Amendments to Victoria’s Local Government Acts: impacts on councils’ debt rating and collection powers

The Victorian government adopted the Local Government (Rating and Other Matters) Amendment Act 2022 (Law), make a number of changes, including focusing on struggling ratepayers and improving the way rates are collected.

The law modifies both the Local Government Act 1989 and the Local Government Act 2020. This article highlights some of the key amendments that will impact the guidance, such as changes to:

  • declaration and collection of tariffs and charges
  • rates and service charges
  • discounts and concessions
  • difficulties and payment plans.

The Act implements a series of recommendations from the 2020 Local Government Rating System Review and the 2021 Ombudsman’s Inquiry into local councils’ response to taxpayers in financial difficulty. A second stage of related reforms will be explored in consultation with ratepayers and the local government sector in 2023, focusing on structural improvements to the operation of the charging system.

Amendments to the Local Government Act 1989

The amendments to the Local Government Act 1989 will enter into service on June 20, 2023, or an earlier day to be proclaimed. Boards should be aware that some of the changes will impact their day-to-day operations and budget situation beginning in the 2023-24 fiscal year.

Rates and service charges

The law makes long-awaited changes to rates and service charges on waste management, recycling and resource recovery services. These expand the criteria of Section 162(1), which currently limits a service rate and charge to “garbage collection and disposal”. The amendments will ensure that all contemporary waste management and recycling costs for municipalities can be recovered through service fees..

This new legislation completes the implementation of the Circular Economy Act (Waste Reduction and Recycling) 2021 and the Supreme Court decision in Mornington Peninsula Beach Box Association Inc v Mornington Peninsula Shire Council [2021] VSC 455, which validated a service charge for public waste collection.

Special rates and special fees

The Act amends the “special rates and special charges” schemes declared by councils to ensure that affected taxpayers receive the benefits of these schemes without prolonged delay.

Under the new legislation, all special rates and charges declared by councils must be collected within 12 months of declaration or they will expire. This change is designed to prevent unreasonably delayed collection of rates and fees. A board must levy a special rate or charge by sending a notice to each person required to pay.

Rebates and concessions

The law also makes a substantial change to rebates and concessions for properties offering a “public benefit”. Although this term is not defined, the law provides examples of what constitutes a “public good”, including charitable, religious, educational and social support services.

First proposed in the 2020 Local Government Rating System Review, the introduction of this amendment has been delayed due to the COVID-19 pandemic.

The new criteria will allow councils to use their discretion to offer rate reductions and concessions for public benefit properties that directly provide goods or services to the community.

To meet the criteria, the land must:

  • be used for a public good
  • be used for the direct supply of goods and services to the public, or a substantial part of the public, free of charge or for a nominal fee
  • not be used primarily for the purpose of distributing profits to an owner, member or shareholder of an entity.

Payment Plans

In one of the most significant changes for councils, the alternative means of paying fares through a payment plan has been formalized in legislation. Although this is already standard practice, the amendments will ensure consistency across all boards through mandatory guidelines. These provisions place particular emphasis on people who are experiencing financial hardship or who are victims of domestic violence.

The law also imposes restrictions on when a council can initiate proceedings to collect unpaid debts. Recovery procedures will be deferred (but not prohibited) in favor of more lenient arrangements for taxpayers.

Boards, or their agents, will be required to ensure ratepayers have received written notice of any amounts owing before taking action to collect unpaid amounts. It will then be open to the municipalities to conclude payment plans with the taxpayers but, if no payment plan is concluded, or no postponement of the amount due is granted, no recovery action may be brought before at least two years from the date of the written notice.

When a ratepayer enters into a payment plan, a council cannot sell or transfer land to collect unpaid rates and charges if the payment plan is met. If the taxpayer does not comply with the payment plan, the council can cancel it. However, a municipality cannot take legal action to recover sums due before the expiry of a period of two years from the date of cancellation of the payment plan.

Consequently, the recovery of unpaid tariffs and charges through legal proceedings will now involve a significantly longer delay. When prosecutions are required, councils could take well over two years to complete those actions.

Municipalities can continue to initiate recovery proceedings, provided they comply with the new conditions.

Ministerial directives

The Minister for Local Government shall have the power to issue directives relating to the payment of tariffs and charges, including:

  • the meaning of difficulties and financial difficulties
  • the content of hardship policies
  • the circumstances under which a board may apply the hardship policies
  • the payment plan application process.

The Minister will be required to consult the Essential Services Commission before issuing these guidelines. Counsel will be required to comply with the guidelines and enter into a payment plan if the hardship preconditions are met.

It is expected that the guidelines will require councils to work proactively with taxpayers experiencing financial difficulty to explore different arrangements and solutions. More punitive actions, such as initiating legal action and applying penalty interest, will only be available when taxpayers refuse to engage and all other approaches are exhausted.

Fixing of the maximum interest rate applicable to unpaid rates and fees

The Act provides for a new obligation for the Minister for Local Government, in consultation with the Essential Services Commission, to set the maximum rate of interest that can be charged by councils on unpaid rates and charges. Currently, the rate is fixed by reference to the Penalty Interest Rates Act 1983. These changes ensure that the maximum interest rate, which is currently 10%, does not put additional financial pressure on those who are already in financial difficulty.

Next steps

Maddocks will review the ministerial guidelines once released and comment on any particular issues raised by the councils.

As initially indicated, a second stage of reforms is planned for 2023 concerning structural improvements to the functioning of the rating system. We will notify our customers of these future changes as they become known.