Interest free deferral of rates for pensioners

At the 27 September Council meeting, I recommended to Council that it vary the Council’s Financial Hardship Policy which I instigated in 2015 to:

1. reduce the interest rate charged on deferred rates for pensioners to 0% where a person is over the age of 65 and can prove they have lived in their home for more than 10 years; and
2. reduce the interest rate charged for the deferral of Council rates for all other persons qualifying under our Financial Hardship Policy from 4.75% to 2.5% per annum.

This change was supported by most other councillors and is now Council policy.

Prior to the introduction of Council’s Financial Hardship Policy, Council charged the prevailing penalty interest rate on deferred rates pursuant to the interest rate is fixed under section 2 of the Penalty Interest Rates Act 1983.  The penalty interest rate has been set at 9.5% for 2016/17.

The Financial Hardship Policy introduced in June 2015 reduced the interest rate charged on rate referrals to 5o% of the penalty interest rate (effectively 4.75% as at September 2016).  Being an eligible pensioner satisfies as hardship under the policy.

However, since the introduction of the Financial Hardship Policy, there has not been many enquiries from pensioners to defer their rates.  It is likely this is because many would find it unpalatable to accumulate penalty interest (even at a 50% discount) on their Council rates.

While rates have increased by 2.5% on average this year, the 2016 property revaluation means about 16,900 of Monash’s 73,300 ratepayers have experienced rate increases of 10% or more (while many other ratepayers in other parts of Monash have had a rate reduction).  The impact is being felt heavily in suburbs like Glen Waverley, Mount Waverley and Wheelers Hill where property values have surged and where some rate bills have increased by more than $1,000.  Many pensioners, particularly in the areas that experienced higher than average valuation growth, have been hit the hardest and many are expressing concern that they may be forced out of their homes.  I have spoken to dozens of pensioners about these impacts and that is why I proposed this measure.

I am very concerned that long standing older residents of Monash are considering selling up and leaving the area because they simply cannot afford their escalating rate bills.

By providing an opportunity to defer rates on an interest-free basis, Council is providing an option of immediate rate relief to pensioners who are struggling to pay their annual rates bill.  Deferral on an interest free basis may be an attractive option for some older residents who want to remain in their home but who are finding it difficult to do so because of substantial and unpredictable rate increases arising from property revaluations.

This approach is proposed by me to offer residents of pensionable age an ability to live completely free of any concern around the payment of their Council rates. This is in response to the dozens of pensioners I have spoken to over the past month, and the hundreds who have responded to Council’s petition to the state government, who have told me about the significant impact on their life arising from the significant rate increase they have received because of property values increasing substantially.

These changes means that aged pensioners with more than 10 years living and contributing to the Monash community can choose not to pay another dollar in rates and be completely confident that over time interest will not reduce the equity they have paid off in their homes.  Their rates will simply sit as a charge against their property to be recouped by Council when the property is sold.

This is an option which will not be for everyone but it does offer immediate financial relief to anyone who is otherwise feeling they have no other choice but to leave the local area they have lived in for most of their life. When it comes to council rates, aged pensioner ratepayers are the most vulnerable section of our community because they are living off very low fixed incomes with little prospect of increasing their income in real terms in the future.  These changes will provide some immediate relief to some of those most in need.  This is in addition to Council’s strong advocacy around these matters to the state government and represents assertive action Council can take itself.

The pressing need for rate reform

Monash Council has been urging ratepayers to sign a petition calling on the state government to reform Victoria’s archaic rating system to avoid wild fluctuations in the rates paid by individual ratepayers from year to year because of revaluation changes.

Whilst continuing advocacy is needed by Council to push for this long overdue reform, this interest rate reduction resolved by Council at the September meeting provides options for immediate relief to those in
desperate need.  Unlike capping increases in rates from year to year arising from revaluation changes (which requires state government legislative change) this interest rate reduction measure is something which Council had the power to implement immediately to provide options to those in our community facing significant financial pressures.

Council has resolved to advocate for change as we are powerless to soften the impacts of property valuation changes on rates from year to year.  These impacts are regrettable and leading to residents in our community to consider moving out of ‘hot’ property areas because they simply cannot afford to pay their rates.

When it comes to council rates, pensioner ratepayers are the most vulnerable section of our community because they are living off fixed incomes with little prospect of increasing their income in real terms in the future.

The changes will provide an opportunity for eligible pensioner ratepayers to defer their rate payments altogether, without any penalty interest, therefore providing more disposable income to address increased cost of living expenses.

Further, the changes will also offer some additional relief to other ratepayers experiencing hardship with a reduction to interest rates currently charged in hardship cases from 4.75% to 2.5% per annum.  This provides a very low interest rate – lower than any other interest rate commercially available – for others experiencing hardship in the community as well.

Deferred rates sit as a charge against the property and can are recouped by Council at the time of sale for a property.  It is not anticipated that there will be a material financial impact on Council as a result of these changes.