Councils have welcomed news that NSW’s rate peg is to be reviewed. 

The state’s Independent Pricing and Regulatory Tribunal (IPART) says it will undertake a long-awaited review of the local government rate peg.

Since 2010, IPART has set the maximum percentage amount by which councils can increase their general income each year - known as the rate peg.

The state says the primary purpose of the rate peg is to protect ratepayers from excessive increases in their rates bills. IPART carries out this role under delegation from the Minister for Local Government.

Local Government NSW (LGNSW) has long been calling for the review, in particular since IPART capped rate rises at 0.7 per cent for 2022/23 - the lowest baseline rate cap in more than two decades - in the face of rising inflation that is now tipped to reach 7.75 per cent by the end of the year.

IPART later acknowledged the dire financial situation its initial decision would have on councils and subsequently allowed 86 NSW councils to increase their rates by up to 1.6 per cent and 2.5 per cent.

LGNSW President Darriea Turley says the review of the rate peg is a win for the local government sector.

“This review will provide the opportunity to closely examine how the rate peg is calculated and what improvements could be made to prevent future financial shocks to the local government sector,” Cr Turley said.

“IPART’s decision to introduce a record low rate cap just before inflation began to spiral out of control is clear evidence that the methodology used to calculate the rate cap is completely broken.

“This welcome review will hopefully ensure such mistakes will not happen again by replacing a defective methodology that is not fit for purpose.”

Under the terms of reference, the review will investigate how the rate peg methodology can better reflect inflation and costs of providing local government goods and services.

The review will also look at options for better capturing changes in council cost movements on a more timely basis.

The terms of reference also explicitly include an investigation into the rate peg’s population growth factor, which aligns with a resolution from this year’s LGNSW Special Conference calling for a review of the inadequacy of IPART’s rate formula for growing councils.

IPART will publish an issues paper and call for submissions as part of the review in September, with a draft report due to be released in February.

More details are accessible here.