1:11 PMNo Justification At All.
Council rates go up around 4 to 6% each year (see pages 15 and 16 of the Financial Strategy). This increase is nearly twice that of the CPI.
CPI is 2.7% and measures the annual increase in the price of your milk, bread, vegetables, paper, pens and other consumer items.
What is important to note is that these consumer items are produced on farms or made in factories. Farms and factories employ people, use machines, electricity and water, maintain buildings, run cars, trucks, have capital items to repair and replace and so on.
It is true that many consumer items are now imported. However the lions share of the price of imported items is not the cost of manufacture, but rather the costs associated with selling the item after it has been imported. To give you an example. I can buy a particular item directly from China for $13. If I buy this exact same item from a shop in Whitehorse Road, Blackburn it costs around $55. The lions share of the cost of imported goods, is import costs, warehousing, distributions, promotion, retail margin, etc. These are all local costs.
It would seem that farms, factories (and local wholesalers and distributors) use much the same types of resources that councils do, however council rates increase at a much higher rate than the CPI does.
Councils seem to think they are entitled to this rate increase.
Consider the news article below from the Hobart Mercury:
Rates rising faster than CPI
PHILIP HEYWARD | June 18, 2013 12.00am
THE size of council rate rises has sparked a call for State Government intervention to end "the great rates rip-off".
Mary Massina from lobby group Tasmanians for Reform said rate increases continued unchecked each year and, despite claims to the contrary, elected officials presided over massive increases without any real accountability.
The Glenorchy City Council yesterday signed off on a 4 per cent rate rise, which comes after an 8 per cent increase last year.
Kingborough will lift rates 3.85 per cent and other councils are considering a variety of increases. Ms Massina, says it is not just Glenorchy residents who will face the sting of higher rates.
While Brighton had restricted its increase to the national Consumer Price Index (inflation rate) of 2.5 per cent, that was still much higher than the local CPI in the Hobart area, which was 1 per cent.
"Why is it rate rises can be considered to be reasonable when other organisations such as the state and federal governments are required to show considerable restraint?" said Ms Massina, who is state executive director of the Property Council of Australia.
"We have a State Government that claims it is concerned about jobs and cost of living yet when it comes to spiralling local government costs, it is silent, despite it actually having the power to do something about it.
"It is time the Government stepped in and actually did something on the issue of local government reform."
She said more than 30 government entities were responsible for roads and bridges in the state and Tasmanians were getting the raw end of that deal.
Hobart will consider the size of its rate rise tonight.
Local Government Minister Bryan Green said he continued to work with councils to ensure they were more accountable.
He said the state and local governments had worked to develop a financial sustainability framework that included 10-year financial and strategic asset management plans for councils, indicators to measure the performance of local government and the creation of audit committees to ensure compliance and improve the depreciation and revaluation practices of local councils.
Local Government Association of Tasmania chief executive Allan Garcia said the CPI was not a good measure by which to judge rates increases because it bore no resemblance to council cost structures. He said the main costs for councils were salaries and infrastructure, not consumer items.
Mr Garcia said the association had worked out a council cost index (the cost of doing business for councils) which had gone up 3.05 per cent in the financial year.
Glenorchy Mayor Stuart Slade defended the latest rise, saying it was a great improvement on last year and reflected strong budget strategies, including a $700,000 reduction in labour costs due to natural attrition. Ald Slade said Glenorchy rates still compared favourably with those paid by property owners in other municipalities and Glenorchy provided more community services than most councils.
Citizens for Glenorchy spokeswoman Jan Dunsby said 4 per cent was still quite high compared with other councils.
"My rates have almost doubled since the water and sewerage bills were separated from council rates," she said.
Kingborough Mayor Graham Bury said his council's main cost burden was infrastructure depreciation.
"Local Government Association of Tasmania chief executive Allan Garcia said the CPI was not a good measure by which to judge rates increases because it bore no resemblance to council cost structures. He said the main costs for councils were salaries and infrastructure, not consumer items."
This is, off course, complete nonsense.
Those 'consumer items' he talks about represent staff wages and infrastructure like factories, farms, cars, trucks, machines and so on. As I mentioned above, private enterprise has to manage almost the same things that council has to manage.
However it is true that councils are responsible for roads, bridges, drains and so on. So does the cost of repairing roads, bridges, etc. justify the dramatic annual increase in rates.
It certainly does not.
The Department of Infrastructure and Transport publishes the "BITRE Road Construction and Maintenance Price Index" (RCMPI). The cost of maintaining and building roads, bridges etc has increased by 2.4 per cent between 2010–11 and 2011–12 and it looks like a similar increase for 2012-13.
So the cost of maintaining road, bridges, etc. increases LESS than the CPI.
So how can our councils justify a 5% annual increase in rates?
There is no way a CPI of 2.7% and a BITRE index of 2.4% can justify an annual rate increase of 5%. Our rates should increase by the larger of these two indices. That is our rates, at worst, should increase by 2.7% each year.
Why is it that private enterprise can employ people, run cars and trucks, pay for water, electricity, machines, buildings, properties, etc. and only increase their prices to their customers by 2.7% per year? Why is it that our councils use pretty much the same things as private enterprise but they increase their costs to their residents each year by almost twice the amount?
What is the difference between the council and private enterprise and their cost structures?
Nothing – except very poor management skills, very poor people management skills and a lack of attention to cost control and cost reduction.
What Allan Garcia is actually saying in the news article above, is that private enterprise uses almost the exact same things that council does however, councils are simply unable to manage people, resources and costs effectively and efficiently and this is what explains the difference.
Bluffing anyone and everyone.
Note the statement at the end of the above article by the Mayor.
"The councils main cost burden was infrastructure depreciation".
Is he suggesting that the council needs all that ratepayer money to pay for depreciation?
To start with, he is not telling the truth.
If you take a look at Kingborough Council's Financial statements for 2013, you will see that depreciation is $6.967 million. However, employee 'benefits' i.e. salaries etc., is $12.185 million. Clearly depreciation is not the main cost burden for Kingborough Council. Instead salaries and associated costs are. And this was also the case in 2012, 2011 and 2010.
He may say he was misquoted by the media, but I can find no reference to any such a claim by searching the internet. It is quite likely that the impression he gave, and actually wanted to give to the reporter and to the public, was that his council spends the lion's share of the money providing things for the public to use. The truth is that the lion's share of the money his council spends goes to his staff as salaries, etc. Pointing this out would not have been helpful to his cause in this situation.
It appears many, if not all, councils will hang on to the ever-increasing rate money with any and every argument they can muster, even if this means bending and distorting facts or simply not telling the truth.
13 Aug 2013.
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