This discussion paper has been prepared to provide relevant legislate requirements and other factors for consideration by Council prior to determining the Federation Council rating structure (essentially the apportionment of rate charges across rate categories) for 2025/26.
The paper is considered an important community engagement tool, to assist the community understand the rating structure, principles of rating, and factors Council considers when setting rates. This can then assist the community in making submissions when the rating structure is placed on public exhibition.
Council has now received approval from the Independent Pricing and Regulatory Tribunal (IPART) to apply a maximum increase of 19% to total rate income for 2025/26. Council’s draft Annual Budget for 2025/26 includes the 19% increase being applied in full. Council must consider how it will apply the increase, across both the base rate and or the ad-valorem rates for each category of rates.
The rating structure when set, determines the actual distribution of the total rates to be collected from ratepayers with respect to Council’s adopted three rating categories of Business, Residential and Farmland. The total rates to be collected is determined by Council as part of the annual budget adoption process.
This paper includes relevant legislative requirements from the Local Government Act 1993 and a range of other factors considered relevant, including:
• Current rating levels and land values
• Recommendations from the University of Newcastle Independent Review conducted on Council
• Community feedback through the IPART Special Rate Variation (SRV) process
Four options for the rating structure, with varying base rates, are included in section 5, followed by a recommendation on the rating structure for 2025/26. This follows on from Council considering four options prior to setting the final rate structure for the current rating year, 2024/25.
2 Rating Structure
The rating structure in NSW local government is governed primarily by the Local Government Act 1993, the law that grants and defines the powers and responsibilities of local councils in NSW, including their ability to levy rates. It allows councils to levy rates on properties within their area to fund local services and infrastructure. The rates levied under this Act are the financial essence that enables NSW local councils to deliver the essential services and infrastructure that make local communities’ function and thrive.
The proposed ordinary rate revenue for the 2025/26 financial year is $15.4 million. This is a 19% increase on 2024/25 ordinary rates revenue. This is the maximum allowable under the recent IPART approval for a permanent increase for the 2025/26 financial year (52.01%, effectively includes the temporary increases of 19.00% and 17.00% levied in 2023/24 and 2024/25, followed by 19% in 2025/26). This increase is applied to the total ordinary rates that are collected by Council and is subject to Council adopting the Annual Budget for 2025/26 as exhibited.
The Local Government Act 1993 requires Council to make and levy an ordinary rate for each year on all rateable land in its area (section 494). In adopting the rating strategy, Council determines the rating structure for the coming financial year. The rating strategy determines how a Council will raise money from properties within the Council area It does not influence the total amount of money to be raised, only the share of revenue contributed by each property.
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Pursuant to section 497 of the Local Government Act, general rates may, at a council’s discretion, consist of (a) an ad valorem amount, or (b) a base amount to which an ad valorem amount is added.
Council has been determining to have a base amount to which ad valorem is added and for the base rate to be a set amount applied equally to all rateable properties, regardless of rating category.
Options have been developed for levying of general rates for 2025/26. The four options retain the existing rating structure (three categories as below) for the Federation Council area with varying base rates. As the base rate lowers, more rates are required to be levied through the ad valorem amount. This has the effect of increasing the rates on properties with higher values. This is an approach that provides Council with options to respond to the current cost of living situation and support more vulnerable ratepayers (thereby responding to capacity to pay needs). Council is also aware that the value of a property does not inherently mean that the property owner has a capacity to pay.
A mandatory pensioner concession is available for eligible pensioners. The pensioner concession is applied after the establishment of the rating structure for the upcoming rating year. The following table provides a summary of the pensioner concessions in each of the rating categories.
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3 Criteria relevant to determining a base amount
The NSW Local Government Act 1993 provides the following criteria to be relevant when determining the base amount for levying of ordinary rates (section 536):
• Council’s general administration and overhead costs
• the extent to which projected ad valorem rates on individual properties do not reflect the cost of providing necessary services and facilities
• the level of grant or similar income available to provide necessary services and facilities
• the degree of congruity and homogeneity between the values of properties subject to the rate and their spread throughout the area
• whether a rate that is wholly an ad valorem rate would result in an uneven distribution of the rate burden because a comparatively high proportion of assessments would bear a comparatively low share of the total rate burden
Section 500 of the Act limits the amount of revenue that can be raised from the base amount. In summary, the amount specified as the base amount of a rate must not be such as to produce more than 50 per cent of the total amount payable by the levying of the rate on all rateable land subject to the rate (at the category or sub-category level).
3.1 General administration and overhead costs
The following table reconciles Revenue and Expenditure by pillar to Ordinary Rates for the 2025/26 year. The Well Governed Federation pillar has been split into ‘General administration and overhead costs’ and ‘Other’.
Based on this analysis, net expenditure on General administration and overhead costs is budgeted at $2,446,147. With 8,178 assessable properties, General administration and overhead costs average $299 per property.
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3.2 Ad valorem rates do not reflect the cost of services and facilities
The extent to which projected ad valorem rates on individual properties do not reflect the cost of providing necessary services and facilities is a criterion to consider when determining a base amount.
As detailed in the table in 3.1, Council proposes collecting $15.4 million in ordinary rates in 2025/26. This is to fund, albeit partially, the $18.5 million of net expenditure across the five pillars. The $3.1 million shortfall or operating deficit effectively reduces the funding available to renew infrastructure assets. This is a key financial sustainability measure that Council is proposing to address with its financial sustainability strategies and the approved permanent SRV commencing 1 July 2025.
If it is assumed that the base rate will cover ‘General administration and overhead costs’, the ad valorem amount to be collected would cover all other net expenditure. On this basis and keeping within permissible income, the ad valorem amount collected would be need to be around $13.0 million. Under the presented rating structure options (Options A-D), the ad valorem amount to be collected is less than this, in the range $11.3 - $12.3 million.
The service that has by far the greatest financial impact on the above total net expenditure ($18.5 million) is roads and associated infrastructure. From maintaining and repairing sealed and unsealed urban roads, sealed and unsealed rural roads, maintaining associated drainage, providing street lighting and footpaths, and providing for depreciation to allocate to the renewal of existing road infrastructure, these costs amount to around 53% of the total net expenditure.
Comprehensive further analysis would be required to determine the relationship between the ad valorem rates on an individual property and the cost of providing roads and other services to that property. This is likely to be costly to commission this work. Consideration will be given in future years to other means to consider these criteria and Council may wish to undertake an entire rating review strategy at some point in the future.
Council is not recommended to undertake this within the next two years, given the significant work still required to address the recommendations from the Independent Review, Asset Management work (including further work on Council’s Road Hierarchy) and the extensive community engagement on that, and various other strategies and service reviews underway, completed and being adopted, or yet to commence but committed.
3.3 Grant or other income to provide necessary services and facilities
The level of grant or similar income available to provide necessary services and facilities is also a criterion to consider when determining a base amount.
The table in 3.1 includes significant grant funding and other income, other than general rates, that is available to provide necessary services and facilities. Further work is being undertaken on reviewing pricing and sending appropriate price signals that reflect the cost of providing services. This will address the recommendation from the University of Newcastle Independent Review and has been included in the draft Revenue Policy. Over time this is expected to reduce the ratepayer subsidy provided for services such as cemeteries.
3.4 The degree of congruity and homogeneity between properties and their spread throughout the area
A further criterion to consider when determining a base rate is the degree of congruity and homogeneity between the values of properties subject to the rate and their spread throughout the area.
Congruity refers to the level of similarity or consistency in certain key characteristics or attributes between different properties. Characteristics include land use zoning, land area, location and access to services, infrastructure and transport. A higher degree of congruity between properties makes these comparisons more reliable.
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Homogeneity implies a greater level of uniformity or sameness across a group of properties concerning the characteristics above. A homogeneous area would feature properties that are very similar to each other.
A higher degree of congruity and homogeneity allows councils to apply more consistent and equitable policies, particularly in the levying of rates. Properties with similar characteristics and benefiting from similar services should ideally be rated similarly.
The recent Capacity to Pay Study prepared by the University of Newcastle found there is “a large disparity in land values between the various categories of rate payers. There is also a large number of extreme outliers (represented by the dots)”1 in the following graph.
This indicates there is not a high degree of congruity and homogeneity between properties. Further analysis would be required to provide greater understanding of this factor and this would be recommended to be completed as part of an overall Rating Review project in the future should Council wish to.
1 University of Newcastle, Capacity to Pay Report August 2024, page 13
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3.5 A rate that is wholly an ad valorem rate
The final criteria to consider when determining a base rate is whether a rate that is wholly an ad valorem rate would result in an uneven distribution of the rate burden because a comparatively high proportion of assessments would bear a comparatively low share of the total rate burden.
Applying an ad valorem rate only across the rating categories would result in all ordinary rates being collected based on the value of the rateable land. The following table provides a summary of the average rates by rating category under an ad valorem-only rating structure.
Effectively this shifts the rates burden to the higher valued properties, particularly to farmland properties. Under this scenario, 305 properties would be paying rates of less than $50 per annum (down from an average of $428 to $545 under current rating structure options A to D).
Also, the top ten valued properties would be paying an average of $115,964 per annum in general rates (up from an average of $63,714 to $64,913 under current rating structure options A to D).
This points towards an uneven distribution of the rate burden because a comparatively high proportion of assessments would bear a comparatively low share of the total rate burden, however this would require further data analysis to confirm.
To counteract this, previous Councils have introduced a base rate to respond to this distribution issue and also to provide a reduction in rates payable by farmland properties relative to residential properties (through a lower ad valorem rate) and an increase in rates payable by business properties relative to residential properties (through a higher ad valorem rate).
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4 Other factors to consider
There are a range of other factors to consider when establishing a rating structure, including:
• Current average rate levels by rating category
• Recommendations from the recent Independent Review
• Community feedback through previous processes, such as submissions to IPART
• Rate in the dollar
• Shifts in land value
4.1 Current average rate levels by rating category
The average rates for all three categories (inclusive of Federation Council’s 19.00% temporary general rates increase as approved by IPART and levied in 2023/24) are contained in the table below.
Federation Council falls under OLG Group 11 and the following graphs report on average rates by rating categories in 2023/242 within the classification.
4.1.1 Farmland
2 The Office of Local Government, Time Series Data 2023-24
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4.1.2 Residential
4.1.3 Business
* Moree Plains and Narrabri Council has not submitted the necessary returns which contain the required data therefore results were calculated based on revenue policy forecast for 2023/243
3 Moree Plains – Operational Plan Appendix A Revenue Policy 2023-24 & Narrabri Shire - Operational Plan Appendix A 2023/2024 Revenue Policy
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4.1.4 Average rates comparisons
The NSW Government requires comparisons of average rates by rating category to other council areas. However, average rates may not provide the best representation when comparing between council areas, especially when considering farmland rates. This is a position taken by the University of Newcastle in undertaking their independent review.
There can be vast differences between farmland properties, size and agricultural pursuits that influence the average farmland value and reduce the relevance of an average farmland rates comparison between LGAs.
“Comparing average rates between councils is a very bad idea because there is skewing both within particular categories, and also between them in a given local government area. Comparing significantly distorted data from one council to another is an exercise in futility”4 .
Further detail on the reasoning behind this is included in section 5 of the University of Newcastle’s Capacity to Pay Report.
It is noted that IPART in their final report accompanying the approval for the rate increases, stated ‘the average farmland rates appear to be very high in Federation compared to other rural councils. However, the report stated the rate revenue relative to income for farmland ratepayers is low compared to other council areas”.5
Again, Council is recommended to consider this further as part of a future Rating Review project. This would take into account many factors including, seasonal conditions affecting farming operations, existing and potential additional rating categories, as well as the spend of Council’s rates across areas, both by type of asset, e.g., rural roads versus town roads and services and potentially by location. Council often hears comments from towns (residential and business ratepayers) to state they pay x amount of rates and don’t consider they get the return for them whilst also hearing similar sentiments from rural ratepayers and villages.
4.2 Independent Review recommendations
The Independent Review by the University of Newcastle conducted in late 2023 provided the following specific recommendations relating to general rates and capacity to pay:
70. Conduct a robust and competent assessment of capacity to pay. The work performed by private consultants in the past was not fit-for-purpose.
71. Council needs to develop ways to mitigate capacity to pay – such as by changing the rate structure (base rate), reducing reliance on taxation revenue where possible, pursuing greater distributive equity, and also developing a more responsive and practical hardship policy.
Following this, Council engaged the University of Newcastle to prepare a Capacity to Pay report (amongst other reports). This report was received in August 2024 and the author concluded that ratepayers in Federation Council pay less than those in similar areas and that their income and wealth levels suggest they can afford to pay more in rates to bring the council's finances in line with the average.
Page 1. “This Report demonstrates that ratepayers at Federation would collectively need to pay just over thirtynine percent in additional taxes to come up to the average tax take expected of a local government area with its particular socio-economic characteristics.”
Page 41. “Thus far, we have surveyed a large number of indicators that mostly agree with the sentiment that ratepayers in Federation Council have the capacity to pay, at least, a typical rate of local government
4 University of Newcastle, Capacity to Pay Report August 2024, page 12
5 Independent Pricing and Regulatory Tribunal, Federation Council - Special Variation Application 2025-26, Final Report May 2025 page 34
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taxation. Indeed, quite a few of the indicators suggest that the capacity to pay at Federation is much higher than it is for the relevant peer group.”
The professors, on behalf of Institute for Regional Futures at the University of Newcastle, performed econometric analysis that uses statistical methods to analyse economic data. Using data about income, property values, and other economic indicators to estimate how much residents and businesses in the local government area can afford to pay in rates. These are the summaries by rating category:
4.2.1 Analysis on Farmland
In 2021, agricultural land usage in the Federation Council area was nearly equally distributed between livestock and broadacre, with broadacre leading by 2%. Broadacre also generated 70% of the production value that year.
The analysis undertaken by the University of Newcastle found “the revenue effort for local government taxation on the farm category of ratepayers is indeed the lowest in the comparative cohort – the complete opposite of claims made in response to the last SRV application. Specifically, for 2021, farm rate revenue effort at Federation is 0.64 percent, the mean for the cohort is 1.95 percent, and the median is 1.3 percent (the highest revenue effort for the cohort is 6.79 percent)”6. This is displayed in the following graph as extracted from the report.
Analysis of the operating environment in the August 2024 report indicated that agricultural ventures are not currently impacted by drought, and forward indicators suggest a higher likelihood of increased rainfall. While overall livestock prices are predicted to fall, prices for pigs and poultry, the largest component of livestock production in the area, are expected to increase in value. Similarly, crop values are expected to be above historical
6 University of Newcastle, Capacity to Pay Report August 2024, page 35
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trends. Overall, current and future conditions are conducive to high profits for the agricultural sector, suggesting a high capacity to pay.
Whilst that may have been forecast in August 2024, as at May 2025, the NSW Government has the Federation Council area as “Drought Affected”7 on a scale of: Non Drought, Recovering, Drought Affected, Drought, Intense Drought. The forecast for 31 July 2025 remains as “Drought Affected”8 .
This highlights the inherent difficulty in making decisions based solely on point-in-time data, especially when phenomena like droughts can develop rapidly. It's crucial to recognise that the impact of drought extends beyond farmland ratepayers, significantly affecting many town businesses in agriculturally dependent councils like Federation, and some residential ratepayers who rely on farm work.
4.2.2 Analysis on Residential
The Independent reviewers analysed factors like property values and the socio-economic profile –including income, employment, education, and other well-being indicators – to study residents' capacity to pay. This analysis suggested that residential ratepayers have a comparatively strong capacity to pay rates at least in line with similar councils. However, the study cautioned that relying solely on the Socio-Economic Index for Areas (SEIFA) to determine this capacity can be misleading because SEIFA uses older census data (2021) and doesn't directly measure the ability to pay rates.
4.2.3 Analysis on Business
Analysis on sole proprietorships, partnerships, and family trusts with an ABN, excluding large corporate chains indicates that the average income for these businesses was generally higher than typical. Before the pandemic, the median income was among the highest compared to similar areas. The study concluded that business in the local government area have a typical or above-typical capacity to pay
4.2.4 Capacity to Pay Study recommendations
The Capacity to Pay Study included two recommendations that are to be further considered by Council.
Recommendation 1: That the General Manager be tasked with further exploring the distributive equity at Federation Council.
The section concludes by stating that reducing or eliminating the base rate is one of the most significant steps a council can take to address concerns about ratepayers' capacity to pay.
Recommendation 2: Council should review the base rate with a view to either eliminating it entirely or linking it to a specified set of council overhead costs to be calculated annually. Ideally, a decision on this matter should be taken as soon as practicable.
For council to continue using base rate, it is recommended to use a justifiable approach of calculating the base rate annually based on the shared overhead costs. This would reflect the basic cost of representation and service provision that theoretically benefits all ratepayers equally.
Taking both recommendations into account, options are explored to adjust the rate structure, specifically by lowering the base rate. This discussion paper presents four options for calculating general rates.
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Option A offers no such relief, while Option D provides the most significant reduction in the financial impact for those with lower capacity to pay. The full Capacity to Pay report is available on Council’s website9
Council’s hardship policy has been reviewed and adopted to be more relevant, responsive and practical.
4.3 Submissions to IPART
When considering the applications for Special Rate Variations by Councils, IPART announced that they had received around 1,100 submissions and more than 6,000 survey responses during the 4-week consultation period from 25 February 2025 to 24 March 2025 as shown below.
In the final report10, IPART reported that through the process, they received 537 responses to their feedback form and 129 submissions from stakeholders on Federation Council’s proposed SRV. The majority of these submissions and responses raised concerns about the:
• affordability of the proposed rate increases
• council’s financial management
• general service levels and infrastructure
• council’s consultations with the community.
IPART also received some submissions that supported the increase in rates to maintain service levels and conduct infrastructure renewals and maintenance
IPART approved Council’s application after balancing the council’s need for additional income to improve its financial sustainability with the impact of the proposed rates increase on its ratepayers. IPART acknowledged that the proposed rate increase above the rate peg in the council’s current and approved SRV application remains consistent with the size of the increase over the 4-year period from 2023-24 to 2026-27 in its previous SRV application that was partially approved.
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IPART found “the council’s average residential and business rates for the next 2 years are within the range of comparable councils. We found that the council’s average farmland rates are above the range of comparable councils”.11
In advising next steps for Council, IPART noted “The council retains the discretion to revise how it raises its general income across the rating categories. We encourage the council to consult with its community to decide how best to implement the increase and any changes to the rating structure.” 12
Council has continued to look at options to reduce the impact on vulnerable ratepayers, particularly pensioners. In addition to providing rating options consistent with the Independent Review recommendations, Council’s hardship policy has been reviewed and adopted, and is considered to be more responsive and practical.
11 Independent Pricing and Regulatory Tribunal, Federation Council - Special Variation Application 2025-26, Final Report May 2025, page 3
12 Independent Pricing and Regulatory Tribunal, Federation Council - Special Variation Application 2025-26, Final Report May 2025, page 5
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4.4 Land value relative to rate income
The ratio of "Total Land Value / Total Rate Income" provides a high-level insight into the relationship between a council's overall property value and the total revenue it generates from property rates. The relationship is important for several key reasons, offering insights into its financial health, rating strategy, and potential capacity. Based on the latest land value against 2025 forecast rates income of councils in OLG group no. 11, Federation Council ranked 7th from 19 councils. In simplistic view, with every $1 increase in rates, Council income increase by $413.
In a simplified example, where Council needs to raise $10 million in rates revenue, to calculate the rate in the dollar, the council would divide its required revenue by the total rateable value:
Rate in the Dollar = Total Rates Revenue Required / Total Rateable Property Value
Rate in the Dollar = $10mil / $5,346mil
Rate in the Dollar = $0.002 or can be express at $1/$413
Applying to individual property,
Annual Rates = Property Value x Rate in the Dollar
Annual Rates = $500,000 x $0.002
Annual Rates = $1,000
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This is a highly simplified example that does not take into Council’s rating structure that have both base rate and ad valorem.
A high total land value relative to rate income suggests that the council has a significant asset base from which to generate revenue. This could indicate that the council has the capacity to raise more revenue through rates if needed, without necessarily imposing a very high "rate in the dollar." It implies a broader base over which to distribute the cost of services.
A low ratio might suggest that the council has a smaller asset base relative to its current income needs. This could mean they might need to apply a higher "rate in the dollar" to generate sufficient revenue or might have less capacity to significantly increase rates without placing a substantial burden on ratepayers.
Federation Council's relatively high ratio suggests that Council has a significant land asset base compared to its current rates income. This could provide them with more flexibility in their rating strategy and potential capacity for future revenue generation. If Council are aiming to reduce reliance on grants, the higher ratio might allow Council to achieve this with a less drastic increase in the "rate in the dollar" compared to a council with a lower ratio.
4.5 Shifts since 2010 in land value across rate categories
Council’s existing ratepayer base comprises three types of land holdings (known as rate categories), being –business, farmland and residential. Over the past 12 years there has been a significant shift in the value of the land underpinning the rating category
In 2010, the total value of residential land was greater than the total value of farmland. Residential land made up 53%, and farmland 38%, of the total land value.
Over the years, a notable trend emerged where the total value of farmland became the predominant portion of the LGA's land value, while the residential share contracted to less than half of its initial share
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The table captures the increase in land value over this 12-year period.
The data reports a 989% increase in the value of farmland, a 247% increase in the value of residential land and a 187% increase in the value of business land over this 12 year period.
Land valuations used to levy rates are updated every three years and for 2025 is expected to be issued later this year.
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For the interim, land values trend obtained from the NSW Valuer General are tabulated below:
Result by rating category as follows: (billion $)
This data reports that farmland values have declined from 2023 to 2024. This may continue into 2025. Land valuations for 2025, used to calculate general rates from 1 July 2026, will be received in late 2025.
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5 Rating Structure 2025/26 – options for consideration
The proposed ordinary rate revenue for the 2025/26 financial year is $15.4 million. This is a 19% increase on 2024/25 ordinary rates revenue. This is the maximum allowable under the recent IPART approval for a permanent increase for the 2025/26 financial year (52.01%, effectively includes the temporary increases of 19.00% and 17.00% levied in 2023/24 and 2024/25, followed by 19% in 2025/26).
This increase is applied to the total ordinary rates that are collected by Council and is subject to Council adoption of the Annual Budget for 2025/26 as exhibited.
Option A. Increase both the base rate (to $505.75) and the amount collected through ad valorem by 19.00% (this is the modelling used in the SRV application):
Option B. Increase the base rate by the rate peg (+4.80%) to $445.40 and the amount collected through the ad valorem by 24.31%:
Option C. Maintain the current base rate (0.00%) at $425.00 and increase the amount collected through the ad valorem by 26.07% (this is the approach Council took for setting the 2024/25 rates):
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Option D. Decrease the current base rate by 10% (-10.00) to $382.50 increase the amount collected through the ad valorem by 29.74%:
It is relevant to consider the impact on ratepayers of the proposed options.
The median land value for each rating category is as follows:
Farmland - $2,150,000
Residential - $145,000 Business - $122,000
This means that 50% of all properties in the rating category are valued at more than this, and 50% are valued at less than this. For example, 50% of all farmland properties are valued at more than $2,150,000 and 50% are valued at less than $2,150,000.
The following graph and table models the 2025/26 median general rates for each rating category for the above four options. The median rates refers to the level at which 50% of ratepayers pay more than the stated amount, and 50% of ratepayers pay less.
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The impact on pensioner concession property owners has also been included to assist with understanding the impact on this more financially vulnerable segment of the community.
The following table analyses the movement on median rates by rating category in comparison to 2024/25 median rates:
*Farmland – pensioner concession median reduced from 2024/25 despite rate increase because one property with land value of $2.25 million is no longer subject to a pensioner concession (noting there are 15 farmland properties receiving a pensioner concession).
6 Recommendation on rating structure
When determining a rating structure, consideration may be given to which option is best to mitigate capacity to pay, current cost of living pressures, land valuation movements and current rate levels
As the base rate lowers, more rates are required to be levied through the ad valorem amount. This has the effect of increasing the rates on properties with higher values. Following table summarise the yield by base rate and ad valorem of each option:
It is recommended that Council publicly exhibit the four options to enable community feedback to be received prior to making a final rating strategy decision.
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Schedule of Changes & Amendments
Version Date Changes / Amendments
1.0 20 May 2025 Discussion paper prepared for Council consideration when setting the rating structure for 2025/26.
NOTE: This is a controlled document. If you are reading a printed copy please check that you have the latest version by checking it on Councils Electronic Document system. Printed or downloaded versions of this document are uncontrolled.
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