Why Australian Councils Keep Raising Rates—and What Could Be Done Differently

Commentary

Australian councils collect billions in rates and control enormous portfolios of public assets. Yet some remain dependent on government grants and struggle to generate enough recurring revenue to maintain the infrastructure already on their books.

Each year, Australians paying thousands in council rates might reasonably wonder how their local authority can still claim to be under financial pressure and why rates and charges seem to keep increasing, particularly as the country grapples with rising debt and inflation.

Here’s how.

Councils face rising labour, construction, waste disposal, insurance and infrastructure costs like any business. When these costs rise faster than council revenue, the choices are limited: increase rates and charges where permitted, cut services, seek more government funding, use reserves, or borrow.

Yet the financial capacity of Australia’s councils varies enormously.

At one extreme is Brisbane City Council, serving about 1.36 million people through a single local government.

At the other are rural councils with fewer than 10,000 or 20,000 residents, sometimes responsible for enormous road networks and geographic areas.

Both are councils, but financially they operate differently.

Asset Rich, but Cash Poor

One problem is that councils can appear extraordinarily wealthy on paper and simultaneously carry a larger future financial obligation.

A council may own roads, bridges, drains, libraries, swimming pools, parks and buildings worth hundreds of millions of dollars.

But those assets do not necessarily generate money. A road worth $10 million (US$7 million) cannot pay council employees.

Instead, those assets create future expenses because they continually require maintenance and eventually replacement.

Vehicles are seen crossing the border between New South Wales and Victoria in Albury, Australia, on Nov. 23, 2020. Lisa Maree Williams/Getty Images

The Small Council Problem

Every council requires basic administration, from financial reporting, information technology, planning, governance, regulatory functions, asset management and professional staff.

A council serving 10,000 people still requires many of the same functions as one serving 100,000.

But it has far fewer ratepayers across which to distribute those costs.

Being small does not mean these councils are poorly managed or financially distressed. But the Victorian Auditor-General has found smaller councils in the state tend to depend more heavily on government grants.

In 2024–25, 12 of Victoria’s 19 small councils recorded negative adjusted underlying results, which indicate that they were unable to generate a surplus from ordinary operations to fund capital spending.

The Auditor-General warned that some councils were showing deteriorating financial outcomes pointing towards potential structural deficits.

The Auditor-General found it recorded net deficits in six of the nine years between 2015–16 and 2023–24, while its adjusted underlying result was negative in eight of those years.

Government grants represented 49 percent of its income in 2022–23, with the Auditor-General noting that its ability to generate rates and user-fee revenue was constrained by its small ratepayer and user base.

The Brisbane Alternative

Meanwhile, Brisbane demonstrates the opposite model.

Brisbane City Council serves about 1.36 million people, allowing administrative and infrastructure costs to be spread across an enormous ratepayer base. A larger council does not necessarily require proportionately more chief executives, payroll systems, financial software or procurement departments.

In 2024–25, it reported about $2.8 billion in operating expenditure and $800 million in capital expenditure, while recording an operating surplus ratio of 7.5 percent.

People are seen wearing masks in the Brisbane CBD in Brisbane, Australia, on Sept. 28, 2021. Bradley Kanaris/Getty Images

That does not prove bigger councils are automatically more efficient.

But there are potential economies of scale.

The counterargument is that amalgamation does not make infrastructure disappear. Combining two rural councils each responsible for 1,000 kilometres of roads simply creates one council responsible for 2,000 kilometres.

Larger organisations can also create bigger bureaucracies.

The real test is therefore whether larger councils provide comparable services at a lower cost per resident.

Are Councils Drowning in Debt?

Not necessarily.

Victoria’s 79 councils, for example, held approximately $163.5 billion in assets at June 2025 against about $1.4 billion in borrowings.

The more concerning problem is whether councils are generating sufficient recurring revenue to meet recurring expenses and finance infrastructure.

Debt itself can be sensible. Borrowing for infrastructure that will serve a community for 40 years spreads its cost across generations of residents.

However, borrowing because ordinary revenue can no longer cover ordinary expenses is very different.

Financial trouble can also be hidden by postponing infrastructure.

A council can improve today’s cash position by delaying road resurfacing or building maintenance, but the obligation has not disappeared. Future ratepayers inherit the bill.

Councils generally cannot be placed into liquidation like ordinary companies because they are statutory bodies established under state and territory legislation and are subject to specific statutory oversight arrangements.

Residents still require roads, rubbish collection, drainage, planning and other municipal services.

The precise legal mechanisms vary between jurisdictions, but financial failure would more likely lead to government intervention, restructuring, additional funding, service reductions or potentially changes to municipal arrangements than conventional corporate liquidation.

Before reaching that point, councils can raise charges, cut services, draw on reserves, defer infrastructure projects, seek government assistance, or borrow. But none of these measures can permanently resolve a structural imbalance.

Could Bigger Councils Be Part of the Answer?

One solution could be larger regional councils operating under a single administrative umbrella while retaining local service and maintenance centres across rural areas.

Road crews, machinery and repair depots could remain close to the communities they serve, while functions such as payroll, procurement, IT, engineering and senior administration are consolidated.

This could capture economies of scale without forcing services to become geographically centralised. Councils could also share specialist staff, equipment and procurement contracts without formally amalgamating.

The objective should not simply be fewer councils.

The question is which functions genuinely need to remain local and which can be provided more efficiently at regional scale.

Brisbane shows what Australian local government looks like at enormous scale. Small rural councils show the opposite.

There may be considerable room between those extremes.

If a council continually requires outside funding because its population cannot support the infrastructure and services it is expected to provide, governments may eventually need to ask whether the problem is poor financial management or whether the council’s economic base is simply too small.

Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times.