Local Government
What is the rate peg and what is rate pegging?

Since 1977, certain council revenues (known as general income) have been regulated in NSW under an arrangement known as ‘rate pegging’.

Rate pegging limits the amount which councils can increase their general income. General revenue mainly comprises of rates revenue, but also includes certain annual charges. It excludes storm water and waste charges, and water and sewerage charges.

The rate peg is the maximum percentage amount that a council may increase its general income for the year. Previously, the rate peg was set by the Minister for Local Government. Since 2011-12, it has been set by IPART under a delegation by the Minister for Local Government.

What is IPART’s role in NSW local government rate setting?

In 2010 the NSW Government gave IPART new functions in regulating council rate increases. These roles and functions included:

  • determining the rate peg (the maximum allowable increase in local government general income)
  • establishing a Local Government Cost Index and having regard to a productivity factor to be used in setting the rate peg
  • reviewing applications from councils for special rate variations and determining those special rate variations
  • reviewing applications from councils for minimum rates above the statutory limit and determining minimum rate increases.

The Minister for Local Government delegated to us certain rate setting functions and powers under the Local Government Act 1993. We are, therefore, the decision-making body.

What does the rate peg increase apply to?

The rate peg sets the maximum increase in each council’s ‘general income’ for the financial year. The main component of general income is rates revenue. General income does not include other forms of revenue such as fees, fines, water or sewerage rates, domestic waste management charges and developer charges. It does include a small number of annual charges for some councils, such as drainage levies.

The rate peg does not apply to individual ratepayers’ rates. The rate peg applies to a council’s ‘general income’ in total. Councils can determine how to allocate this increase between different ratepayer categories. Individual rates are also affected by other factors, such as land valuations. Therefore, an individual ratepayer’s rates may increase by more or less than the rate peg amount.

How is the rate peg determined?

IPART determines the rate peg that will apply to all councils for the year using a Local Government Cost Index. The Index assists in calculating the operational costs of councils in New South Wales.

The rate peg percentage is calculated by subtracting a determined productivity factor for councils from the Local Government Cost Index.

For 2022-23, IPART calculated the rate peg as ranging from 0.7% to 5.0%. The components of the rate peg for 2022-23:

  • The change in the local government cost index (LGCI) to June 2021 of 0.9%.
  • A productivity factor set to 0.0% because the ABS indices we use for the LGCI incorporate improvements in labour and capital productivity.
  • A population factor for each council of between 0.0% and 4.3%.
  • A downward adjustment of 0.2% to remove the additional revenue that was included in the 2021-22 rate peg to meet the costs of the 2021 local government elections.
What is a productivity factor?

The productivity factor is an adjustment to the rate peg to allow ratepayers to share in the efficiency gains made by councils.

What is a population factor?

From 2022-23, we made a change to the rate peg methodology that enables councils to maintain per capita general income over time as their populations grow.

The population factor is equal to the maximum of the change in residential population less the supplementary valuations percentage or zero.

For more information about the population factor, refer to pg. 5 and 6 of the Rate peg for NSW Councils for 2022-23 document here.

What were the percentage increases in the rate pegging limit in recent years?

A table of the percentage increase in the rate pegging limit in recent years and more information can be found here.

2022-23 – 0.7% to 5.0%
2020-21 - 2.6%
2019-20 - 2.7%
2018-19 - 2.3%
2017-18 - 1.5%
2016-17 - 1.8%
2015-16 - 2.4%
2014-15 - 2.3%
2013-14 - 3.4%
2012-13 - 3.6%
2011-12 - 2.8%
2010-11 - 2.6%
2009-10 - 3.5%
2008-09 - 3.2%
2007-08 - 3.4%
2006-07 - 3.6%
2005-06 - 3.5%

Why did my rates go up by more than the rate peg percentage?

Within rate pegging, it is possible for some rates to increase by more than the rate peg limit while others may increase by less than the rate peg limit. In some cases, rates may decrease from the previous year.

A council’s rating structure and valuation changes are the main factors that will determine what happens to rates on an individual property. A general revaluation by the Valuer-General may result in the value of some land in a council area increasing or decreasing by more than other land. Where this happens the rates burden will shift. Councils may decide to vary rating structures from year to year to compensate for this.

Can your rates increase by more than the rate peg percentage?

Yes. Rate pegging applies to a council’s overall general income and not to rates on individual properties. Within rate pegging, it is possible for some rates to increase by more than the rate peg percentage, while other rates may increase by less than the rate peg limit. In some cases, rates may decrease from the previous year. A council’s rating structure and valuation changes are the main factors that determine what happens to rates on an individual property. Rating structures may change significantly from year to year.

Are all rates and charges limited by rate pegging?

No. Only certain rates and charges are subject to rate pegging. Rates and charges for waste management, water, sewerage and stormwater are not subject to rate pegging.

What is a special variation?

A special variation (or special rate variation) allows councils to increase their general income above the rate peg. There are a range of reasons why a council may apply for a special rate variation, such as

  • to address the financial sustainability of the council
  • funding new or enhanced community services to meet growing demand in the community
  • funding the development and/or maintenance of essential community infrastructure
  • funding projects of regional significance
  • covering special cost pressures that the council faces.

There are two types of special variations that a council may apply for under the Local Government Act 1993:

a single variation (section 508(2)) or
a variation each yeah for 2 to 7 consecutive years (section 508A).

What are the criteria for assessing special rate variations?

IPART assesses applications for special rate variations in accordance with the criteria in the guidelines published each year by the Office of Local Government (OLG). The Special Rate Variations Guidelines are published on our website. The current criteria can be found in the Guidelines here.

In 2022-23, IPART conducted an Additional Special Variation process in accordance with guidelines published by the Office of Local Government (OLG). The guidelines are different from those for special rate variations, and required councils to show that they had budgeted for higher income than that provided by the rate peg and that they needed the additional money to deliver on the projects they have already planned and included in their budgets. The Additional Special Variation Guidelines can be found here.

Can residents make submissions directly to IPART?

Councils are required to consult with their communities regarding their expenditure and revenue plans as part of their Integrated Planning and Reporting (IP&R) activities. We therefore encourage members of the community to participate in their council’s community engagement processes. We do however allow submissions from interested groups or individual ratepayers regarding special variations applications once we receive an application from a council.

Submissions can be made online where applications are posted on the IPART website, or can be emailed to localgovernment@ipart.nsw.gov.au, or posted to:
Local Government Team
Independent Pricing and Regulatory Tribunal of NSW
PO Box K35
Haymarket Post Shop, NSW 1240

Are councils held accountable to the special variation process?

Yes. IPART requires all councils to report on the outcomes from their expenditure of the special variation in their annual reports. This reporting is monitored by the Office of Local Government.

Communities must be able to see that revenue from these rate increases are spent as intended. Ultimately, in cases of serious or unexplained non-compliance with conditions attached to special rate variations, OLG could recommend that IPART vary or revoke a determination.

What are minimum rates?

These are a specific type of rate, where a minimum amount may be levied on each parcel of land, regardless of land value. Some, but not all, councils levy minimum rates. Councils need to apply to IPART for minimum rate increases when they levy minimum rates in a particular rating category or sub-category and seek to increase these rates above what is referred to in the Local Government Act 1993 (the Act) as “the statutory limit”.

What is the statutory limit for minimum amounts of special rates?

Minimums for special rates are treated differently to minimums for ordinary rates under the Act (section 548(3)(b)). The statutory limit for special rate minimums is set at $2 in the Act which means that councils must apply every time they wish to increase the minimum amount of a special rate, even if just by the rate peg.

How do IPART assess applications for minimum rate increases?

IPART assesses minimum rate applications in accordance with the Minimum Rate Guidelines published by the Office of Local Government (OLG). The Guidelines can be found on our website here.

IPART will undertake an assessment of the application overall rather than a checklist of the criteria.

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