to the detriment of their taxpayers. I commend the bill.

Mr MURRAY (Davenport) (17:11): I rise to support the Local Government (Rate Oversight) Amendment Bill. Of course, its passing will represent the delivery of an election commitment by the government. It is a measure by which we will deliver not only accountability to the sector but also more importantly in many respects savings to the long-suffering ratepayers of South Australia.

In the last 10 years, as other speakers have pointed out, rates have increased at roughly three times the level of inflation. That is, general rates have increased by three times the level of inflation and over double the level of the equivalent local government price index (LGPI), with a 67 per cent rate increase compared with an increase in the cost of living suffered, if you will, by the councils of some 31 per cent. So councils have had their own cost pressures of some 31 per cent in the last decade and they have in turn passed on a 67 per cent rate increase to their constituents.

I am the only member on this side of the house who resides in and who has a vast majority of my seat in the much-maligned and quite infamous council of Onkaparinga. As others have pointed out, Onkaparinga has had a 74 per cent rise in rates in the last decade. I have been a resident in the area in the same home for in excess of 25 years. What I do not propose to do is list or relist all the egregious expenditure, abuse of expenditure etc., for the council of Onkaparinga.

What I can do, which I suspect no others certainly on this side of the house can do, is attest to the fact that the services provided in the last decade have not increased by the comparable amount, that is, the 74 per cent. I can see the rise in rates, certainly on my own property, on my own home, and there has not been anywhere near a comparable or, in fact, discernible change in service levels in this area.

Speaking on my own behalf and on behalf of the roughly 80 per cent of the people in the seat of Davenport who call the council area of Onkaparinga home, most of us deeply lament the passing of the Happy Valley council in 1997 when it was merged with the Noarlunga council to create Onkaparinga. The relevance in this context, as it has been put to me, is that the Davenport part of the council of Onkaparinga—which totals about 178,000 people at this stage—is used as pretty much an ATM for the southern parts of Onkaparinga. That is a very, very strongly held view.

Furthermore, the reality is that collectively we have no real means to step in to try to engender some further measures of accountability in particular and, as I said earlier, to try to reel in what has largely been unaccountable expenditure. This bill was not just an election issue for me, but it was the number one election issue in the seat of Davenport. As I said, 80 per cent of the electors in Davenport are residents in Onkaparinga and nothing united them as much as this single issue. The bill has massive community support in my electorate and, as I said, I wholeheartedly concur with the support.

I make the point to those opposite in the Labor Party that in supporting this bill they would be enabling mums and dads, ordinary households, people in suburbia—many of whom they have in their own seats—to have some means of controlling their cost of living. I urge members to assist their constituents, the mums and dads. This is a measure designed to enable them to have some control over the costs imposed on them, in this case by local government. I urge your support for the bill both in this place and the other. Quite frankly, if we look at the last decade, what has occurred in terms of the increase in rate prices is indefensible.

In moving to close my argument, I make the point that rate capping is in my view entirely the wrong way to look at this; it is the wrong word to use. What we are talking about is not capping rates. We are limiting the increase in rates to some notion of the rate of inflation. Rates can still increase and remain real so far as their value is concerned. Of course, councils have the discretion to apply for increases over and above the CPI growth should they, for example, have projects for which they have the support of the community, be it new sporting facilities or the like. We have heard some discussion about the methodology behind ensuring, particularly in councils with high growth, that they are not unduly disadvantaged as well.

As I said, I urge Labor to support this move, but I close by daring Labor to not support it. I would be very happy to go around my community in 2022 and to say that the Labor Party prevented my community from enjoying the relief that this bill brings given that 80 per cent of them are residents of Onkaparinga, as I said. I urge you to support the bill, but from my own personal perspective I dare you—

Mr Brown: I'm confused.

Mr MURRAY: You are confused? It is pretty simple. You can do the right thing by the people of South Australia. If you do not want to do that, I dare you not to support the bill.

Mr Brown: Do you want support or not?

Mr MURRAY: That is up to you. Those opposite are going to be accountable to their communities. If they do not support the bill, I will relish the opportunity to speak to my community about their lack of support if in fact they choose not to listen to my constituents and, indeed, their own. I commend the bill to the house.

The Hon. S.K. KNOLL (Schubert—Minister for Transport, Infrastructure and Local Government, Minister for Planning) (17:19): I rise to thank everybody for their contributions on this bill and note the contributions were mainly from my own side, as it turns out. The opposition has not necessarily found its voice. Just to address a couple of the remarks made by the member for Light in his contribution, which was quite incendiary, I think that some people are quite frustrated by the fact that I look quite young and struggle to grow a beard. To those people, I say this: I have been elected by the people of Schubert twice; they certainly did not think I was too young. Having said that, I think that the insinuation in here is a bit cheeky, but that is fine. I think we will all move on.

The member for Light, in his contribution, tried to suggest that I was being a little bit—how do I put this delicately—pushy when it comes to trying to get this legislation through, and in my view of how local government operates. I agree that there is a line here that needs to be walked; that is, to encourage the local government sector on a path of reform. However, to do so means that we have to highlight some of the faults and failures of local government, and I think it is right and fair that we highlight those.

Chief amongst those, and what we have used as the basis for the reason that we need this rate capping legislation in the first place, is that we have seen on average 6 per cent increases over the past decade. That is as strong an indication as we need that there needs to be change, and this legislation will address that. That is not to say that the local government sector broadly, and every council for all time and all history, has only ever done bad things. That is not what I have said at all, and I think to construe my comments that way is disingenuous. It is however to say that there is a clear case and a clear need for reform.

Simply going back to a ratepayer base to ask for increases at roughly three times the rate of inflation year on year for the past decade is not okay, and we need to look at another way. We need to be fair, and we need to be open and honest about that, and that is what we have done. That is the basis on which we are seeking reform. The other side of the equation is that we also need to be willing partners in reform with the local government sector.

In the speech that I gave at their special meeting a couple of weeks ago, that is exactly the message that I wanted to send: yes, we do believe that the local government sector needs to do better. Yes, we believe that rate capping is a way to address the exuberant increases that have existed. But, we are also willing partners in reform when it comes to helping the local government sector to be more effective and efficient and, I might add, deal with a lot of the good ideas that the local government sector has brought to the new government. There is a strong will and desire in the local government sector for reform, and they have a willing and able partner in the state government.

We have said that we are seeking to implement the best rate capping scheme in the country, and I stand by that statement. The other major concern that the member for Light rightly raises is the claim that we make, and stand by, that this legislation incentivises growth. It incentivises growth mainly, and quite explicitly in the bill, in relation to the growth in the number of rateable properties. We have a hard revenue cap, like that which exists in New South Wales, that just caps revenue. It is very simple: there is your revenue in one year; this is what you can put it up by with no allowance for anything else.

In putting together a model that allows for annualised general rate revenue, we provide a mechanism whereby year-on-year growth of councils can be included. We are explicit in relation to the number of rateable properties, but ESCOSA has the complete power to be able to have regard to other factors. In relation to improved capital growth, to the extent that that is a calculation that can be included as part of the annualised general rate revenue—part of, essentially, the allowance for growth—that is something that can be included on advice from ESCOSA.

The Hon. A. Piccolo: Can.

The Hon. S.K. KNOLL: That's right.

The Hon. A. Piccolo: Not shall.

The Hon. S.K. KNOLL: They are two different words, member for Light, and you are right. I think, necessarily, legislation is quite broad and it is quite enabling, but we have allowed for and provided mechanisms in this bill that allow for growth. I am very open to having discussions about trying to make sure that that is as explicit as it needs to be, but certainly part of this bill very much incentivises growth, explicitly in relation to the number of rateable properties but certainly implicitly in relation to improved capital value. If there are other ways in which the councils believe that we need to take account of growth, then they are matters that we are definitely willing to have regard to.

In relation to consultation, we have been open and transparent the entire way along this process. The two competing priorities that we had to deal with were, firstly, getting a piece of legislation in this parliament within 100 days. That is a commitment that we took to the election and it is a commitment that we delivered on. The second priority was our commitment to work with the local government sector to give them as much input into this system as possible.

In an ideal world, we would have had more time to put a draft bill out there and allow time for consultation on that draft bill before it comes to parliament, but, having introduced this bill to parliament only days before having provided a copy of that bill to councils does not mean that we have not been able to consult or that there are not any further opportunities for local government to have their say on the bill. In fact, it is quite the opposite. Since the bill has been tabled and since the cabinet signed off on the draft legislation, the Office of Local Government and I have met with various CEOs, mayors and councillors from across the state.

I have written to every single council in relation to this and invited feedback. We have made ourselves available to crossbench members, opposition members and anybody who has wanted to talk about this, and we have sought and looked for feedback. Most of the feedback relates to a level of uncertainty around how this will work in practice. It is self evident that we have broad enabling legislation, that we have specific regulation and that firms up the finite detail. What we have sought to do is not wait for the passage of this legislation, or in fact the finalisation of the drafting of this legislation, before we engaged ESCOSA to start work on the regulations.

ESCOSA are running a process that is happening concurrently with the passage of this legislation. The imprimatur that we have given to ESCOSA is as much information as they are able to provide and as early as they are able to provide it. We want that to help to inform the debate, knowing that it is the fear of the unknown that is probably a lot worse than the actuality. A lot of the concerns that the local government sector has are in relation to the red tape burden, to how growth is accounted for and to the timing of the variation process. All those matters are very much in hand, and ESCOSA is going about their work diligently and quickly, but we can deal with those issues and deal with those fears.

I know, quite self-evidently, that it would be easier if we had the regulations on the table, but we are a new government and we have worked extremely quickly to get as much information out there as we possibly can, and we have not been able to have a draft set of regs at this time. That said, the legislative process is long and winding.

Whilst we are seeking passage through this house tonight, there are still opportunities for us to give more information to opposition and crossbench members and to the local government sector to make sure that they can take comfort from the fact that this scheme is not the scary bogeyman that some claim it is, that it is the right balance between creating the impetus for change within councils and giving assurances that the state government is here to help councils meet that challenge so that we can get to a more efficient and effective local government sector.

I would like to thank all the members for their contribution to this debate. I would like to thank in particular the shadow minister, the member for Light, for his contribution to this debate. In saying so, we note that the opposition has reserved its position in relation to this bill. I will say again what I said when I briefed the shadow minister, what I said to the television stations today and what I will continue to say: we are here, willing and able to look at ways to make this work. We have sought to be as open and transparent on this as is absolutely possible.

Some of the concerns the member for Light brought in relation to compliance mechanisms in this bill can be addressed and have been addressed, especially in relation to section 273 and providing the ability for myself to be able to step in as the minister in those very extreme circumstances. But in relation to compliance broadly, when we look at the New South Wales and Victorian examples, the experience is that councils engage with the rate capping process honestly and properly. There is no need for a comprehensive, big stick, everywhere along the process approach.

ESCOSA has a number of mechanisms to make sure that councils comply with this but, that said, the final enforcement mechanism will happen by way of an amendment to section 273 that allows, in the most extreme of examples, the minister for local government of the day to be able to step in. But we believe that is almost a reserve power, something we do not expect to need, and therefore we do not need to have a comprehensive penalty regime in place. We are essentially working with the best endeavours of the local government sector, working together with ESCOSA and the state government, to get to a future where rate increases will be lower than they are today.

I look forward to the passage of this legislation through this house. I look forward to continuing to talk to all members of the parliament and the local government sector in relation to this. I look forward to our continuing to be out there selling the message to anyone who will listen that we are committed to this reform and that there is a need for this reform. We know that, for any idea like this, there are going to be detractors. The reform is difficult, it is hard, it is not always perfect and it is not always unanimously endorsed.

This piece of legislation would be endorsed by the vast majority of South Australians. I accept that there are those who do not support it, and I accept that there are those in the local government sector who do not like the concept. That said, hard-fought reform such as this will always have detractors. We need to listen to those detractors to make sure that we get towards the truth and the best bill we can possibly get to but not allow that to stop the need to deliver the reform in the first place.

With that, I look forward to continuing this conversation. I look forward to continuing this fight so that we can deliver relief for ratepayers right across South Australia and help reduce the cost base of the local government sector going forward, so that this can be the impetus for a broader series of reforms to come where we help in the same vein, looking towards the same goal and that we can deliver a lower taxation future, which is the hallmark of this Marshall Liberal government and which we would love to be the hallmark of the local government sector going forward.

Bill read a second time.

Committee Stage

In committee.

Clause 1 passed.

Clause 2.

The Hon. A. PICCOLO: In response to a question from the member for Davenport in this chamber, the minister stated that this bill would save ratepayers millions of dollars over coming years. What modelling has the minister undertaken and what assumptions has he made to reach that conclusion?

The Hon. S.K. KNOLL: The phrase could have been 'millions of dollars a year', or it could have been 'tens of millions of dollars a year', which I think is the phrase I have used a number of times. The broadness and vagueness of that figure would suggest that there is a lot of scope and leeway. To put the maths in very simple perspective, at the moment the local government sector raises about $1.5 billion a year in rates, and 1 per cent of that is $15 million a year. So if rate capping were to reduce the growth trajectory and, say, at the moment it is 6 per cent down to 5 per cent, that would mean $15 million a year saved. That is in one year, and then obviously there is a compound effect of that.

The reason that we are at this stage quite broad and necessarily vague about the modelling is that there is still the work that ESCOSA needs to do with the regulations to further refine and define what this is going to look like. Given that ESCOSA needs to have regard to a broad range of factors, it is impossible at this stage to say what the rate cap would be, and therefore any modelling would be hypothetical in its approach. That said, quite axiomatically, the fact that $1½ billion a year is collected in rate revenue, saving tens of millions of dollars a year would be quite a simple conclusion that one could make.

The Hon. A. PICCOLO: So the answer to the question is, no, you have not done any modelling then?

The Hon. S.K. KNOLL: The department and I have been working on looking at a number of scenarios and what that might look like but, again, I think it is a very early stage to be talking about this. Again, any modelling that we would have would presuppose the decisions that ESCOSA would make. Having said that, I think there are very simple calculations that anybody could do that would give a flavour of what this could do.

The Hon. A. PICCOLO: Given the minister's response, are the minister's comments that he made publicly about rates rising, in his view (and I say 'his view' because they are not views that I am necessarily endorsing), by about 67 per cent over the last 10 years—I think they are the comments you have made—if you were to, say, take the last five years rather than 10 years, because stats are useful to perform whatever argument you want to create, how does that change your answer regarding how many millions of dollars would be saved if we took the average rate increases over the last five years rather than 10 years?

The Hon. S.K. KNOLL: The member is asking for a very specific mathematical calculation that I am not quite going to be able to do on my feet here. That said, if the member is asking whether it is likely that in the period of five to 10 years ago rate increases were a lot larger and that in the last five years they have been smaller, I can come back to him with an answer on that. That said, the average over the last 10 years has been 6 per cent, and there are certainly years when it is higher than that and years when it is lower than that, but I am more than happy to come back to him with some more information on that.

The Hon. A. PICCOLO: The word 'average' for mathematicians is quite a meaningless term, and given that in local government we have two distinct communities—a rural community and a metropolitan based community—is your 6 per cent based on rural or metropolitan, and what would your answer be if, rather than have your average, you have your median rate increase?

The Hon. S.K. KNOLL: So the question is: is the average across all of South Australia? Yes.

The Hon. A. PICCOLO: No, you have already told me that. I am disputing that. What I am saying is: what is the relevance of the average, given that you have two different communities? What was the median, rather than the average?

The Hon. S.K. KNOLL: I will come back on that specific answer. When state government produces legislation, we produce it for the whole of South Australia. That means that we have to look at the whole of South Australia and the impact that this legislation would have on the whole of South Australia. It is why we included every single council in this—regional and city.

Again, I think I am inferring from your question, member for Light, that there are different groupings of council, and I would dispute that city and metro is the only way to divide up the local council pie. There are those who would be impacted, for instance, by having a higher propensity of social housing, which has specific issues. There would be some who have to operate their own CWMS schemes versus others who do not. There are different levels of service provision across different councils, so each council is going to have its own specific set of circumstances.

When ESCOSA does its work, it is going to have a bias towards a single cap, that is, an instrument that is going to work for many councils. It may not work for a number of them but, in making this work, we have made sure that the variation process is as simple and as low red tape as possible. That is the clear direction we have given to ESCOSA. The clear feedback they have given to us is that that is the way they would like it to happen.

Essentially, we are not going to presume what each of the 68 councils across South Australia is and is not in a financial position to do. We are going to be giving them the opportunity through the variation process to tell ESCOSA whether they believe that the rate cap does not work for them. Instead of ESCOSA trying to presume what individual councils or a group of councils may choose to do, we essentially provide that opportunity through the variation process. As long as we get that process right, that it is as simple and as straightforward and as mirroring to the budget setting annual process that currently it undertakes, that is probably the easiest and most honest way to go about it.

The Hon. A. PICCOLO: A supplementary, if I could?

The CHAIR: You are stretching it, member for Light. Supplementary.

The Hon. A. PICCOLO: It is actually based on the answer the minister has just provided. The minister has just advised the committee the direction he has given to ESCOSA about a preference for a single cap. That is certainly what I heard him say. I was just wondering under which act he gave that direction, given that the act has not passed yet.

The Hon. S.K. KNOLL: I think I said before that ESCOSA is developing the regulations concurrently with the bill process. In the discussions that I have had with ESCOSA, we have expressed a preference and they have expressed a preference for a bias towards a single cap. This legislation is enabling. It enables ESCOSA to be able to—

The Hon. A. Piccolo interjecting:

The Hon. S.K. KNOLL: Direction can take many forms, member for Light, and sometimes we do not need to use the big stick. We can just have an adult and mature conversation and come to an agreement. Both ESCOSA and ourselves came to the same view and that is that we have a bias towards a single cap because it does not presuppose decision-making that councils should undertake. We also have a strong bias towards a simple low red-tape process.

Clause passed.

The CHAIR: Before we go to the next clause, I remind the opposition that it is general practice to have three questions from each member on each clause. I was very generous during the first round of questioning, member for Light.

The Hon. A. Piccolo interjecting:

The CHAIR: Indeed, but it may not continue. You can always get support from your colleagues.

Clause 3 passed.

Clause 4.

The Hon. A. PICCOLO: Will the proposed rate capping legislation lead to a reduction in the rates for ratepayers?

The Hon. S.K. KNOLL: Okay. It is—

The Hon. A. Piccolo: It is quite a simple question.

The Hon. S.K. KNOLL: No, it is not. There is a difference between total rate revenue, rates for ratepayers and a rate in the dollar. What a rate cap will do is curb the increase in rate revenue for councils going forward. What that will mean for individual ratepayers is that, over time, they will see smaller increases than they would normally see. This is based on the fact that we have seen this 6 per cent average over the last decade.

The Hon. A. PICCOLO: I will call it a supplementary because the minister did not quite answer the question I asked. The question is, to use your own terminology, will the average ratepayer see a rate reduction in their rate notice?

The Hon. S.K. KNOLL: Again, we can talk about averages in relation to total council increases. The difficulty in trying to understand what an average ratepayer is is that there are a number of factors that go into that: rate in the dollar, capital value and councils' differential rate setting. All those things go together towards somebody's rates notice.

When we talk about this piece of legislation, and I think we have said this quite clearly, we do not expect—well, quite logically, councils total rate revenue will continue to increase. It will only increase at a lower rate than it does now in some circumstances. Certainly, there would be those who would be increasing their rates below the cap and who would otherwise not be at all affected by this policy.

There may be some individuals in some circumstances, depending on the combination of factors that I have just identified, who may see a reduction in their rates notice. That may not necessarily be because of rate capping. It may be because of one of the other factors, such as a reduction in capital value, a reduction in a rate in the dollar or a reduction in the variable rate setting by individual councils, depending on what type of property they have.

That is a matter for councils. This legislation is much simpler than that, in that it seeks not to meddle in those affairs. It seeks to set a cap. How individual councils then choose to apply that cap to individual ratepayers is a matter for councils.

The Hon. A. PICCOLO: In a contribution to the chamber earlier today—and I will quote because it is important to lay the basis for this question—the member for King said:

Last year, I attended a community forum at One Tree Hill, which approximately 400 residents attended to discuss their concerns over a proposed rate increase. This had followed a meeting, I believe, at Angle Vale, which over 500 residents attended with the same concerns about rising council rates. The outcome of these community meetings was a collaboration of residents who voted against, and spoke against, what so many residents believed was an unjustified hike in council rates.

My understanding is that this quote relates to a proposal by the City of Playford to change their council rating system. My question is: how does this rate capping stop that?

The Hon. S.K. KNOLL: Prima facie, it does not. What it does do is provide impetus to councils—

The Hon. A. Piccolo: But the member for King said it does.

The Hon. S.K. KNOLL: It does in a roundabout way.

The Hon. A. Piccolo: No, it doesn't.

The CHAIR: Member for Light, you have asked your question; the minister is answering.

The Hon. S.K. KNOLL: What it does do is where Playford council seeks to change their differential rating system to jack up rates on one subset of properties within their council area, and where a rate cap is set that is lower than what they otherwise would have sought to recover, to the extent that that then pushes back on the changes that they make in their differential rate setting—and I would like and hope that that would be spread out across the various differential rate categories—that would apply downward pressure on the level of increase that the individual council would seek to achieve.

The CHAIR: Last question on clause 4.

The Hon. A. PICCOLO: So are you saying I have four more?

The CHAIR: No, it is your last question on clause 4. You have plenty of colleagues around you. As I said, the usual practice is three questions on each clause from a member.

The Hon. A. PICCOLO: Thank you for your patience and forbearance.

The CHAIR: It is not going to last, member for Light.

The Hon. A. PICCOLO: Don't be like that. We had such a great start.

The CHAIR: Ask the question.

The Hon. A. PICCOLO: Right. The question is: given the answer the minister has given and given the comments made by the member for King in this place today, which the minister has now indicated perhaps were not quite 100 per cent accurate, is there anything in this legislation under which the minister would give ESCOSA a direction to, or could ESCOSA by its own volition, take into consideration a proposed change in rating policy of the council? In other words, would the minister direct ESCOSA to have consideration for, or would ESCOSA under its own volition consider, where councils cannot change their rating policy vis-a-vis differentials?

The Hon. S.K. KNOLL: There is power for the minister of the day to ask ESCOSA to look at and have regard to a number of things. We do, and we have been very keen as part of this legislation to, give ESCOSA a high degree of independence—one could read that as a low level of political interference. The minister can ask us ESCOSA to look at and have regard to certain things but, as has happened since councils were formed, councils have had the ability to set their own differential rating systems, and that will continue going forward.

That is not something that this legislation seeks to interfere with. If we did, it would start to create a level of regulatory burden the likes of which councils are seeking that we not impose upon them. What they want is a simple, light-touch system. What we have sought in this legislation, and what we will be making sure comes about through the regulations, is a simple, light-touch system.

It is more than just the differential rating system. Essentially, all the cap does is provide an upper limit for councils in terms of how much rate revenue they can collect. Every other decision that councils make beyond that, as they do now as part of their budget setting process, will continue. The overall drive of this legislation is to provide an impetus for lower increases. That impetus will still be there, but we are not seeking to supplant the individual decision-making processes of councils.

Mr KOUTSANTONIS: On clause 4, can the minister explain why rate capping has not taken into consideration the evolution of differential rate applications by individual councils and if the government considered that as part of the process while they were formulating this bill?

The Hon. S.K. KNOLL: I think the member for West Torrens is suggesting that we should abolish the differential rate system. That is certainly not something that we have considered, it is not something that the bill contemplates, and to suggest that somehow we should be just saying that all rates should be equal across South Australia, which would be what would happen if we abolished the differential rating system, would punish every farmer across the state. That is not something we would seek to be doing.

Quite rightly, I think there is a different level of service provision that is provided to different types of properties that would have sparked the differential rating system in the first place. This government does not want to get involved in that process. We want to provide a broad impetus for lower increases to the extent that that influences councils in the way that they set their differential rates. That is the broad signal we want to send, but councils need to look after, and quite rightly should look after, their own differential rate setting outside that.

Ms COOK: In respect of clause 4, what does the minister consider to be an appropriate contribution by ratepayers to provide these appropriate services and programs to the community?

The Hon. S.K. KNOLL: What this clause seeks to do is to update the objects of the act to include a new clause 'to provide for appropriate financial contributions by ratepayers to those services and facilities'. It is quite broad, but what it is seeking to say is that services are not provided for free. Ratepayers pay for them, and the objects of the act should have regard to the financial contributions made by ratepayers. Essentially, there is always a balance between how much money a council collects and how much service they provide. Implicit in that is the fact that if you can provide the service more efficiently, you do not need as much as the revenue provides.

It speaks to a broader question about the role of government in any sphere; that is, how much money should a sphere of government take from its constituent body? How that has regard to the services it provides is entirely consistent and important, and probably a factor in this debate that needs to be talked about. In fact, a lot of arguments put forth by individual councils have been that people want these services provided.

I accept that, where they provide a basis for the consultation that underpins their making those observations, that is fair, but I think it is also fair to say that we on this side of the house prefer lower taxes. So what we are seeking to do is to make sure that we have regard to the revenue side of the equation as much as the cost side of the equation and that we put an object in this act that allows us and essentially provides the appropriate impetus for us to have regard to that.

Progress reported; committee to sit again.

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