Investigation into how local councils respond to ratepayers in financial hardship

Report snapshot

The Case

The Victorian Ombudsman heard concerns from ratepayers, financial counsellors and community lawyers about the way local councils treat people who cannot afford their council rates. With the COVID-19 pandemic threatening to increase financial hardship in the community, the Ombudsman launched an investigation into the issue.The investigation into Victorian councils found while some policies were good, some councils had policies that were inaccessible, and in some cases, unfair and wrong. Many people struggling to pay rates were told their only option was a payment plan, when the legal framework includes waivers and deferrals –which some councils have a blanket policy of refusing. Some councils took victims of family violence and those with mental health issues to court over unpaid rates, and people in hardship were charged penalty interest they could not pay back.

Key findings

• Almost all councils had a hardship policy but they varied greatly
• Councils offered relief to ratepayers during COVID-19
• Information about hardship relief can be hard to find
• Many councils encourage ratepayers in financial hardship to go on payment plans
• Councils do not always tell ratepayers their rates can be deferred or waived
• Many councils charge high penalty interest, currently 10 per cent, on unpaid rates
• Councils had an over reliance on debt collectors
  
• Some councils were too quick to sue, including litigation against victims of family violence and people with mental health issues
• Council hardship practices compare poorly with sectors such as banks, energy and water

Key Recommendations

• Capping councils’ ability to charge high penalty interest
• A stronger oversight of debt collectors
• New laws requiring councils to publish hardship information making it easier for ratepayers to know their rights
• Issuing standards for rates hardship relief, including where rates debts are associated with family violence
• Legal action to be the last resort.

By the numbers

Final word

When it comes to hardship, too often we’re on our own. Nobody wins from heavy-handed approaches, least of all the public interest. We would be rightly concerned if our bank was doing more to meet its social obligations than our council.

Deborah Glass, Victorian Ombudsman

You can also view a summary of this report in the following languages:

Letter to the Legislative Council and the Legislative Assembly

To

The Honourable the President of the Legislative Council

and

The Honourable the Speaker of the Legislative Assembly

Pursuant to sections 25 and 25AA of the Ombudsman Act 1973 (Vic), I present to Parliament my Investigation into how local councils respond to ratepayers in financial hardship.

Deborah Glass OBE
Ombudsman

17 May 2021

Foreword

Teresa found out after separating from her husband that he had not been paying council rates for years. She is working two jobs to pay off the debt, on which the Council charges interest. She said the debt ‘keeps escalating … I will never be able to pay this off’. Before the pandemic, the Council was charging Teresa more in interest each year than it was charging her for rates.

The problem of how people in financial hardship pay what may be an ever-increasing rates bill is not new. While not all councils do so, they have the power to charge penalty interest, take people to court, or even sell the property to recover a rates debt. Concerns about heavy- handed debt collection for unpaid rates have been around for years, but the likely increase in financial hardship brought on for many by the pandemic has thrown it into sharp relief.

"We would be rightly concerned if our bank was doing more to meet its social obligations than our council"

I wanted to examine how struggling homeowners would be treated if they fell into debt, and whether council practices were fair and reasonable. I also wanted to identify the good practice across the sector, that all councils should aim for.

We found, as is so often in local government, widely varying practices. Almost all 79 councils had a hardship policy but not all made them public; the policies themselves varied widely; and in some cases, published policies did not reflect actual practices.

Some councils offered more generous hardship relief during the pandemic and are doing more to engage with ratepayers who fall into debt. Good practice includes publishing information in community languages, offering easier ways to pay rates, and working with local financial counsellors. We heard some councils were ‘exemplary’ at dealing with ratepayers in hardship.

But others were described as ‘paternalistic’ and ‘punitive’; ‘too quick to sue’ without adequately exploring alternatives. We heard concerns from community advocates that some councils were judgmental, taking the view that if ratepayers cannot pay their rates, it must be their fault, without trying to understand that people in hardship may have other problems, or how vulnerability affects people and their behaviour.

We also heard from councils about their concerns, including that the burden of unpaid rates falls heavily on other ratepayers. Smaller rural councils also depend heavily on rates revenue, which limits their ability to offer relief.

We were not investigating the whole rates system – which has been subject to a recent State Government review – but the context is important. Rates are not set according to ratepayers’ income or capacity to pay but largely by the value of the property and the council’s budget. This can create problems for particular groups, including pensioners and farmers. We were told of an elderly widow not looking after herself properly, as so much of her pension went on trying to pay her rates.

"So instead of recognising that I’ve got financial hardship now, all they’ve done is just taken that level of debt and moved it [to] next year … I’m going to have more problems next year even if I dofind work ... "

Statement from ratepayer during investigation

While some councils manage these issues very well – including recognising family violence as a sign of hardship – we also saw practices that were simply unfair and wrong, and some common practices that could not be justified.

Too many people are told their only option is a payment plan, when the legal framework includes waivers and deferrals – which some councils have a blanket policy of refusing. This is fundamentally inconsistent with good administrative practice. While councils should only be expected to waive rates rarely, discretion, not sledgehammer refusals, should be the order of the day.

Charging penalty interest to people in hardship is also wrong – as well as punitive and counterproductive. How can it possibly be fair to have your rates deferred for hardship reasons, only to be forced to accumulate far greater debt? And while councils are expected to be model litigants, we saw troubling cases of litigation against people in crisis including histories of mental health problems and family violence. Some councils rely heavily on debt collectors, an experience that can be stressful and frightening for anyone, let alone someone in hardship.

The public sector is expected to act in the public interest more than the private sector – but in dealing with hardship, local councils lag behind utility and other companies, including banks. We would be rightly concerned if our bank was doing more to meet its social obligations than our council.

Nobody wins from heavy-handed approaches, least of all the public interest. While we often heard about the need to be fair to other ratepayers, councils have obligations to their whole community, not just those who can afford to pay. Good hardship relief schemes get the balance right. And driving people in hardship further into debt or out of their homes is short-sighted. It creates costs for other parts of government, costs that are also borne by taxpayers.

The good practice we have seen, both in councils and elsewhere, shows it is possible to do it better. This report includes recommendations to strengthen laws and standards, and to promote a consistent approach. I commend it to all councils to see whether they are ahead or behind and act accordingly. We may all have been in it together, but when it comes to hardship, too often we’re on our own.

Deborah Glass

Ombudsman

Councils and Ratepayers by the numbers

• Victoria has 79 councils
• Rates account for 34% to 79% of council revenue
• Before the pandemic 1 in 10 Victorians were in some form of financial difficulty
• 6 August 2020: Ombudsman launches an investigation
• Average council rates in 2019-20 ranged between $1,227 & $2,000+
• 96% of councils have a hardship policy in some form
• 77% of councils published their standard hardship policy on their website
• 48% of councils do not include rate waivers as part of standard hardship policies
• 26 councils limit use of deferrals as part of standard hardship policies
• In 2018-19 councils sold or transferred land for unpaid rates 28 times
• Many councils charge 10% penalty interest even in hardship circumstances
• 97% of councils use debt collectors
• Councils sued ratepayers for unpaid rates more than 7,000 times in 2018-19
• 7 councils mention family violence in their hardship policies

Report Summary

Why we investigated

1. In recent years, the Ombudsman has heard concerns from ratepayers, financial counsellors and community lawyers about the way local councils treat people who cannot afford their council rates. With the COVID-19 pandemic threatening to increase financial hardship in the community, the Ombudsman decided it was timely to investigate the issue. The investigation focused on council hardship relief for homeowners (ratepayers who cannot pay rates on their primary residence).

What we found

2. Victoria’s 79 councils all have their own approaches to ratepayers in financial hardship. For ratepayers, this can lead to a ‘postcode lottery’ – different ratepayers get different help, depending on the council area they live in.
3. Councils all offered extra relief to ratepayers during the COVID-19 pandemic. Some council pandemic schemes have already ended and others are currently due to end in 2021.
4. Outside of the pandemic schemes, some councils manage these issues well. But there are common problems:

• Public information about councils’ hardship relief can be hard to find. It is not always clear or up to date.
• Most councils encourage ratepayers in financial hardship to go on payment plans, where they pay off rates over time in instalments. This is a solution for many people, but not everyone. The current laws (in the Local Government Act 1989 (Vic)) also give councils the power to defer or waive rates. Some councils do not tell people about these options. Some refuse to offer them or limit their availability.
• Outside of pandemic schemes, many councils charge high penalty interest (currently 10 per cent) on unpaid rates. The Local Government Act allows this, but it can add hundreds or thousands of dollars to debts for ratepayers who are already struggling.
• Councils can also take ratepayers to court over unpaid rates and add the legal costs to the debt. Councils generally try to contact ratepayers before taking this step, but they rely heavily on debt collectors to communicate with ratepayers. More discretion is needed where ratepayers are struggling with other issues, such as mental illness or the effects of family violence.

5. As a whole, council hardship practices compare poorly with sectors such as energy and water. Councils have fallen behind best practice.

What we recommend

6. In 2020, the State Government committed to regulation to ensure more consistency in this area and a ‘collaborative change management program’.
7. This investigation looked at how this could be achieved. It recommended changes including:

• minimum standards for rates hardship relief across all councils
• legal requirements for councils to publish hardship information, so ratepayers can find out about their rights and options
• caps on councils’ ability to charge high penalty interest
• better links between councils and other sectors, including financial counsellors and the private sector, to keep councils up to date with good practice.

The investigation

Why we investigated

8. This investigation looked at how Victorian local councils can better respond to homeowners in financial hardship with their council rates.
9. The investigation began in August 2020 at a time of rising anxiety for many about their finances. In March 2020, the start of the COVID-19 pandemic saw businesses closed, jobs lost and people queuing for unemployment benefits. In April 2020, the Victorian Government forecast that unemployment could rise to 11 per cent and property prices could fall by up to nine per cent. At the start of August 2020, Melbourne went into a stricter lockdown. Non-essential businesses closed and state borders shut.
10. Local councils, like the Commonwealth and State Governments, were quick to announce economic support packages for their communities. Most councils offered rates relief to local residents and businesses, often in the form of interest- free deferrals or instalment plans. Some offered ratepayers rebates or discounts on their rates bill.
11. However, these relief measures had expiry dates. Some council schemes ended after a few months. Other council schemes were due to end later in 2020 or in 2021. It seemed the pandemic’s economic impact would last longer, and councils would be seeing more ratepayers in financial hardship for some time to come.

Figure 1: People outside Centrelink during COVID-19 lockdowns

12. Victoria’s 79 councils all have their own systems for hardship relief. The Ombudsman was aware of concerns about the way they had dealt with ratepayers in financial hardship in the past. A 2012 community legal centre report argued they did not respond to hardship consistently and were ‘far too quick to sue residents without adequately exploring alternatives to litigation’.¹ Since then, the Ombudsman has received regular complaints from ratepayers, often after they have been contacted by council debt collectors or taken to court.
13. On 6 August 2020, the Ombudsman advised the Minister for Local Government and the mayors and chief executive officers of all 79 councils that she intended to conduct an investigation into council responses to ratepayers in financial hardship. She said she intended to focus on help for homeowners struggling with rates for their primary residence. This included farmers, whose place of business is often also their home. She said she would consider issues including:

• whether information about councils’ financial hardship assistance is easily accessible for ratepayers
• whether assistance is fair and reasonable, and whether councils provide that assistance appropriately
• how council assistance schemes compare with best practice, including in the energy and water and telecommunications sectors
• what councils can learn from COVID-19 relief schemes to improve responses to financial hardship in future.

14. The aim of the investigation was to learn from the lessons of the past, and the pandemic, to identify good practice for the future.

Authority to investigate

15. The Ombudsman Act 1973 (Vic) gives the Victorian Ombudsman the power to investigate ‘administrative actions’ taken by or in an ‘authority’. The definition of ‘authority’ includes local councils and members of council staff (see definitions in section 2 and Schedule 1, item 15).
16. The Ombudsman conducted this investigation under section 16A of the Act. Section 16A allows the Ombudsman to conduct an ‘own motion’ investigation into any administrative action by or in an authority. The Ombudsman often uses this power to investigate systemic issues in the public sector.

How we investigated

17. The investigation involved the following steps:

• Research into financial hardship in Victoria
  The investigation reviewed research on the extent of financial hardship in Victoria and the impact of the COVID-19 pandemic.
• Information about council policies and practices
  The investigation:
  • asked councils for their hardship policies and other data
  • reviewed public material such as council websites
  • obtained data from the Magistrates’ Court about councils’ use of court action to recover rates debts
  • obtained data from the State’s land registry, Land Use Victoria, about use of land sales to recover debts

• Speaking with the local government
  The investigation met with three peak council bodies:
  • the Municipal Association of Victoria
  • FinPro, the association for council finance professionals
  • the Revenue Management Association, the association for council rates officers.
• Speaking with community advocates
  The investigation met with the following people to discuss their experiences with councils:
  • Financial Counselling Victoria, the peak body for financial counsellors in the State. Financial Counselling Victoria ran two focus groups with financial counsellors from around the State.
  • Westjustice, a community legal centre in Melbourne’s west
  • the former head of Westjustice, who has been active in this area for many years
  • an officer from the Women’s Legal Service
  • Victoria Legal Aid, which also made a written submission
  • Ratepayers Victoria, the peak body representing ratepayers in Victoria. Ratepayers Victoria and the Maribyrnong Residents and Ratepayers Group also made written submissions.
• Speaking with State Government
  The investigation met several times with the State Government agency responsible for local government issues, Local Government Victoria.
• Review of selected cases
  The investigation reviewed complaints to the Ombudsman from ratepayers in financial hardship. We made further enquiries into some of these cases, as well as cases raised by community advocates.
  
• Review of practice in other sectors
  The investigation also looked at how other private and public bodies respond to people in hardship. This included energy and water companies, banks, telecommunications companies, the Australian Taxation Office and the State Government’s tax collection agency, the State Revenue Office. The investigation met with the State Revenue Office and the Essential Services Commission, which regulates hardship schemes in the energy and water sectors in Victoria.

18. Some steps in the investigation were changed because of the pressures facing councils in 2020. When the Ombudsman first wrote to councils about the investigation, many asked her to defer it. They noted they were dealing with the pandemic as well as council elections and a new Local Government Act. The Ombudsman decided to go ahead because of the public interest in the issues. However, she reduced the information she was seeking from councils and gave them longer to respond.

Privacy and procedural fairness

19. This report includes case studies describing how some councils responded to ratepayers in financial hardship. The investigation has changed the names of the ratepayers and other details to protect their privacy.
20. Some of the case studies, and other parts of this report, contain adverse comments about some councils. In accordance with section 25A(2) of the Ombudsman Act, the investigation provided those councils with a reasonable opportunity to respond to the material in the report. This report fairly sets out the responses that were received.
21. In accordance with section 25A(3) of the Ombudsman Act, any other persons who are or may be identifiable from the information in this report are not the subject of any adverse comment or opinion. They are named or identified in the report as the Ombudsman is satisfied that:

• it is necessary or desirable to do so in the public interest, and
• identifying those persons will not cause unreasonable damage to those persons’ reputation, safety or well- being.

Financial hardship in Victoria

The extent of financial hardship

22. Before the pandemic, studies suggested that around one in 10 Victorians experienced some form of financial difficulty.
23. Studies define and measure financial difficulty in different ways, so their exact findings vary. For example:

• A 2017 report from the National Centre for Social and Economic Modelling calculated that 13.2 per cent of Victorians were living in poverty. It defined poverty as having less than $353.45 a week after paying for housing.
• A 2018 Centre for Social Impact report said 11.3 per cent of adult Victorians were experiencing severe or high financial stress. It said 4.2 per cent of respondents to a national survey indicated they had more debts than they could pay back, while 15.8 per cent were ‘just managing to keep up’.
• A December 2019 survey by Roy Morgan and the ANZ Bank classed 9.5 per cent of Victorians as ‘struggling’. It said most people in this group described their financial situation as ‘bad’, reported little or no savings, and found it a ‘constant struggle’ to meet bills and credit payments.²

Who is affected

24. According to research, some parts of the community are more vulnerable to financial problems. Financial difficulty is more common amongst people who are unemployed or under-employed (working but looking for more hours). Research also shows higher levels of financial difficulty amongst single parent families, people with a disability, Aboriginal and Torres Strait Islander people and people in public housing or the private rental market.³
25. However, having a job or owning a home does not protect people from financial worries. NATSEM’s 2017 report on poverty in Victoria reported that nine per cent of Victorians who owned their home were living in poverty, along with 10 per cent of Victorians who were paying off a mortgage.⁴ In 2015, Melbourne Law School’s Financial Hardship Project (‘Project’) surveyed 1,100 people who had been unable to pay a debt when it fell due. It said a ‘sizeable minority’ were people who would traditionally be considered ‘middle-class’ – people with university degrees, people who owned or were paying off homes, and people with higher incomes.⁵
26. The Project pointed to three economic changes in recent decades – increased job insecurity, rising living costs and rising household debt. According to the Australian Bureau of Statistics, household debt grew by 79 per cent between 2003- 04 and 2015-16, largely because of home mortgages. The Bureau reported that by 2015-16, around one in three households were ‘over-indebted’.⁶
27. The Project’s team wrote:

The overall increase in economic insecurity since the 1980s – together with increases in housing and utility costs and rapid growth in household debt – have created a situation in which financial hardship can happen to almost anyone.⁷

Causes and impacts of hardship

28. The Melbourne Law School Project’s research showed financial hardship can be triggered by unexpected costs or life events.
29. When the Project asked people what caused their debt problems, around three in 10 named ‘spending too much’. Smaller numbers mentioned ‘borrowing too much’ or ‘not knowing how to budget or manage my money’. However, almost half said none of these factors contributed to their problems.
30. The Project asked people about their experiences in the year leading up to their debt problems. People commonly mentioned:

• unforeseen expenses, such as car or medical costs
• relying on Centrelink for income
• unexpectedly high electricity, gas or water bills
• physical health problems
• mental health problems
• employment problems such as losing a job, not having enough work or working variable hours.

31. Others mentioned taking on caring responsibilities for children or other people, divorce or separation, business failure or addiction.
32. When the Project asked people about the impact on their lives, around half said it became more difficult to pay for basics like food and utilities. Just over a third reported mental health problems and just over a quarter reported physical health problems. More than a fifth reported trouble maintaining relationships with their family or friends.⁸
33. Some financial counsellors made similar observations when they spoke with the investigation. They said they had clients who were choosing between paying debts and buying food.
34. The Project reported that for some people, financial hardship was a temporary setback. For others, it was a long term problem that lasted for years.⁹

Financial hardship around the State

35. It will be no surprise to people living in Victoria that some parts of the State have higher levels of financial problems than others.
36. Figure 2 on page 16, shows council areas according to their level of socio- economic disadvantage. It is based on data from the State Government’s Know Your Council website, which ranks each council from 1 to 10 (where 1 represents the most disadvantaged areas and 10 represents the least disadvantaged areas). The ranking is based on the Australian Bureau of Statistics’ Index of Relative Socio-Economic Disadvantage, which considers factors such as income levels, unemployment, education levels, job types and access to a car or the internet.
37. The data shows higher levels of disadvantage in regional parts of the State. This is consistent with other studies of financial difficulty.¹⁰
38. However, some studies stress that hardship exists in all council areas. NATSEM’s 2017 report on poverty in Victoria said poverty rates tend to be highest in the outer suburbs of Melbourne. But it found poverty existed even in the wealthiest council areas.¹¹

The impact of the pandemic

39. The COVID-19 pandemic raised fears about growing financial hardship in the community.
40. By July 2020, the Commonwealth Government had processed JobKeeper wage subsidy applications from almost 267,000 businesses in Victoria. By August 2020, 249,300 Victorians were unemployed - 61,700 more than at the start of the pandemic in March. A national survey the same month found that almost a quarter of Australians were ‘financially stressed’.¹²
41. By late 2020 and early 2021, economic forecasts and data were more optimistic. In November 2020, the State Budget forecast that unemployment would peak at 8.25 per cent, down from the 11 per cent forecast in April. Property prices started to rise. In February 2021, the Governor of the Reserve Bank of Australia said that nationally, ‘the economic recovery is well under way and has been stronger than was earlier expected’.
42. However, the Reserve Bank statement noted that globally, the path ahead was likely to ‘remain bumpy and uneven’. It said recovery remained ‘dependent on the health situation and on significant fiscal and monetary support’. When this report was finalised, the Commonwealth Government had revised Australia’s COVID-19 vaccine schedule and the program was expected to take some months. Governments had started rolling back some of their economic support, including the Commonwealth’s JobKeeper program and extra JobSeeker unemployment payments.
43. These events and the long term impact of the pandemic are still unfolding.

Figure 2: Relative socio-economic disadvantage of council areas, score out of 10, 2019-20

Rates and hardship

44. Council rates are a significant household bill for many homeowners, and Victoria’s local government laws recognise they can be a source of financial hardship. This chapter looks at how the rates system works, the evidence about the number of ratepayers struggling to pay their rates, and councils’ legal options for responding to the problem.

The rates system

45. Council rates are a type of property tax charged by councils.
46. Councils rely heavily on revenue from rates to help fund services such as local roads and care for the elderly and people with a disability. They have other sources of revenue, such as fees, charges, fines and grants. But much of their income comes from rates. In 2019-20, councils around the State relied on rates for between 34 and 79 per cent of their revenue (see Figure 4 on page 20).
47. Councils’ powers to charge and collect rates were set out in Part 8 of the Local Government Act 1989 (Vic) when this report was drafted. The State Parliament had passed a new Local Government Act 2020 (Vic) which operates alongside the 1989 Act. The new Act set out broad principles for local government and important governance matters. The rates provisions remained in the 1989 Act.
48. The process for deciding each ratepayer’s bill is complex (see Figure 3). In short, rates bills are determined by two factors:

• a ‘rate in the dollar’ figure set by the council when it prepares its yearly budget
• the value of the ratepayer’s property. Professional valuers revalue properties each year.

49. Councils can also add other charges under the Act, such as a specific charge for waste management services.
50. Council rates vary across the State, since each council sets its own budget and rates. Since 2016, State ‘rate-capping’ laws have limited councils’ ability to increase their rates. The laws allow the Minister for Local Government to set a ‘cap’ on rates increases each year. According to the State Government’s Know Your Council website, in 2019-20, Loddon Shire Council had the lowest average rates in the State at $1,227. Average rates at some other councils were well over $2,000.
51. There is no reliable data on how many ratepayers experience financial hardship regarding their council rates. The Rating System Review (an independent panel established by the Minister for Local Government in 2019 to review the rating system) noted electricity and gas companies provide hardship assistance to 5.5 per cent of their customers, while water companies assist 6 per cent of customers. It said ‘[s]imilar figures are likely in local government’.
52. The investigation heard that the rates system, as a type of tax system, has some features that can lead to hardship problems.
53. First, rates are not set according to ratepayers’ income or capacity to pay. They are determined by the council’s budget needs for the year, State ‘rate- capping’ laws and the value of the ratepayer’s property.

Figure 3: The process for setting council rates

54. The Ombudsman sometimes receives complaints from ‘asset-rich income-poor’ ratepayers who struggle to pay their rates. One woman said her parents bought their home in 1970 for $27,000 but the property’s value had risen and so had the rates. The daughter said her now-widowed mother was:

not looking after herself properly because … from every pension she is putting aside a massive chunk just to try and pay the rates, which are $4,000 a year … I just don't really think it is fair to force [pensioners] to sell because they can't afford to pay the rates.

55. In another case, a farmer said he owed his council around $300,000 in unpaid rates after it rezoned his land. The land value and rates went up, but his income and capacity to pay did not.
56. Second, organisations like the Victorian Farmers Federation have raised concerns about inequities across the State. Regional councils sometimes charge higher rates because they have to fund the same services as metropolitan councils, but they have fewer residents to bear the cost.
57. This sometimes means ratepayers in disadvantaged areas pay as much or more as ratepayers in wealthier areas. Mildura Rural City Council, for example, is the State’s fifth most disadvantaged council area. Its average rates in 2019- 20 were $2,092.95. This was higher than average rates in Bayside ($1,796.28) and Stonnington ($1,443.55), home to wealthy suburbs such as Brighton and Toorak

Figure 4: Proportion of council revenue from rates, 2019-20

Source: Australian Bureau of Statistics, ‘Local Government Area, Indexes, SEIFA 2016’ data set, 2033.0.55.001 - Census of Population and Housing: Socio-Economic Indexes for Areas (SEIFA), Australia, 2016 (2016); Local Government Victoria, Know Your Council

58. Table 1 above shows average rates in 2019-20 in Victoria’s 10 most and least disadvantaged council areas. The difference was sometimes slight.
59. The impact of the COVID-19 pandemic on rates hardship is still unclear. The investigation heard that the impact so far varies from council to council. Some councils reported an increased demand for help. Others said the impact had been limited, although some were waiting to see what happened when lump sum rates payments fell due in February 2021.

Hardship relief in the Local Government Act

60. The Local Government Act 1989 recognises that some ratepayers experience financial hardship in paying for their rates. The Act creates two systems for relief:

• a statewide, State Government-funded concession scheme
• powers for individual councils to provide hardship relief.

Statewide concession scheme

61. The statewide rates concession scheme is funded and regulated by the State Government under theState Concessions Act 2004 (Vic), and administered by local councils under the Local Government Act 1989 (section 171).
62. The scheme gives eligible ratepayers a 50 per cent discount on their rates, subject to an annual cap. In 2020-21, the cap was set at $241. A handful of councils top up the discount at their own expense.
63. Eligibility for the rates concession is narrower than for State energy, water and transport concessions. It is only available to people who have a Pensioner Concession Card or a DVA Gold Card, such as people with an age or a disability support pension. People who are unemployed and receiving JobSeeker do not qualify in many cases.

Council hardship powers

64. The Local Government Act 1989 also gives councils the power to provide relief to people in financial hardship in two ways:

• Waiver
  Councils can waive all or part of a ratepayer’s rates and interest bill. Councils can waive rates for a class of ratepayers (section 171). They can also waive rates for individual ratepayers who apply for relief if they are ‘satisfied that the applicant is a person who is suffering financial hardship if that person paid the full amount of the rate or charge for which he or she is liable’ (section 171A).
• Deferral
  Councils can also defer a ratepayer’s rates if they consider ‘an application by that person shows that the payment would cause hardship to the person’ (section 170). In effect, the deferral extends the date for payment. The ratepayer does not have to pay until the council gives them a notice with a new due date.

65. Councils decide if and when to offer this relief. The Act does not define ‘hardship’. This means councils can set their own rules about who qualifies.
66. The powers are also discretionary. The Act says councils ‘may’ provide this relief to ratepayers in financial hardship. It does not say they have to.

Debt recovery under the Local Government Act

67. If a ratepayer fails to pay their rates on time or obtain hardship relief, theLocal Government Act 1989 gives councils powers to collect the unpaid rates debt. These include:

• Penalty interest
  Councils can charge penalty interest on the debt (section 172). The State Attorney-General sets the penalty interest rate under the Penalty Interest Rates Act 1983 (Vic). When this report was drafted, the rate was 10 per cent.
• Rent diversion
  If a property is rented, the council can require the tenant to pay rent to the council instead of the owner (section 177).
• Court action
  Councils can sue ratepayers to recover the debt (section 180). If ratepayers fail to comply with court orders, councils can enforce orders in various ways. They include seeking a warrant to seize the ratepayer’s personal property, seeking an order to require the ratepayer’s employer to pay their wages to the council (known as ‘attachment of earnings’) or bankrupting the ratepayer.
• Forced land sale
  If rates remain unpaid for more than three years, councils can sell land or transfer land to themselves (section 181).

68. Rates are also a ‘first charge’ on land (section 156). This means that if the land is sold, the council can collect the unpaid rates debt from the proceeds of the sale. If the rates are not paid at this point, responsibility for the debt (plus any interest and court-ordered legal costs) passes to the new owner of the land and they become liable to pay (section 175).

Past problems and future directions

69. Community lawyers and financial counsellors have been raising concerns about the way councils use the Act’s hardship and debt recovery powers for many years. At the time this report was drafted, the State Government had announced broad plans to reform the area.

The 2012 community legal centre report

70. In 2012, the Footscray Community Legal Centre and the Federation of Community Legal Centres released a 63-page report criticising councils’ approach to these issues. It said:

• Councils were not responding to people in hardship consistently.
• There was ‘significant lack of transparency’ about their practices.
• Councils were suing residents at ‘alarming and increasing rates’ and were ‘far too quick to sue’ without exploring alternatives to litigation.
• Councils were ‘falling far behind best practice financial hardship regulation, processes and practices’ in other sectors.

71. The report included a nine-page draft code of practice for councils. It required councils to have and publish a hardship policy; negotiate hardship plans that reflect ratepayers’ capacity to pay; and make ‘reasonable attempts’ to contact ratepayers before taking legal action.

The 2013 Municipal Association of Victoria guidelines

72. In response, the Municipal Association of Victoria (‘MAV’, the peak body for local councils) published Hardship Policy Guidelines for councils in 2013.
73. The objectives of the Guidelines included helping councils manage financial hardship ‘effectively and consistently’, and ensuring that debt collection practices were ‘sensitive and responsive’.
74. The Guidelines were more limited than the community legal centres’ proposed code of practice. The Guidelines advised councils to limit the use of the waiver and deferral options in the Act. They said ‘Councils will not generally waive rates or interest’. They said deferral would ‘generally apply to long term cases of extreme financial hardship, or where council extends hardship assistance to self- funded pensioner and retiree rate payers’.

The 2020 Rating System Review report

75. In 2019, the Minister for Local Government appointed an independent panel to review the council rating system in Victoria -the Rating System Review. The panel considered the hardship powers in the Local Government Act 1989. It consulted widely and reported to the Minister in 2020.
76. The report described councils’ adoption of the 2013 MAV Guidelines as ‘voluntary and variable’. It said there were ongoing concerns about:

an inconsistent approach to ratepayer payment difficulty, financial hardship and complaints when the process for discounts and rebates is not clear, transparent or easily accessed and navigated by vulnerable people who fear losing their homes.

77. The report made three high-level recommendations that the State Government:

• publish guidelines and a community communication strategy on deferral schemes (recommendation 30)
• ensure regulations require that ratepayers have access to consistent billing, debt recovery and payment difficulty assistance and that the councils’ coercive powers are only ever used as measures of last resort (recommendation 31)
• establish a ‘collaborative change management program’ to support the implementation of the regulations (recommendation 32).

78. The State Government accepted these recommendations in late 2020. However, the practical details – what regulations should say and how change should be achieved – remained undecided.
79. This investigation focused on what these changes could look like from a fairness perspective.

Ratepayer experiences

80. The investigation looked at what a homeowner in financial hardship would be likely to experience with their council, both in ordinary times and during the pandemic, namely:

• how easy it would be to find information and ask for help
• whether the help offered by their council would be fair and reasonable
• how a ratepayer could expect to be treated if they fell into debt
• how problems and disputes would be resolved.

81. It looked for examples of good practice, both amongst councils and other private and public sector organisations.

Finding information

82. Previous reports suggest ratepayers have trouble finding information about hardship relief at councils. The 2012 community legal centre report found some councils did not have a hardship policy and did not mention hardship on websites or rates notices. In 2020, the Rating System Review noted reports of a ‘general lack of awareness’ of council hardship policies.
83. The new Local Government Act 2020 requires councils to comply with ‘public transparency principles’ (section 58), which state:

• ‘Council information must be publicly available’ unless it is confidential or publication would be contrary to the public interest.
• ‘Council information must be understandable and accessible to members of the municipal community’.

84. The investigation applied these principles to four sources of information about rates – council policies, websites, rates notices and council officers.

Council policies

85. The investigation found almost all 79 councils had a hardship policy in 2020. Only three councils could not provide a written policy in some form.
86. Not all councils make their policies public. When the investigation reviewed council websites, it found council hardship policies on 61 out of 79 websites. Two other councils published their pandemic assistance policy, but not their usual hardship policy.
87. Some policies were clearly labelled ‘Hardship Guidelines’ or ‘Financial Hardship Policy’ and could be accessed from the websites’ rates pages. This made them easy to find. Other councils set out hardship policy guidelines in their rating strategy or debt management policy. Finding these policies took some effort.
88. The quality of the policies varied. Some were clear and detailed. Others were brief. Glen Eira City Council’s hardship policy guidelines, for example, consisted of one paragraph in its Payment of Rates Policy. Some policies were unclear, such as whether councils continue to charge penalty interest on unpaid rates when people are in hardship, or whether farms are eligible for the hardship relief.
89. In some cases, policies did not appear to accurately reflect council practices. There were a number of occasions where councils gave information to this investigation that differed from information in their policies (or other public information).

Rates notices

90. Council policies are not always the most user-friendly source of information. The investigation also looked at other communication, including the rates bills or notices that councils send ratepayers.
91. Councils must include certain information on rates notices under the Local Government Act 1989 (section 158(4)) and the Local Government (General) Regulations 2015 (regulation 10). Hardship is not on the list.
92. Nevertheless, most councils put some information about hardship relief on their notices. The investigation reviewed council rates notices since 2018-19. Even before the pandemic, at least 72 out of 79 councils mentioned hardship on their notice. Mansfield Shire Council also offered its ratepayers a free financial counselling service. Its notices said:
    PAYMENT ASSISTANCE
    People from all walks of life can find themselves with money problems. Financial counsellors are non-judgmental, qualified professionals who provide information, support and advocacy to people in financial difficulty. Mansfield Shire Council offers this service which is free, independent and confidential. Appointments required PH: (03) 5775 8569 or alternatively contact Money Help on 1800 007 007.
93. Hardship information was not always easy to find, however. In 2018-19, 66 councils put information in fine print on the back of the notice or in their flyers or brochures. One council officer explained ‘there’s only so much you can put on the front of a rates notice’. But the Rating System Review report noted ‘[m]any ratepayers stated that they do not read the rear of their rate notice, and that the information should be provided in a clearer and more understandable format’.
94. Some councils made hardship information clearer during the pandemic. In 2020-21, 16 councils put hardship information on the front page of their rates notice. Port Phillip City Council made its hardship information more prominent (see Figure 5 on page 28). It also put information about hardship relief on the envelopes for rates notices, which helps reach people who may be stressed and have stopped opening their bills.
95. Ratepayers were unlikely to find detailed information about their options on their notice, however. The investigation observed that most councils suggest ratepayers contact the council for more information.

Figure 5: Examples of two council rates notice back pages, 2020-21

Council websites

96. The investigation also reviewed council websites in June and July 2020 to see what information ratepayers might find there.
97. Fifty-five of the 79 councils had text on their websites about hardship relief (separate from council policies). Another 12 had information about pandemic assistance schemes, but not their usual assistance options.
98. Better examples included Greater Bendigo City Council. Its rates webpage said the Council is committed to helping people in hardship. It had a link to the Council’s policy and contact information for local financial counsellors. Hobsons Bay City Council’s rates webpage also had information about assistance options, its assessment process and an online application form.
99. Ratepayers Victoria’s submission to the investigation criticised other council websites. It said in its experience, ‘most are not helpful, nor easy to navigate and understand’. The Rating System Review report noted ‘Council guidance is largely limited to advising customers to call council to discuss their position’.

Council officers

100. The investigation heard anecdotal accounts of what happens when ratepayers contact their council.
101. One small shire council told the investigation that it talks through the person’s situation and their options. It said many people in financial hardship feel their situation is ‘not bad enough’ to warrant help:

hardship is a situation best communicated by a conversation to ensure that the ratepayer is comfortable and understands what can be offered, and what alternatives exist.

102. However, the Ombudsman sometimes hears from ratepayers who do not know they can apply for hardship relief, even after talking to their council. The case study on page 30 is one example. Other ratepayers say councils do not tell people about the options in the Local Government Act 1989.

Extracts from complaints and evidence to the investigation

Is this considered OK – to not inform consumers of the full rangeof options available to them, instead expecting them to researchand identify this information themselves? ... I only encountered thisinformation by my own means, very late in proceedings.

When I realised the huge disparity between what the Local Government Act said and what my local council was doing, I was gobsmacked, absolutely gobsmacked.

103. Ratepayers Victoria’s submission said during the pandemic, it ‘dealt with record levels of enquiry and requests for information from ratepayers who have struggled with their council to get clear and consistent information when asking for help’.
104. Ratepayers Victoria was particularly concerned that councils were not telling ratepayers they could apply to have rates waived under the Local Government Act 1989. (This report discusses councils’ reluctance to offer rates waivers from paragraph 161.) Ratepayers Victoria said it ran a social media campaign in April and May 2020 and received over 700 enquiries from ratepayers. It said 95 per cent of ratepayers who had spoken with their council had not been told about the waiver option in the Act.

Other council initiatives

105. Some councils told the investigation they also promoted hardship relief in other ways. This included social media and local newspapers or radio. Ararat Rural City Council said it did a letter drop to householders during the pandemic. Moonee Valley City Council said it advertised its COVID support website on posters at local bus stops.
106. One council officer told the investigation there had been ‘very much a big push’ to tell ratepayers about hardship relief during the pandemic.

Accessible information

107. The investigation observed that ratepayers who struggle to read or write in English are likely to have particular trouble finding information.
108. Census data from 2016 says 28 per cent of Victorians speak a language other than English at home. Of Victoria’s 79 councils, the investigation found 17 mentioned languages other than English on rates notices, usually in the form of details for interpreter services. Twenty-one councils provided information on websites in languages other than English. This usually involved a web function that translated webpages into other languages.
109. Brimbank City Council, in Melbourne’s western suburbs, is an example of better practice. It publishes some information on its financial hardship webpage in five community languages.
110. People with disabilities that affect their communication may also struggle accessing information. Sixty-three councils had some accessibility features on their websites. These included adjustable font size (which lets people increase the size of the print on the screen) or ReadSpeaker (a function that reads aloud text on the screen). Hume City Council published a short video explaining its COVID rates relief.
111. However, rates notices offered little help for people with disabilities. The investigation did not identify any councils that offered hardship relief information in Easy English or Easy Read English for people with cognitive impairments or low literacy.
112. Financial counsellors and community lawyers spoke with the investigation about clients with intellectual disability or mental health issues or limited English. They questioned how well councils communicated with these homeowners.

Applying for help

113. The Local Government Act 1989 provides for councils to waive or defer rates on application (sections 170A and 171A).¹⁵
114. The Ombudsman’s experience is that sometimes ratepayers have good evidence of financial hardship, but never apply.
115. Some councils made similar observations. A rates officer at one council told the investigation that getting people to apply can be hard. They said they spoke with people in hardship and sent out forms but did not get them back. Northern Grampians Shire Council also said ‘the biggest obstacle for our rates officers is to convince [people] to seek help; it is a real challenge’.
116. These observations are consistent with research in the area. Melbourne Law School’s Financial Hardship Project found only a minority of people in financial hardship actually apply to relief schemes. The people who took part in its survey were more likely to deal with their financial problems by cutting down on food, recreation, utilities and other essentials.¹⁶
117. The investigation heard different views about why this might be the case:

• People can be too embarrassed or frightened to ask for help.
• People might not recognise the extent of their problems or identify with the label ‘financial hardship’.
• Some council application processes are difficult for people in hardship.

118. The investigation looked at current council application processes, and how some organisations make it easier to seek help.

Written applications and evidence

119. The Local Government Act 1989 does not require applications for hardship relief to be in any particular form. But most councils ask ratepayers to fill out a form, either in hard copy or online. Some ask for supporting documents. This helps councils work out if the hardship is genuine.
120. However, the investigation heard these application processes also create barriers in some cases. Examples were:

• People who do not read or write in English
  The case study on page 30 shows the problems faced by people who need help with written English.
• Women escaping family violence
  An advocate who works in the area of family violence said women leaving violent relationships may not know what their assets and liabilities are and they need time to work out those issues.
• People who have survived a natural disaster
  Victoria Legal Aid operated a Disaster Legal Help service following the 2019- 20 bushfires. Its submission said its lawyers observed that many people lose key documents in a disaster and this can delay access to help.

121. Some councils have more flexible processes. Moonee Valley City Council, for example, does not require people receiving the State Government rates concession to complete a hardship form. Its policy states it is generally recognised that hardship has already been established for this group. Colac Otway Shire Council’s policy notes some ratepayers may not be able to provide information and gives the example of records destroyed in a natural disaster. Other councils, such as Indigo Shire Council, accept verbal applications for short-term help.
122. Other councils make it easier to complete their application forms. Maribyrnong City Council, for example, publishes its hardship application form in 14 community languages. Hobsons Bay City Council advertises help with filling out its form.

Time limits

123. The investigation noted some councils ask ratepayers to reapply for hardship relief every one or two years.
124. This ensures ratepayers only get hardship relief while they need it. But for ratepayers in long-term hardship, it can create uncertainty. Some financial counsellors questioned this practice. One noted the situation of people on age and disability support pensions is unlikely to change and said these ratepayers should have permanent arrangements.

Financial counselling requirements

125. The investigation found that almost half of councils (38 councils or 48 per cent) require ratepayers to see a financial counsellor or other service before they will accept a hardship application, at least in some circumstances. Some require a certified assessment from the financial counsellor.
126. The investigation heard these requirements, where they exist, have some benefits:

• Council officers noted that if a ratepayer is struggling to pay their rates, they are probably struggling with other bills as well. A financial counsellor can help the ratepayer with their whole situation.
• A financial counsellor adds independence and privacy to the process. This can be important in small communities where ratepayers might know council officers and feel uncomfortable revealing financial details.
• Some councils do not have resources or expertise to assess applications themselves.

127. However, the investigation also heard the requirement creates problems. Some ratepayers tell the Ombudsman their council’s nominated service was never available or did not call them back. Ratepayers can also resent being forced to attend a service. One told the Ombudsman '[w]hat's Council expecting charities to do this work for them? … I've provided a huge amount of information about my hardship circumstances [to the Council]’.
128. In other cases, the addition of an extra party to the process leads to confusion. The following case is one example.

Language and attitudes

129. The investigation also heard that people’s willingness to apply for hardship relief can also depend on councils’ language and attitudes.
130. The Local Government Act 1989 uses the term ‘financial hardship’ but one council officer said in their experience, people do not respond to that term. The 2013 MAV Guidelines noted research showing that terms such as ‘difficulty’ and ‘hardship’ have negative connotations and can scare some people off. They suggested ‘nuanced phrasing’ such as ‘are you having trouble paying this bill?’.
131. Some people who spoke with the investigation also suggested that councils’ attitudes can be off-putting at times (this report discusses council attitudes more from paragraph 289). The investigation heard some councils ask judgmental or intrusive questions, such as what sort of car the ratepayer drives or the financial situation of other people in their household. A financial counsellor said one council argues with financial counsellors about their assessments for clients, going through ratepayer budgets line by line and questioning why clients need expenses like Foxtel.
132. Ratepayers Victoria said these sorts of attitudes deter ratepayers from seeking help:

if I come to you and say I am in hardship, I’m humiliated and usually embarrassed to have to come and ask for help … To some degree, I would say some councils [are] actually … very polite and lovely, but what we have heard from the overwhelming majority of people that have come back to us is they’re caught in a washing machine, and they just get banged around the system until eventually they give up out of despair and walk away from trying to get any sort of help.

Other ways to identify hardship

133. Community advocates compared the approach of councils with utility and other companies. The investigation heard utility companies have a more proactive approach to identifying customers in hardship. They take steps to identify customers themselves. Government agencies, however, tend to rely on people to ask for help.
134. Colac Otway Shire Council is one council taking a more innovative approach. It has an agreement with Colac Area Health and Barwon Water that allows those organisations to identify shared clients who may be experiencing hardship. The organisations can accept applications and refer them to the Council. This at least saves people in hardship from having to contact multiple bodies to ask for help

Getting fair and reasonable help

135. The Local Government Act 1989 confers a broad discretion on councils to offer various options to ratepayers who are in financial hardship.
136. Victoria Legal Aid’s submission said best practice hardship programs use options that best suit people’s individual circumstances. It said flexibility is ‘necessary to accommodate the many different circumstances that people experience which can cause hardship including unemployment or reduced employment, illness or injury and family separation’.
137. Previous reports have highlighted the lack of guidance as to how council discretion is applied and the lack of consistency between councils in their decision making. The 2020 Rating System Review report noted councils told the review that the current systems work well and require few changes, but ratepayers who have experienced hardship have a very different view.
138. The following sections look at the help currently offered by councils and whether it is fair, reasonable and consistent with the Local Government Act.

Payment plans

139. Payment plans or arrangements allow ratepayers to pay rates debts over time in regular instalments. They are different to the instalment payment options offered by councils – those options allow people to pay their bill in at least four instalments by set dates (this is discussed in more detail from paragraph 198). Payment plans help people who cannot pay by the due dates and end up with a rates debt.
140. There is no mention in the Act regarding the use of payment plans or arrangements for ratepayers in hardship. Yet all 79 councils offer payment plans.
141. Some councils list payment plans or arrangements as an option in their hardship policy. Other councils offer them, but specifically state that they do not consider them to be a form of hardship relief.
142. Councils have different rules around how long they give ratepayers to pay off their rates debt, and what they expect in regular instalments.
143. Most councils are flexible and open to payment arrangements that suit the ratepayer’s financial circumstances. Pyrenees Shire Council, for example, said it agrees to whatever payment arrangement works for the person and this can be weekly, fortnightly or monthly payments. They prefer people to pay off their rates by 31 May, but said the plan needs to be achievable and some have lasted 10 years. Other councils said they prefer ratepayers to repay their debt in 12 or 24 months, but they are open to extending that time period if needed.
144. This is consistent with the 2012 community legal centre’s draft code of practice, which emphasised that councils should negotiate plans that reflect a ratepayer’s ‘actual capacity to pay’.
145. Other councils ask ratepayers to repay the debt within a particular time period or require a minimum repayment amount. The Ombudsman sometimes hears complaints from ratepayers who say they cannot afford these repayments.

Extracts from complaints

I was advised the council would not accept anything less than $500 per fortnight and [they] threatened they would sell my house if I didn’t pay.

I understand it needs to be paid, that’s not my dispute … now they’re wanting $535 a fortnight. I only get $300 a fortnight.

We are so far behind on everything and have everyone on payment plans just trying to keep on top of it all. I asked to be able to pay it off and they want $200 per week. I just can’t afford it at this time … I am only asking for a little leeway from now till mid-October when I will be more able to service the debt. I am not asking to have it wiped I am just asking for a few weeks grace to get [my] finances under control.

146. Some councils said their rules are meant to stop debts growing over time. Frankston City Council, told the investigation:

In all cases, as rates is an ongoing annual commitment, then at a minimum the ratepayer is encouraged to make a payment equal in amount to the annual rates. Any less then Council is simply assisting or being complacent in allowing the ratepayer to fall further into debt.

147. The Ombudsman has also observed from complaints that councils are less flexible if the ratepayer has a history of breaking payment plans. The following case studies show the different approaches taken by two councils.

148. The Local Government Act 1989 also gives councils the power to defer a person’s rates ‘if it considers that an application by that person shows that the payment would cause hardship to the person’ (section 170). Councils can defer the whole or part of the rates and impose conditions.
149. In effect, this extends the time the ratepayer has to pay their rates. The debt is not payable until the council sends a notice requiring payment. The Act states that the council may send a notice if ‘it considers that the person's circumstances have so changed that the payment would no longer cause hardship to the person’ (section 170(3)(a)).

Availability of deferrals

150. While the Act gives councils a broad discretion to offer deferrals, the 2013 MAV Guidelines call for limits. They say this option ‘would generally apply to long term cases of extreme financial hardship, or where council extends hardship assistance to self-funded pensioner and retiree rate payers’. They suggested councils consider factors such as whether the ratepayer was a pensioner with a low income.
151. The investigation found that, during the pandemic, councils were more generous with deferrals. Fifty-six councils offered deferrals as part of their pandemic assistance, usually with few restrictions.
152. Outside of pandemic schemes, however, some councils restrict the availability of this option. Most councils (75 councils or 95 per cent) offer deferral in some form. But at least 26 of those councils limit the circumstances in which they will agree to a deferral. The limits vary from council to council. For example:

• Port Phillip City Council allows age pensioners and seniors card holders to defer their rates indefinitely, but other ratepayers can only defer their rates until 30 June of the rating year.
• Banyule City Council says it will only agree to deferrals in long term cases of extreme hardship.
• Moreland City Council caps the amount it will defer at 50 per cent of the property’s value.

153. Four councils do not (or do not clearly) offer deferral at all, despite the Act listing it as an option.

Views about deferrals

154. The investigation heard different views about when deferrals are a fair and reasonable option for ratepayers in hardship.
155. Community advocates said deferrals are most often used for ‘asset-rich income- poor’ age pensioners who are struggling to pay yearly rates bills. The rates accrue as a charge against the property. This means the homeowner can stay in their home, and the council recovers the rates when the property is sold or passed on.
156. The Ombudsman sometimes hears complaints involving elderly ratepayers who are distressed at the idea of debts accruing against their homes. Ratepayers Victoria told the investigation:

It could be a couple that’s had that a home for 40-50 years, one has passed on and left one pensioner in the home who’s on an aged pension on very limited income, isn’t well off, just happens to own the home from 30 years ago.

All of a sudden … according to the way council deals with them, they are a nuisance, they can’t afford their rates and they are now a hardship problem that council will not and has no social obligation to address but they created it. The system created it and trapped them there.

157. For younger ratepayers, the investigation heard long term deferrals are less helpful. Unless their circumstances change in the future, a deferral simply pushes the debt into the future with the likelihood that this would also cause the debt to increase. The investigation heard from one ratepayer who was offered a deferral by his council:

I’ve been unemployed for about 14 months now … I am roughly $400 behind every month without even taking into account food costs, electricity, utilities, whatever insurance I might be paying.

They just hand balled me over to a deferral. So instead of recognising that I’ve got financial hardship now, all they’ve done is just taken that level of debt and moved it [to] next year … I’m going to have more problems next year even if I do find work.

158. The 2020 Rating System Review said councils report that ratepayers rarely seek deferrals. Ratepayers raised concerns that:

• councils can seek high interest on deferred rates (this is discussed in more detail from paragraph 178)
• councils can require payment at any time, which creates ‘uncertainty in times of hardship’
• they do not want to erode their equity in their homes.

159. The report noted deferrals may be an appropriate way to support asset-rich, income-poor ratepayers. It recommended the State Government publish guidelines and a public communication strategy to promote deferrals to address capacity to pay issues.
160. Some community advocates argued that councils should also offer short term deferrals more often. They gave the example of a relationship breakdown where the couple plans to sell their property and just needs some time to finalise the settlement and sale. The investigation understands some councils sometimes offer short term deferrals (see, for example, the case study at page 76), but not all councils.

Rates waivers

161. The Local Government Act 1989 also gives ratepayers the right to apply for a waiver of the whole or part of their rates or charges (section 171A). The Act says the council may grant an application if it is ‘satisfied that the applicant is a person who is suffering financial hardship if that person paid the full amount of the rate or charge for which he or she is liable’.
162. The Act also gives councils the power to waive rates and charges for groups of people (section 171). These groups are:

• people eligible for the State Government rates concession (see paragraphs 61-63)
• ‘any other class of persons determined by the Council for the purpose of waiving rates or charges on the grounds of financial hardship’.

Availability of rates waivers

163. The 2013 MAV Guidelines discourage waivers. They reference the section of the Local Government Act on waivers but say:

Councils will not generally waive rates or interest. This is to ensure that financial hardship assistance proffered to one rate payer does not have a ‘redistributional’ effect on the rate base.

164. Local Government Victoria’s 2014 Revenue and Rating Strategy Better Practice Guide for councils provides some support for this view. It talks about equity in tax systems and discusses the idea of ‘horizontal equity’ – the idea that ratepayers in similar situations should pay similar amounts. But it also states ‘[e]quity is a subjective concept that is difficult to define’. The Guide also mentions other principles which may be considered including the ‘capacity to pay principle’ – the fact some ratepayers have more ability to pay rates than do others with similarly valued properties.
165. In practice, the investigation found just under half of councils (38 councils or 48 per cent) do not include waiver of rates as an option in their standard hardship policies. Some expressly state they never waive rates. For example:

• Banyule City Council’s policy states ‘Council will not waive in whole or part any rate, levy, special rate or special charge’.
• Glen Eira City Council’s policy states ‘Under no circumstances will the principal component of a Rates debt be waived’.

166. Not all councils provide a reason for this practice, but it appears MAV’s statement about waivers being unfair because of their ‘redistributional effect’ may be influential. Fourteen councils refer to this in their policies. Nillumbik City Council’s policy states that it is a principle of the Act that ‘[e]very rateable property should meet its share of rates and charges’ and:

Council will not waive rates, municipal charges or service charges as the value of each property provides the owner with a potential source of funds if liquidated. It is considered inequitable for the majority of ratepayers to subsidise the property assets of hardship applicants. A more equitable solution for the community is to defer payment of rates and charges.

167. Of the other councils, 27 councils limit the circumstances in which a rates waiver is available. Some say waivers are only provided in exceptional circumstances. Others cap the amount of waiver they will provide. For example:

• Greater Dandenong City Council’s standard hardship policy says it will only waive rates in ‘extreme circumstances’ and it will not waive more than $500 unless the Council resolves that exceptional circumstances warrant an exception.
• Port Phillip City Council also says it will only waive rates in ‘extreme circumstances’ but has a $1,000 cap.
• Melton City Council will only consider waivers for people eligible for the State Government rates concession and caps the waiver at 30 per cent of the current year’s rates.

168. At some councils, a council resolution is required for rates waivers of any size – this was the case at 14 councils.
169. During the pandemic, some councils were more generous with waivers. Some announced some waivers as part of their COVID-19 rates packages, although they sometimes used the term ‘rebate’ or ‘reimbursement’. Some of these councils were advertising waivers for the first time. For example:

• Southern Grampians Shire Council offered a reimbursement equivalent to two per cent of total rates bills for the 2020-21 financial year.
• Golden Plains Shire Council offered rebates of $500 for people on Jobseeker and businesses on JobKeeper and $100 for people with more than a 30 per cent drop in income.
• Frankston City Council allowed residential ratepayers on Jobseeker to apply for a $200 rate waiver for their 2020-21 first quarter instalment payment.

170. The investigation has limited data about councils’ actual use of rates waivers. It obtained data from 13 councils for the years 2018-19 and 2019-20. Nine councils did not waive rates in those years. The only councils waiving rates in any substantial way were:

• Greater Dandenong City Council, which said it waived rates under its standard hardship policy 22 times in 2018-19 and 54 times in 2019-20. This amounted to $8,394 in rates in 2018-19 and $18,807 in 2019-20. The Council said it also provided rebates to 10,713 eligible pensioners and 373 people receiving JobSeeker in 2019-20 as part of its pandemic assistance package, at a cost of more than $1.1 million.
• Melton City Council, which reported 3,433 waivers totalling $686,000 in 2019-20 as part of its COVID assistance package.

Views about waivers

171. When the investigation met with community advocates, they often expressed frustration with councils’ reluctance to offer rates waivers. They noted utility companies and banks are willing to waive customer debts, but not councils.
172. This report has noted that some ratepayers say their council did not tell them they could apply under the Act (see paragraphs 102-104). One recounted his experience trying to apply for a waiver using an application form developed by Ratepayers Victoria during the pandemic. He said when he spoke to one council officer:

… She made comments to me ‘Oh we haven’t given waivers, we don’t give waivers, we haven’t given a waiver in 30 years’. I feel like it’s like a cultural thing … It’s almost like a knee jerk reaction.

173. When the investigation spoke with local government bodies, it observed concerns about the impact of rates waivers on:

• council revenue and ability to provide services
• the fairness of the rating system, if other ratepayers have to make up the shortfall.

174. One council officer told the investigation:

We still need to deliver the services and at the end of the day, if we start waiving rates then another section of our community then has to pick up that tab. At the end of the day, we’ve still got a finite fixed revenue and expenses. So, if we are writing off rates then that money has to come from somewhere else and we have then to make service adjustments to other services to, in the end, balance that bottom line.

175. The Rating System Review report noted although waivers ‘may be appealing to address payment difficulties and hardship issues for individual ratepayers, the consequent loss of revenue could create challenges for broader equity’. It noted the Act gives councils sufficient discretion but ‘there is no guidance to councils about the process by which eligibility is determined’.
176. A representative from Ratepayers Victoria told the investigation that councils’ current approach to waivers ‘bears no relation to what’s in the Local Government Act. It falls a long way short’.
177. The Ombudsman has raised concerns with councils in the past about blanket policies on waivers and whether they are consistent with the discretion given by the Local Government Act. The following case studies show the different responses of two such councils.

Interest charges

178. The investigation also heard concerns about the interest charged by councils when they offer hardship relief in the form of payment plans or deferrals.
179. Councils have a discretion whether to charge interest. The Act states a council ‘may’ require a person to pay interest on any rates or charges not paid by the due date (section 172). It also states that councils ‘may’ require payment of interest on deferred amounts when they give notice that the amount must be repaid (section 170(3)(b)).
180. The Act states that where interest is charged, it ‘is to be calculated’ at the penalty interest rate, which is currently 10 per cent (section 172).
181. The Rating System Review expressed the view that councils had a discretion whether to charge the penalty interest rate or a lower rate. The investigation understands there are three ways this can happen under the Act:

• a council ‘may exempt any person from paying the whole or part of any interest either generally or specifically’ (section 172(3)).
• a council may waive the whole or part of interest for people eligible for the State Government rates concession or ‘any other class of persons determined by the Council for the purpose of waiving rates or charges on the grounds of financial hardship’. This requires a Council resolution (section 171).
• a ratepayer can apply for an interest waiver under the Act (section 171A).

182. The 2013 MAV Guidelines say councils should charge interest in the case of both payment plans and deferrals. They justify this in relation to deferrals, stating ‘interest should continue to accrue on the deferred rates and charges in order to avoid “redistributional” effect on the rate base’.
183. However, the MAV Guidelines state that councils should not charge penalty interest. They explain the importance of an interest reduction as follows:

Councils recognise that setting a penalty interest rate which is consistent with the Penalty Interest Act 1983 could have a negative effect on the finances of ratepayers which prolongs their hardship. As such, where hardship is established, councils should reduce the penalty interest rates to the market interest rate (for example the official 180-day bank bill rate). This ensures that neither the council, nor ratepayer suffer unduly from implementing the rates and charges deferral.

Council interest charges

184. The investigation found many councils charge penalty interest on payment plans and deferrals, despite the MAV Guidelines.
185. In the case of payment plans, the majority of councils appear to be charging penalty interest. Council policies on this issue were sometimes unclear, but the investigation identified just 10 councils that were willing to hold interest on payment plans in at least some circumstances (for example, for the first 12 months or for so long as the ratepayer complies with the terms of the payment plan). Another two councils said they only charge interest on the recommendation of a financial counsellor. Whitehorse City Council was one of the few councils charging a lower rate of interest (it charges the penalty interest rate less five per cent).
186. In the case of deferrals, again, the majority of councils appear to be charging penalty interest. The investigation identified just four councils that charge no interest. Another two councils indicated they charge penalty interest on the recommendation of a financial counsellor. The investigation identified just 15 councils that charge a lower rate of interest, at least in some cases. Monash City Council, for example, charges no interest on deferred amounts for pensioners over age of 65 who have lived in their home for more than 10 years, and 2.5 per cent for other ratepayers.
187. Some of these councils specifically note the problems created by penalty interest in their policies. Indigo Shire Council’s policy, for example, states:

Council recognises that setting a penalty interest rate which is consistent with the Penalty Interest Act 1983 could have a negative effect on the finances of ratepayers which prolongs their hardship. As such, where hardship is established, Council will reduce the penalty interest rates to Council’s investment rate as assessed at the beginning of each financial year.

188. It is not always clear why other councils charge penalty interest. Yarriambiack Shire Council’s policy, for example, says 'A penalty interest is a legitimate amount owing that council has a right to collect'. Some councils appear to believe they cannot charge a lower rate of interest under the Act. For example, the Borough of Queenscliffe’s Rating Strategy says Council cannot apply an alternative interest rate, although it can exempt a person from paying the whole or part of an amount. Banyule City Council’s rating strategy also states ‘Council cannot apply an alternative rate'.
189. During the pandemic, many councils have been more generous with interest charges. This generally involved councils holding their interest on unpaid rates or offering interest-free payment plans and deferrals.

Interest waivers

190. Almost all councils (75 councils or 95 per cent) clearly offer the option of interest waivers under the Act.
191. However, a handful of councils limit the amount of interest they will waive. Nillumbik Shire Council, for example, caps interest waivers at 12 months. Glen Eira City Council’s policy says it only waives interest in ‘extreme circumstances’. Kingston City Council’s policy says it will only agree to one interest waiver every five years (although, in response to a draft of this report, the Council noted it has made exceptions to this rule in some cases and has also waived interest as part as its pandemic relief).
192. Some councils said they consider reducing interest on a case by case basis. One council told the investigation:

We want to try to encourage those who are genuinely in hardship who are reaching out and asking for assistance, we want to help them not make it harder for them.

The impact on ratepayers

193. Although councils have options to reduce and waive interest, the Ombudsman regularly receives complaints from ratepayers concerned about their council’s interest charges.
194. One council officer told the investigation that their council only charges interest if a ratepayer misses an instalment on their payment plan, and that interest might only be around $4. They said ratepayers sometimes object more to the idea of the interest that the amount itself.
195. However, the Ombudsman has seen cases where over time other councils have charged ratepayers hundreds or thousands of dollars. In some cases, the interest charges have built over time and now make up anywhere from a quarter to nearly 50 per cent of the ratepayer’s total debt. The case study on page 51 is one example.
196. The Rating System Review report set out some key principles in relation to hardship, noting ‘[t]he system should assist ratepayers facing payment difficulty and avoid causing harm’

Extracts from complaints

I’m really struggling with this because the interest is accumulating. But there’s nothing they tell me they can do about it. It just continues … it just keeps escalating and with the interest I’ll never be able to pay this off … It just keeps going up and up and up and it’s like, oh my god.

These hefty interests, calculated on a daily basis, … have made it impossible for me to bring about a resolution … [T]he problem is with all the fees (interests and legal fees) they keep adding on and all the constant high demands, I can just never catch up, the whole situation (the total amount owing) is out of control, and it just doesn’t feel like there is ever an end.

My bank is there to make money and they even considered me and didn’t charge me interest and gave me hardship and things like that. I’m trying to pay them off and it’s like a little snowball becoming a big snowball because they keep on charging interest and everything else on top of it ... where everybody else I’ve been able to get on top of things. It’s like a noose hanging around my neck at the moment.

This made it very hard for me to pay it off as the interest fee just kept adding on[to] the bill … I went on a payment plan … and still they are not even stopping the interest fee … I am struggling now because I am not working because of COVID-19.

We are struggling to keep on top of everything especially with the significant increase in price for utilities … Financially I am unable to pay the interest owing.

197. One financial counsellor told the investigation that council interest charges create a ‘poverty trap’ for people who are already struggling financially. Another said, ‘[t]he debt just keeps on accumulating and increasing in value. A ratepayer never gets an opportunity to take stock and catch up on it’.

Other options – extra payment options

198. The investigation heard that in addition to offering hardship relief, some councils offer ratepayers extra ways to pay their rates to help them budget and stay out of debt in future.
199. The Local Government Act 1989 currently sets out two options for ratepayers to pay their rates (section 167):

• in four instalments, on dates determined by the Minister for Local Government. Councils must offer this option under the Act.
• in a lump sum in February each year. Councils may offer this option under the Act, but they do not have to.

200. The investigation found that most councils (61 councils or 77 per cent) now also offer ratepayers extra instalment options. Some let ratepayers pay in nine or 10 monthly instalments. Others let ratepayers pay in fortnightly or weekly instalments. Councils usually require the ratepayer to agree to direct debit to access these options.
201. A number of councils (32 councils or 41 per cent) also offer Centrepay. Centrepay allows people on Centrelink benefits to have their bills paid by Centrelink from their fortnightly benefits.
202. The Rating System Review said, as a matter of principle, ‘[t]he system should make it easy for ratepayers to pay their rates’. It said most councils support more payment options, but some said they do not have the capability to offer direct debit. The Review said it was concerned councils were falling behind other organisations that offer more payment options.

Facing debt recovery

203. Ratepayers who cannot negotiate suitable hardship relief with their council, or who ignore their rates debts, face enforcement action. Under the Local Government Act 1989, this can include being taken to court and, if the rates debt remains unpaid for three years, sale of their land.
204. Government bodies are expected to act as ‘model litigants’ when taking legal proceedings. The State Government has issued model litigant guidelines that describe what this means in practice. The guidelines do not expressly apply to local councils but are followed by some. They allow agencies to act ‘firmly and properly to protect their interests’ and to seek to recover their legal costs. But they also stress the need to:

• act fairly and consistently in the handling of legal proceedings
• consider seeking to avoid and limit the scope of legal proceedings by taking reasonable steps to resolve disputes by agreement.

205. On some occasions, councils have been criticised for being too zealous about recovering rates debts. The 2012 community legal centre report said some councils were ‘far too quick to sue residents without adequately exploring alternatives to litigation’. The 2020 Rating System Review recommended regulation to make it clear that coercive powers, such as legal action and debt collection, should be a ‘last resort’.
206. On other occasions, councils have been criticised for not doing enough to recover rates debts. In 2019, the Local Government Inspectorate criticised one council for not recovering unpaid rates. The Inspectorate said ‘many instances of failure to pay rates may be instances of hardship but council requires a process to manage such circumstances’.¹⁹
207. The investigation looked at what ratepayers can expect from councils at present, and what could be improved.

Attempts to contact ratepayers

208. The investigation found that all councils now attempt to contact ratepayers about unpaid rates before resorting to legal action.
209. The process varies from council to council. Some councils only send a reminder or overdue notice to the ratepayer. Other councils go to some effort. Alpine Shire Council, for example, told the investigation it starts with a reminder notice and then asks its debt collector to call the ratepayer. It then uses an ‘early intervention’ strategy which involves six attempts to contact the ratepayer by phone, SMS, email or letter. If this does not work, the debt collector follows up with a formal letter, another phone call or SMS and a final ‘field call’ (an in-person visit).
210. Some councils said these processes reduce the need for legal action to recover debts. Port Phillip City Council, for example, changed its approach to debt collection in 2010 and since then has reportedly seen:

an overall reduction of legal costs on ratepayers from approximately $300,000 per year to approximately $60,000 per year and an improved collection rate of 98% plus (before COVID-19).

Many ratepayers are very grateful for the call. On a number of occasions, the ratepayer has forgotten to change their mailing address. Sometimes it's due to a family crisis for example cancer and paying a rate bill and/or contacting the Council is the last thing on their mind.

211. The Ombudsman tends to hear about the cases where the process has not worked. Ratepayers sometimes report they did not get their council’s letters or emails.

Extracts from complaints

[T]hey said they send letters but we haven’t received any – the first time they sent it to the Sheriff’s department and this time they referred it to a law firm … Don’t they have due diligence to try to call you or contact you by email before they go screwing with your credit.

I’ve just received a call this morning from a debt collector that they’ve put it in the hands of. I’ve received no letters from the council, no calls, no emails, nothing. I’m just dumbfounded.

I have had (at many times) little or no correspondence from [the Council] at all, I haven’t even received all my rates notices.

212. In some cases, the problem is a practical one – the council does not have the right address for the ratepayer. Pyrenees Shire Council told the investigation it recently started sending its final letter by registered mail. If no one signs for the letter, it assumes the person is no longer at the address. It then uses ‘skip tracing’ (a system for tracking down a person) to locate the person. Around a dozen other councils also use skip tracing or ‘field calls’ to find ratepayers. Pyrenees Shire Council said it had cut its use of legal action by half since it started sending mail by registered post.
213. Complaints to the Ombudsman also suggest it can be hard to get the amount of contact and the timing right. Some ratepayers find the number of calls and visits stressful. Some councils only pursue larger debts in earnest, which ensures the amount of contact is proportionate to the size of the debt. Moreland City Council and Mornington Peninsula Shire Council, for example, only refer debts over $1,000 for debt collection.
214. However, the Ombudsman also dealt with one complaint where the council did not pursue the ratepayer until the debt grew. By that time, the ratepayer found the size of the debt unmanageable.
215. In 2019, the High Court found that in Queensland, statute of limitations laws apply to the recovery of rates debts.²⁰ In that case, it meant the council had to take action to recover the debt within six years. There are similar statute of limitations laws in Victoria.

Use of debt collectors

216. One community lawyer noted councils largely rely on debt collectors to contact ratepayers, instead of engaging with people themselves.
217. Almost all councils use debt collectors to recover unpaid rates debts from ratepayers, usually if there is no response to their own reminder notices. Only two councils - Ararat Rural City Council and Banyule City Council – told the investigation they no longer use debt collectors.
218. For many ratepayers, a letter or call or visit from a professional debt collector is stressful and upsetting. The Ombudsman hears these sorts of concerns from ratepayers.
219. The 2012 community legal centre report and the 2020 Rating System Review report both noted that use of debt collections adds to the stress and pressure for vulnerable people. The Rating System Review, as noted earlier, recommended regulation to ensure practices such as debt collection are a last resort.
220. The investigation identified several problems with current arrangements.

Extracts from complaints

It was intimidation, really, [there were] two blokes. I am a mum at home with my kids.

I am again being hounded by [the Council’s debt collector], who calls up at odd hours of the day and evening. They have also sent a field officer to my door to talk to my wife.

I was shocked and concerned about having debt collectors pursuing me at my home for payment. I do have genuine concerns around debt collectors being sent to relatively isolated properties unannounced, particularly where women like myself might be alone …

[T]his situation is causing [my aunt] a lot stress and anxiety. It is like she is constantly paying the council the little money she has and is constantly being harassed and asked for more.

Use of debt collectors to negotiate hardship relief

221. Once councils refer a debt to their debt collector, ratepayers usually have to negotiate hardship relief with the debt collector.
222. The 2013 MAV Guidelines advised councils against this. They suggested councils ensure their debt collection policies for ratepayers give people an opportunity to apply for hardship assistance. They recommended that ‘[d]ebt collection agents who identify hardship should refer cases back to council’.
223. Few councils, however, are willing to engage with ratepayers once they have referred a debt. The investigation reviewed some of the letters sent by council debt collectors to ratepayers. In almost all cases, they provided contact details for the debt collector if the ratepayer wanted an alternative payment arrangement. Ratepayers also reported such experiences.
224. Some councils’ policies expressly state that the council will not deal with ratepayers or hardship applications at this point. West Wimmera’s policy, for example, states ‘[o]nce a debt has been placed in the hands of Council’s Debt Recovery Contractor all negotiations with the ratepayer will be handled by them’. In response to a draft of this report, the Council said this ensures there is one point of contact for ratepayers. It explained it would speak to ratepayers who contact the Council, but would not vary any agreement. It said it gives its hardship policy to its debt collectors and expects to them to act consistently with social obligation requirements. Yarriambiack Shire Council’s policy states:

If a debt has already been referred to Council’s nominated Debt Collection Agency, a person cannot apply for Financial Hardship in relation to that debt. The person must negotiate payment terms with the nominated Debt Collection Agency.

Extracts from complaints

They won’t let me [lodge a hardship application] because it’s through a [debt collection] lawyer. They won’t even speak with us …They won’t accept anything unless it’s through the lawyers.

[The Council] refused to even speak with me at all and said it was now in the hands of their [debt collection] solicitors and I could only deal with them.

Limited hardship relief options

225. The investigation observed that debt collectors generally only offer ratepayers a ‘special payment arrangement’ or payment plan that lets ratepayers pay off the debt in instalments.
226. When the investigation reviewed copies of debt collector letters to see their advice, some referred to unspecified ‘payments options’ or ‘arrangements’ and encouraged ratepayers to contact the debt collector for discussion. Where the letters mentioned a specific option, it was a ‘special payment arrangement’ or plan.
227. The investigation also looked at councils’ contracts with debt collectors where councils could provide a copy. Most referred only to special payment arrangements, if they referred to hardship at all. One commonly used contract in the sector refers to a ‘hardship waiver agreement’. However, the investigation found no references to that option in debt collectors’ communication with ratepayers.

Limited oversight of debt collectors

228. The investigation was not always confident about councils’ arrangements for managing the way debt collectors deal with people in hardship.
229. The investigation asked councils to provide a copy of their contracts with debt collectors to consider contract standards regarding ratepayers in hardship, and how councils monitored those standards.
230. Nine councils said they did not have a current written contract with their debt collector.
231. Another 36 councils did not or could not provide their contract. Many explained that they engaged their debt collector through MAV or Procurement Australasia. MAV and Procurement Australasia offer councils arrangements under which they tender for a panel of debt collectors and enter a legal deed with the successful companies. Councils can ‘opt in’ to these arrangements and choose a debt collector from the panel.
232. Some councils said they did not have a copy of MAV’s or Procurement Australasia’s contract documents. The investigation obtained copies of these contracts direct from MAV and Procurement Australasia.
233. MAV and Procurement Australia require debt collectors to comply with relevant laws as well as industry codes of practice or guidelines. These would include debt collection guidelines issued by the Australian Competition and Consumer Commission and the Australian Securities and Investments Commission.²¹ These guidelines set standards of behaviour for debt collectors, such as how often and when they can contact debtors.
234. However, none of the contracts reviewed by the investigation referred to the hardship relief provisions in the Local Government Act 1989 or required debt collectors to tell ratepayers about those options.
     
235. Some contracts require debt collectors to offer payment arrangements in accordance with council practices and to seek council approval for arrangements. However, few councils require debt collectors to consider or apply the council’s broader hardship policy. Yarra Ranges Shire Council’s contract was one exception. It stated ‘[t]he Council has in place a Rate Recovery and Financial Hardship Policy … The Contractor is to be fully conversant with the policy when dealing with ratepayers’.
236. Procurement Australasia told the investigation that councils are responsible for monitoring debt collectors’ actions and performance. MAV also said contractors are obliged to report their activities to councils direct. It is not clear how councils monitor their debt collector’s compliance with their contract when so many councils told the investigation they did not have a copy of the contract documents.

Confused communication

237. The Ombudsman also observed cases where lines of communication between councils, their debt collectors and ratepayers became confused.
238. The debt collector letters reviewed by the investigation were all clear, short and written in plain English. However, they did not offer interpreters or information in accessible formats for people who speak languages other than English or have a disability.
239. The Ombudsman sometimes sees complaints that involve miscommunication between all the parties. The following case studies are two examples. The second case highlights the particular challenges faced by ratepayers who struggle communicating in English.

Legal action

240. Councils retain the power to take ratepayers to court if they do not resolve their debt problems or keep to their payment arrangement.
241. For ratepayers, legal action adds to their problems. Apart from the stress, councils can seek an order for the ratepayer to pay their legal and other costs. Councils then add these costs to the ratepayers’ debt. This usually increases the debt by $1,000 or more.
242. The 2012 community legal centre report and the 2020 Rating System Review both argued legal action should be a last resort. The investigation looked at councils’ current practices.

Use of legal action

243. The 2012 community legal centre report included court data showing that in 2010- 11 councils sued 6,328 people for unpaid rates debts.
244. This sort of data needs to be used with caution when looking at homeowners in financial hardship. The data shows all legal action taken by councils for unpaid rates, including legal action against investors and business owners. It also does not show how many of the ratepayers were experiencing hardship, or the history of the debts and whether councils took action as a last resort. There were also a number of councils who said their own records differ from the Magistrates’ Court data (which is based on the number of proceedings classified in the Court’s systems as ‘arrears of rates’). However, it is currently the best available evidence of how often councils use legal action to resolve rates debts.
245. Recent court data shows that the overall number of legal actions has grown. The investigation obtained recent data from the Magistrates’ Court. In 2018-19, the last financial year before the pandemic, councils sued ratepayers for unpaid rates on more than 7,000 occasions.
246. Most councils stopped taking legal action when the pandemic began (although many still contacted ratepayers about their debts in other ways). This was consistent with principles issued by the National Cabinet to ‘essential service providers’ including councils in April 2020. In 2019-20, the number of actions for unpaid rates debts dropped to over 4,000.
247. At an individual council level, the picture varies. Some councils, mainly in regional areas, have cut their use of legal action since the 2012 community legal centre report. Some did not sue any ratepayers, or very few ratepayers, in 2018-19. They include Ararat Rural City Council, Banyule City Council, Colac Otway Shire Council, Gannawarra Shire Council, Surf Coast Shire Council and Swan Hill Rural City Council.
248. Other councils, mainly in metropolitan areas, increased their use of legal action compared with 2010-11, according to the Magistrates’ Court data. They include Kingston City Council (334 actions in 2018-19, compared with 63 in 2010-2011), Whitehorse City Council (342 compared with 38 in 2010-2011) and Yarra City Council (168 compared with 45 in 2010- 2011). In response to a draft of this report, Kingston City Council said it could not comment because it had not provided the data. Yarra City Council said the Council’s own records were different, but it could not provide further information in the time available.

Council discretion in cases of hardship

250. Based on complaints investigated by the Ombudsman, councils try to resolve rate debts in other ways before taking legal action.
251. At least 11 councils now say that legal action is a last resort in their policies, and another two told the investigation this was their approach in practice. One council officer said ‘I try to take every step … I try, I really try’.
252. The most difficult cases seen by the Ombudsman are those where the ratepayer is clearly vulnerable but has stopped engaging completely or has a history of defaulting on hardship agreements with the council.
253. The 2013 MAV Guidelines state councils have limited capacity to identify genuine hardship amongst ‘recalcitrants and those who ignore rates notices’. The Guidelines said:

At some point councils must begin charging penalty interest, or instigate debt collection processes and lodge matters with the Magistrates Court in order to achieve a resolution. However, during this process, councils and contractors must remain sensitive to hardship and ensure that hardship is not exacerbated by instigating debt collection processes.

254. Some council officers who spoke with the investigation took a similar view. One said councils have to take action at some point. Another said they do not take legal action ‘if we feel that the people are genuine’ but ‘it’s those that ignore, those are deliberately trying to evade paying, that’s where we say we can’t help you if you can’t help yourself’.
255. The Rating System Review expressed concern that councils appeared to be using legal action to ‘trigger a response’ from ratepayers. It said:

Anecdotal evidence from rates managers and other council participants of the consultation process indicates that the court order applies more pressure on the ratepayer than other less formal processes such as phone calls, reminder notices and letters from lawyers.

256. Community advocates argued councils need a better understanding of how vulnerable people behave. One lawyer said clients sometimes arrive at appointments with piles of letters they are too scared to open. A financial counsellor said:

[It’s] like they’re frozen. It’s embarrassing. They feel guilt. They feel shame. I don’t think [councils] understand that.

257. Some community lawyers noted that councils do not have to take legal action to recover rates. Since rates are a first charge on land, they can let the rates accrue against the value of the land and collect the debt when the land is sold or transferred in the future.
258. There is evidence that at least some councils exercise discretion before taking legal action. Around half of councils (40 councils or 51 per cent) now sue only if the debt reaches a certain size. Bayside City Council and Central Goldfields Shire Council and Casey City Council, for example, only sue for debts once they reach $1,000. Nillumbik Shire Council only sues for debts over $5,000. Ratepayers Victoria’s submission argued this threshold for action should be much higher – either $10,000 or three years of unpaid rates debts.
259. Other councils consider the vulnerability of the ratepayer. For example, at least three councils – Melbourne City Council, Whitehorse City Council and Monash City Council – say they will not take legal action against pensioners. Hobsons Bay City Council also told the investigation it had never referred a pensioner to its debt collector.
260. But practices are not consistent. The following case studies describe three complaints to the Ombudsman. In all of the cases, there was some evidence of hardship, but the ratepayers were not cooperating with the council. In the first two cases, councils took legal action. In the third, the council exercised its discretion to let the debt accrue.

Legal costs

261. As this report has already noted, most councils seek an order for their legal costs and add them to the ratepayer’s debt (see paragraph 241).
262. Gannawarra Shire Council indicated these decisions are motivated by fairness to other ratepayers. It said ‘[i]n this way the ratepayers who have paid their assessment are not burdened with these extra costs'.
263. However, the Ombudsman hears complaints from ratepayers that these costs just make it harder for them to pay their debts.
264. A representative of Ratepayers Victoria told the investigation that these practices can further entrench hardship. He said ‘[i]t’s just giving free legal work that is not solving the problem. You’re not solving it’. Some community advocates also told the investigation that rates should not be a way to push people into destitution and homelessness, noting this puts more pressure on other parts of government and the housing sector.
265. Many councils (34 councils or 43 per cent) expressly state in their policies that they will consider waiving legal costs.

Extracts from complaints

[T]he cyclical behaviour of council charging interest and legal fees despite my hardship has contributed further to my hardship rather than assisted me to get out of financial hardship ... The interest and legal fees I was charged made me feel there was no light at the end of the tunnel …

I am a single parent working long hours and struggle financially to raise two children on one income ... The reason I did not pay my rates was because I was finding it difficult at the time, please do not make it even more difficult for me by imposing these crazy, unjustifiable fees.

I have paid thousands of dollars so far but I can’t keep up …

266. However, the situations in which councils will waive legal costs differ. Melton City Council and Mitchell Shire Council say they will waive costs if the ratepayer is in hardship. Mitchell Shire Council told the investigation it had waived $10,451 in legal costs over the last two years. Bass Coast Shire Council said it will consider waiving costs if there are ‘severe mental health issues’.
267. Other councils do not provide for costs waivers on the ground of hardship. Eight councils said in their policies that they would only waive costs if there had been an error on the council’s part or the council had not done enough to engage with the ratepayer before taking them to court.

Forced land sales

268. The Local Government Act 1989 also gives councils the power to sell a ratepayer’s property to recover unpaid rates (section 181). This option is available if:

• the rates have been unpaid for three years or more
• there is no current arrangement in place for payment of the rates to the council
• the council has a court order requiring payment.

269. People who contact the Ombudsman are sometimes well aware of this power and are fearful of losing their homes.
270. In practice, however, councils rarely use this power. Data from Land Use Victoria, the State’s land registry agency, shows that there were only 28 land sales or transfers under this section of the Local Government Act in 2018-19. In 2019-20, there were only 10. It is unclear from the records how many of these cases involved residential homes, but the records suggest many of the properties were vacant land.
271. The investigation heard that councils are conscious of the ‘reputational damage’ caused by forcing the sale of people’s land. Some councils, such as Benalla Shire Council, have a policy of not selling properties used as a residence. Others require a resolution of their elected councillors before they will sell property under the Act.

Extracts from complaints

I heard that the council, they can take your house. That was my biggest worry.

[The Council] threatened they would sell my house if I didn’t pay. I felt [intimidated] and bullied … I was so fearful that I would lose my house …

[The Council] can kick you out, they can sell the place … [T]his is my place. I’m an older person. Where am I going to go?

Knowing that my house may be sold and [we] will be homeless doesn’t let me sleep at nights.

Resolving complaints

272. Community lawyers and financial counsellors noted that good practice hardship schemes give people a way to complain about or appeal their treatment. This section looks at the current options.

Internal options

273. The new Local Government Act 2020 requires councils to develop a fair and effective process for considering and responding to complaints about their services (section 106). It also requires councils to have a complaints policy (section 107).
274. The investigation identified that at least 18 councils also have a specific system for appealing or reviewing hardship relief decisions. In most cases, the ‘appeal’ is heard by a senior council officer or the council’s Chief Executive Officer. Two councils allow appeals to their elected councillors.

External options

275. Some financial counsellors told the investigation they also want an external body to hold councils to account. One financial counsellor said they had a client who was fearful of what would happen if they made a complaint to the council. They noted there is a ‘huge power imbalance when it comes to councils and ratepayers. They’re not on a level playing field’.
276. The Victorian Ombudsman can take complaints about the actions of councils and regularly deals with complaints about rates hardship and debt recovery. The Ombudsman endeavours to quickly and informally resolve complaints, and may decide to investigate any matter arising from complaints. The Ombudsman may make formal recommendations for change if an investigation reveals any unfairness or wrongdoing.
277. The Parliament amended the Ombudsman Act in 2019 to give the Ombudsman additional powers to mediate or conciliate complaints.
278. The investigation’s discussions with financial counsellors suggest that awareness of the Ombudsman as an option to consider complaints about councils is low. Few council policies require officers to advise ratepayers about their right to complain to the Ombudsman. Only three councils currently refer to the Ombudsman in their hardship policies.

Special topic: Family violence

279. Throughout the investigation’s meetings and discussions, community lawyers and financial counsellors consistently raised one problem – the way councils treat people with debts associated with family violence.
280. Victoria’s 2015 Royal Commission into Family Violence recognised economic abuse as a form of family violence. It noted that when people leave violent relationships, they can be left in financial insecurity and debt:
     

Victims of family violence are more likely than other women to experience financial difficulty and many women experience poverty as a result of family violence, regardless of their prior economic circumstances. Research also tells us that women from culturally and linguistically diverse backgrounds and older women are at greater risk of financial insecurity following family violence and face additional barriers to accessing support. The financial consequences of family violence can be acutely damaging and they are often long-term.

Victims’ financial security is affected by partners who perpetrate economic abuse by controlling household finances, financial and utility accounts and incurring debt in the victim’s name through coercion or deception.

280. The Royal Commission looked at three types of debts - consumer credit debts, utility debts and fines. It recommended the State Government:

• work with Commonwealth and State authorities or industry associations to ensure regulatory codes recognise family violence as a ground for hardship assistance, and to produce industry guidelines
• encourage industry ombudsmen to publicise the availability of dispute resolution processes to help victims resolve disputes about debts incurred in the context of family violence.

Council policies and practices

282. The Royal Commission did not look at councils and rates debt, although it made some other recommendations involving local government. Community advocates told the investigation that victims of family violence also face problems with rates:

• The perpetrator of the violence may have failed or refused to pay rates during the relationship, running up debts in the name of the victim.
• The perpetrator may stay in the house after the victim leaves and stop paying the rates, exposing them to debt recovery and legal action.

283. An advocate who works in the area of family violence said victims face multiple problems resolving these issues – they may have no savings or money to pay the debts; they may have trouble applying for hardship relief because they do not have financial documents or know the extent of their assets or liabilities; and they may also be dealing with other debts and legal disputes as well as housing and other problems.
284. Councils as a whole do not appear to have considered the implications of family violence for their rates practices. The investigation found only seven councils (nine per cent) currently refer to family violence in their hardship policies.
285. The following three case studies show the way three councils dealt with people with rates debts in the context of family violence.

Council systems

286. The investigation also considered what drives councils’ responses to ratepayers in hardship. It heard at length from community advocates and others about what they saw as problems in the system, including poor understanding of hardship and a lack of proper regulation and systems.
287. The 2012 Rating System Review heard similar evidence. As this report has noted, it recommended regulation to ensure consistent practice and ‘a collaborative change management program’ in the sector.
288. This section sets out the evidence from community advocates and councils about the current problems and what they would like to change. It looks at how other sectors have managed these issues, including how they choose and train people to deal with hardship; how they report their work; and how they build collaborative relationships with other services.

Attitudes to hardship and fairness

Criticism of councils

289. When the investigation met with advocates and other organisations, the most common concern they raised issue was councils’ attitudes to people who cannot afford to pay their rates.
290. The investigation heard some councils were ‘exemplary’ or ‘fantastic’ at dealing with ratepayers in hardship. They included Bass Coast Shire Council and Monash City Council.
291. But comments about certain councils and the sector overall were stinging. Descriptions included ‘paternalistic’, ‘passive’, ‘antiquated’, ‘punitive’, ‘behind the times’, ‘somewhere in the Dickensian era’.
292. This report has already noted concerns about judgmental application processes (see paragraphs 129-132). A representative from Ratepayers Victoria said councils take the view that ‘if the ratepayers cannot pay their rates, it is the ratepayers’ fault’. Some community advocates wanted councils to understand that people in hardship may have other problems, or to understand how vulnerability affects people and their behaviour.
293. Some also wanted councils to understand that, for residential ratepayers, homes are not just assets for liquidation. One financial counsellor recalled occasions where councils asked about ‘downsizing’ for older ratepayers. Another said attitudes at one council appeared to be that ‘it is a privilege to own a house.’
294. A representative of Ratepayers Victoria said:

the thing for all of us is councils have a social obligation. It is not a financial transaction; they have a social obligation like every other company in our country.

Council views

295. The investigation found a range of attitudes and approaches across councils.
296. Some councils acknowledge their social obligations in their policies. For example, West Wimmera Shire Council’s policy mentions the council’s ‘social obligation to ensure that its vulnerable customers are treated fairly and that our actions will not add to the customer's burden'. Horsham Rural City Council’s policy advises its officers to be ‘extremely aware of the financial, emotional, physical or psychological difficulties that the ratepayer may be experiencing’.
297. However, some council policies strike a harsher tone. Greater Shepparton City Council’s policy, for example, distinguishes between ‘reasonable’ and ‘unreasonable’ causes of financial difficulty. This gives officers the ability to refuse hardship relief if they believe the hardship has resulted from the ratepayer’s ‘own decisions’.
298. At an officer level, the investigation also observed a range of views both at its meetings and in council responses to case studies in this report. Some stressed the importance of a helpful approach. An officer from Southern Grampians Shire Council said ‘the way we try to drive it is to say understand the person first and then there are a series of processes. I think it is developing within councils’. A financial counsellor who works with Mansfield Shire Council said:

[The Council] is very dependent on collecting all [its] rates, so the rates coordinator’s focus is let’s help people to pay their rates, not punish them because they can’t.

299. However, the investigation also observed some concern about ratepayers who ask for relief when they may not be in genuine hardship. Some council officers said it can be difficult to tell when hardship is genuine, for example where ratepayers say they cannot pay rates but are paying for school fees or ‘lifestyle’ expenses.
300. The investigation observed that councils often spoke about fairness, but in terms of fairness to other ratepayers. As this report has noted, the 2013 MAV Guidelines warn of the ‘redistributional effect’ of waiving rates and interest on other ratepayers (see paragraph 163). The investigation was told some other ratepayers also have low incomes but ‘scrimp and save’ to pay rates.

Expertise and training

301. Council officers’ statements about the difficulties of identifying ‘genuine’ hardship raises questions about expertise and training within councils.
302. This can be a particular problem when councils are asked to assess applications for rates waivers (see case study on page 46, for example). One council officer suggested detailed guidance on ‘how a council should objectively measure and assess hardship’ and ‘how the level of assessed financial hardship is to be weighted against the proportion of rate relief sought’.
303. Councils rarely employ people with financial counselling or specialist experience to deal with hardship applications. Mansfield Shire Council employs a part-time financial counsellor and Bass Coast Shire Council’s policy refers to a Specialist Revenue Officer who is an ex-financial counsellor. Golden Plains Shire Council said it recently appointed a specialist Rates Hardship Officer on a six- month contract.
304. Other small councils noted their rates teams only have one or two people. Hiring people with specialist qualifications is not always an option.
305. Some councils, as this report noted earlier (see paragraph 125), ensure an expert assessment by asking ratepayers for an assessment from a financial counsellor. Other councils indicate they rely on the substantial experience of their officers.
306. The investigation identified that current training and guidance for officers varies. The Revenue Management Association (the professional association for rates officers) holds a yearly conference which usually has speakers or sessions on hardship issues. Some councils said officers had attended training with financial counselling bodies or the debt collection industry.
307. By contrast, utility and telecommunications companies have regulatory obligations to train staff on issues such as family violence or the companies’ hardship policies.

Budget pressures and conflicts of interest

308. The investigation heard that the problems in the current system may be more fundamental than just expertise and training.
309. Ratepayers Victoria’s submission argued council rates and finance officers have ‘an inherent Conflict of Interest’ in this area. A representative explained:

they have a budget that they have to make … And so what that means is that’s what they will protect at all costs even if it’s on the back of hardship. So they are conflicted in assessing hardship because they actually don’t want to grant it because then they would have to cut something, drive efficiency, do something different. They don’t want to do that; their job is to protect the revenue for the budget.

310. The Ratepayers Victoria representative noted councils do not usually make any provision for hardship relief in their budget plans. This means any relief granted by councils disrupts their budget. He contrasted this approach with private companies such as banks. He said ‘[i]t is a massive governance failure because they are saying “we don’t have anything; we haven’t even allowed for it”’.
311. The investigation did not find any cases where councils decided hardship applications on revenue grounds. But it observed finance and rates officers often talked about hardship relief in terms of budgets, cash flow and costs. The investigation heard budgets in councils are tight, especially in smaller councils and especially since the State Government introduced ‘rate-capping’ (see paragraph 50). One officer said their council relies on rates for around half of its revenue and waiving them would be unsustainable. Another said their council does not offer Centrepay because it costs more than other payment options and the council cannot pass the cost to the ratepayer.
312. One stakeholder suggested council hardship relief schemes might be better managed in other sections of councils, where officers have a different focus and different skills. The investigation heard water companies usually deal with hardship relief in their customer service teams, rather than their finance teams. It heard their focus is helping customers make regular payments, not minimising outstanding debt.

Laws and standards

313. Some financial counsellors were frustrated that ratepayers’ experiences depend on individual councils and individual council officers. One said, ‘no matter which council you go to, no matter who you speak to … there has to be consistency’.
314. This report has noted that energy and water and other private companies have minimum regulatory standards. By contrast, councils have broad discretions under the Local Government Act to decide if and when to give hardship relief. Not all councils follow the 2013 MAV Guidelines.
315. Ratepayers Victoria’s submission argued that the ‘self-regulated, self-managed’ approach to hardship relief has failed. One financial counsellor said:

Most of the other industries or sectors we deal with, if it’s not legislated they at least have guidelines as to what you have to do and that does not seem to be the case within councils. They can basically do whatever the hell they like. And that can make them very difficult to deal with.

316. The investigation noted the sector lacks even an agreed definition of ‘financial hardship’. The Local Government Act does not define the term. The investigation found only just over half of councils (45 councils or 56 per cent) include a definition in their policies. Most use the definition in the 2013 MAV Guidelines, which is ‘a customer or ratepayer who wants to pay but cannot’. But one stakeholder said in practice, councils often make quasi-judgements based on what people own or how they spend their money. A representative of Ratepayers Victoria said councils ‘literally don’t know how to define [hardship] and they don’t know how to assess it. If you can’t do those things, you actually can’t address hardship’.
317. Ratepayers Victoria’s submission also argued for clear service standards and uniform timeframes for assessment and decision-making.
318. Some councils welcomed the idea of advice about good practice or minimum standards, including detailed advice about how to assess hardship applications. One said it offers benefits for councils, because they can point to compliance with certain standards to ‘defend’ themselves from criticism.

Transparency and reporting

319. Ratepayers Victoria also argued councils should have minimum standards for transparency around their hardship relief schemes. A representative said:

Councils for us should have to disclose as good corporate citizens every year in public … how many applications they got for hardship …, how many they approved, how many they rejected, and how much they actually gave in hardship … [T]hat should be a minimum standard across the sector so that we can see that councils are being responsible and responding to hardship.

320. Councils already collect a range of data under a sector-wide scheme known as the Local Government Performance Reporting Framework. They report the data to the State Government, which publishes it on the ‘Know Your Council’ website. Local Government Victoria’s website describes the Framework as a way to promote ‘council transparency, accountability and performance’. The scheme includes data on visits to council swimming pools and the cost of council libraries. However, there is currently nothing on rates hardship relief or debt recovery.
321. Some councils collect and report data to senior managers. However, when the investigation requested data for this report, it found councils collected and reported in different ways. For example, the investigation asked for data on the proportion of unpaid rates at each council, to see if it affected councils’ debt recovery practices. Some councils counted only substantial rates debts in their data while others included smaller debts. These differences make it difficult to compare councils.
322. Other councils do not appear to collect key data at all. One council told the investigation that determining the number of payment plans for the last two financial years would take one of its officers a week.
323. Other agencies and sectors have more consistent and transparent reporting. The State Revenue Office publishes data on levels of tax debt in its annual review, although it does not publish data on hardship relief. Energy and water companies give data on their hardship schemes to their regulator, the Essential Services Commission. The Commission publishes the data in a yearly report and published data more often during the pandemic.

Collaboration

324. Finally, there was a consistent theme in the investigation’s meetings that councils could learn from practices and experiences in other sectors.
325. As this report has noted before, the 2012 community legal centre report argued that ‘[i]n comparison to other sectors, such as the utility sector, local government is lagging far behind in terms of best practice financial hardship regulation and monitoring.’ The investigation heard similar statements during this investigation. One community advocate said ‘[c]ouncils operate in a vacuum. They don’t look at what everybody else is doing … [They talk] with each other but they don’t talk to anyone else’
326. The 2013 MAV Guidelines encouraged councils to build relationships with financial counsellors. They said:

Council should commit to maintaining close relationships with their region’s accredited financial counsellors and meet with them on a regular basis. These meetings can provide a forum to discuss the implementation of council’s hardship policy and other relevant issues.

327. Some councils do this already. Colac Otway Shire Council is part of a local Financial Inclusion Action Plan with local business and services. The investigation heard Whitehorse City Council and Mitchell Shire Council considered feedback from financial counsellors when developing their hardship policies. Councils such as Greater Bendigo City Council, Greater Dandenong City Council, Northern Grampians Shire Council and Wyndham City Council said they have referral arrangements or regular meetings with local financial counsellors.
328. One council officer told the investigation there were benefits in engaging with organisations and setting up referral schemes with other agencies. They said, in their experience, there had been positive outcomes for ratepayers who received assistance from these agencies.
329. Some community advocates suggested councils might also participate in groups such as the Thriving Communities Partnership. Its members include energy and water companies, banks, financial counsellors and other support organisations. Its website says it aims to ‘create deeper awareness and connections across communities, organisations and government by building collaborative networks and platforms for collective learning and action’ on issues of vulnerability and hardship.

Conclusions

330. This investigation looked at how councils can better deal with ratepayers in financial hardship.
331. This issue has been generating criticism of councils for many years. Two reports – the 2012 community legal centre report and the 2020 Rating System Review report – raised concerns about poor information and heavy-handed debt collection. The economic impact of the COVID-19 pandemic has made the issue more urgent.
332. The investigation found councils have already changed some of their practices. Many offered more generous hardship relief during the pandemic. Outside of those special schemes, they have been doing more to engage with ratepayers who fall into debt. The investigation found examples of good practice – councils publishing information in community languages, offering easier ways to pay rates, and working with local financial counsellors and other organisations.
333. But good practice is not consistent across all councils, and the sector as a whole is falling behind the private sector and government tax agencies. It should be a matter of concern that banks and utility companies sometimes do more to meet social obligations than local councils.
334. There are some common practices in councils that cannot be justified:

• Failing to inform ratepayers about all of their options
  Council information too often focuses on the option of payment plans. This is a solution for many ratepayers, but not all. The Local Government Act 1989 includes deferrals and waivers as other options. Failing to inform ratepayers about those options, or providing unclear or out of date information, is inconsistent with councils’ public transparency obligations.
• Refusing to consider waivers and deferrals
  Too many councils have a blanket policy of refusing to consider rates waivers and deferrals, or only considering them in limited ways. Councils are willing to exercise discretions that benefit their revenue. They need to be just as willing to exercise discretions that benefit ratepayers. There are good grounds for arguing councils should waive rates rarely, but the Parliament has given people the right to apply and applications should be considered on their merits. Blanket refusals to even accept applications are inconsistent with the spirit of Local Government Act and the approach taken by the Australian Taxation Office and the State Revenue Office.
• Charging penalty interest to people in hardship
  Penalty interest is meant to punish people who do the wrong thing, not to drive people in hardship further into debt. In some cases reviewed by the investigation, the interest charged by councils was staggering – hundreds and thousands of dollars of extra debt for people who have had rates deferred for hardship reasons or are trying to pay off their rates.

335. Councils’ approach to debt recovery is more complex. All governments reserve the right to take enforcement action where people fail to pay their taxes. Councils are no different. However, they should act as model litigants and only take legal action as a last resort.
336. It is heartening to see councils already taking this approach, but the heavy reliance on debt collectors to engage with ratepayers carries risks. Contact from a debt collector can be stressful and frightening for anyone, let alone someone in hardship. This type of activity needs clear, enforceable hardship standards. It may also be time for some councils to check their own policies against ACCC and ASIC debt collection guidelines.
337. The investigation was particularly concerned by examples of legal action against people with vulnerabilities such as mental health problems, personal crisis or a history of family violence. In some of the cases reviewed by the investigation, councils appeared to lack an understanding that people in these situations may not have the capacity to engage with them at times. The power to take legal action in the Local Government Act 1989 is a discretion and, like the power to sell land, it needs to be exercised with sensitivity.
338. Nobody wins from heavy-handed approaches, least of all the public interest. The investigation often heard about the need to be fair to other ratepayers. However, councils have obligations under the Local Government Act to their whole community, not just those who can afford to pay. Good hardship relief schemes get the balance right. And as the investigation heard, driving people in hardship further into debt or out of their homes is short- sighted. It creates costs for other parts of government, costs that are also borne by taxpayers.

The way forward

339. During this investigation, the State Government made a welcome commitment to reform rates hardship relief. Its response to the 2020 Rating System Review accepted high-level recommendations for:

• regulation to ensure consistency in some areas and to ensure debt collection and legal action are a last resort
• a ‘collaborative change management program’.

340. The evidence in this investigation supports this direction. It can be achieved in practice by:

• strengthening laws and standards through changes to the Local Government Act and regulations. This report’s recommendations tackle the most difficult issues identified in evidence through clear minimum standards for all councils; better public information; scope for councils to help people struggling with formal application processes; recognition of the role of payment plans; fairer use of interest; limits on heavy-handed debt recovery; and more transparency.
• increasing skills and knowledge in councils through training and guidance materials, such as model policies and procedures
• addressing the reliance on debt collectors through stronger contractual oversight
• building links with other sectors, including the private sector. It is sometimes said councils and council rates are unique. This is true in many ways, but there are dangers in insularity. The sector should never again be left to fall so far behind good practice.

341. In all of these areas, the recommendations call for change to address one of the most pressing issues raised by community advocates - rates debts linked with economic abuse associated with family violence.
342. Such a program of reform brings challenges. Some smaller regional councils told the investigation they rely heavily on rates and operate under financial constraints.
343. There is a body within the State Government that has driven such change before in the form of the Essential Services Commission. The Commission brings existing hardship expertise and a record of reform from its work in the energy and water sectors. It is familiar with local government through its role under the State ‘rate-capping’ laws. It has good links with other organisations and sectors, something which is needed to ensure councils stay up to date with good practice.
344. This investigation recommends the Minister for Local Government and Local Government Victoria work with the Essential Services Commission and its minister, the Assistant Treasurer, to drive this much-needed change.
345. The Victorian Ombudsman recognises it also has a role to play as a complaints body for local councils. Pending changes to local government laws and regulations, this report sets out on page 90 this office’s own view on what a good approach to financial hardship looks like.
346. This office welcomes advice from some councils that they will review their policies and procedures for ratepayers in hardship as a result of this report. The result promises to provide better outcomes for councils and ratepayers.

Opinion

347. On the basis of the evidence obtained in the investigation, the Ombudsman has formed the opinion that the following practices at some local councils are ‘wrong’ pursuant to section 23(1)(g) of the Ombudsman Act:

• failing to inform ratepayers of all the statutory options available to councils to address financial hardship
• adopting a blanket policy that council will not waive or defer rates, or will limit the circumstances in which they will do so, without considering the merits of ratepayers’ applications
• charging penalty interest when ratepayers are meeting their obligations under payment arrangements, or have had rates deferred on the basis of financial hardship
• failing to ensure debt collector contractors are subject to clear and enforceable standards regarding ratepayers in financial hardship
• restricting options available to ratepayers in financial hardship once a matter has been referred to a debt collector contractor.

Recommendations

The Ombudsman makes the following recommendations pursuant to section 23(2) of the Ombudsman Act:

To the Minister for Local Government and the Assistant Treasurer

1. Recommendation 1 – Stronger laws and standards
   Seek changes to relevant local government legislation and regulations to:
   1. ensure a clear, consistent definition of ‘financial hardship’
   2. empower the Essential Services Commission and the Minister for Local Government to issue standards (in the form of a code of practice or guidelines) for rates hardship relief, including where rates debts are associated with family violence
   3. require councils to have a rates hardship policy. The policy should include provisions related to economic abuse associated with family violence.
   4. require councils to include hardship relief information on their websites and rates notices
   5. give councils discretion to waive or defer rates and interest for individual ratepayers without an application
   6. recognise payment plans or arrangements as one of the statutory options for responding to ratepayers in financial hardship, along with waivers and deferrals
   7. provide for the Minister for Local Government and the Essential Services Commission to set a maximum interest rate that may be charged by councils where a ratepayer is complying with the conditions of a payment plan or arrangement or a deferral
   8. require councils to make reasonable efforts to contact a ratepayer before taking legal action to recover unpaid rates
   9. require councils to report data on rates hardship relief through the Local Government Performance Reporting Framework (or another appropriate reporting mechanism).

The Department of Jobs, Precincts and Region’s response:

The Department’s response to the recommendations in this report said:

The report’s recommendations will be considered in the context of the Victorian Government’s response to the Local Government Rating System Review final report. The government committed to ensuring that the rating system is set out in primary legislation and provides transparent and flexible ways for councils to treat ratepayers facing financial hardship fairly.

The Victorian Government has committed to designating local government rates as a form of taxation in statute. This benefits the nature of rates and the status of local governments as a distinct and essential tier of government as per the Victorian Constitution Act 1975. In considering ratepayer circumstances of financial hardship, alignment with the best practices of the State Revenue Office (SRO) and Australian Taxation Office (ATO) will be sought wherever possible.

To Local Government Victoria (in the Department of Jobs, Precincts and Regions)

2. Recommendation 2 – Building knowledge and skills
   Work with the Essential Services Commission, councils and local government professional associations to develop training and guidance material (such as model hardship policies) on dealing with rates hardship applications and debt recovery, including in relation to the following matters:
   1. identifying indicators of financial hardship
   2. assessing financial hardship applications and determining the most appropriate relief options
   3. identifying indicators of family violence and responding to ratepayers who have disclosed family violence.

The Department’s response:

Accepted.

The Department said:

[it] will work with councils and local government professional associations to develop training and guidance material, centred around future iterations of the Revenue and Rating Plan as required by the Local Government Act 2020 and work on developing model financial hardship policy requirements … [T]his work will take its lead from the best practice approaches of the SRO and ATO and advice will be sought from these entities along with the Essential Services Commission. This work will also support improved collaboration by councils with financial counsellors and other groups as per Recommendation Four.

3. Recommendation 3 – Use of debt collectors
   Work with councils, the Municipal Association of Victoria and Procurement Australasia to ensure that arrangements with debt collection agents:
   1. are subject to clear and enforceable standards
   2. require debt collection agents to comply with the ACCC and ASIC guidelines for debt collection
   3. require debt collection agents to be familiar with and comply with council rates hardship policies
   4. require debt collection agents to inform ratepayers of all statutory options available for hardship relief
   5. refer ratepayers who disclose financial hardship to the council for consideration.

The Department’s response:

Accepted. The Department said:

Improvements to the use of debt collectors by councils will be included in the work to develop training and guidance material, centred around future iterations of the Revenue and Rating Plan as required by the Local Government Act 2020 and work on developing model financial hardship policy requirements.

4. Recommendation 4 – Building collaboration
   Work with the Essential Services Commission, councils and local government professional associations to build regular and ongoing consultation with financial counsellors, community legal groups and other sectors and organisations that work with people in financial hardship.

The Department’s response:
Accepted.

What does a good approach to financial hardship look like?

Information for ratepayers

• having a rates hardship policy that sets out hardship relief options, eligibility for those options and how to apply
• making the policy easily accessible online and in hard copy on request
• publishing a plain English explanation of the policy online and in hard copy on request
• providing the summary in accessible formats appropriate to the community eg community languages, audio or video versions or Easy English or Easy Read versions.
• having a communication strategy for reaching ratepayers in hardship eg prominent information on rates notices, use of local media and social media, offering information through local support services
• using customer-focused, effective language in communication
• ensuring council officers dealing with ratepayers are familiar with the rates hardship policy

Application processes

• making it clear when farmers, or other people who live at their place of business, are eligible for hardship relief
• making application processes proportionate to the relief sought by the ratepayer eg accepting verbal applications for payment plans or deferrals under three months
• seeking only relevant information from ratepayers and ensuring questions are not intrusive
• requiring supporting documents only where necessary, for example in cases of:
  • long-term hardship relief
  • relief for a significant rates debt
  • a waiver of rates or interest
  • situations where the council considers the ratepayer is not providing
    honest and accurate information

Hardship relief

• developing a hardship agreement appropriate to the ratepayers’ individual financial circumstances
• considering all options for providing hardship relief:
  • a payment plan or arrangement based on the ratepayer’s capacity to pay
  • a short term deferral
  • a long term or indefinite deferral, under which the debt accrues as a charge on the land and is recovered when the land is sold or transferred
  • a rate waiver under the Local Government Act
  • an interest waiver under the Local Government Act
  • referral to a financial counselling or other support organisation.

• considering whether it is appropriate to charge any interest while the ratepayer is complying with the hardship agreement or where the ratepayer is a pensioner or otherwise vulnerable
• charging interest at a rate not exceeding the market rate plus the costs of administering the arrangement, where the ratepayer is complying with the hardship agreement.
• reconsidering the hardship agreement if the ratepayers’ circumstances change.

Debt recovery

• ensuring debt management policies and practices are consistent with the ACCC and ASIC’s debt collection guidelines
• determining a risk-based debt recovery strategy appropriate to the size and age of the debt and the ratepayer’s circumstances
• ensuring any debt collectors contracted by the council are subject to clear and enforceable requirements to:
  • be familiar with the council’s rates hardship policy
  • inform the ratepayer of the council’s rates hardship policy where there are reasonable grounds to believe the ratepayer is in financial hardship
  • offer information in accessible formats where there are reasonable grounds for believing the ratepayer has trouble speaking, reading or writing in English
  • inform the council where ratepayers disclose financial hardship
  • not contact ratepayers who are complying with their hardship agreement

• not taking legal action unless:
  • there have been reasonable efforts to contact the ratepayer about the debt, including checking council’s address for the ratepayer is correct
  • the ratepayer has been informed of the council’s hardship policy and how to apply
  • the cost of the legal action is proportionate to the size and age of the debt
  • the council can demonstrate consideration of any known financial hardship or vulnerability eg status as a pensioner, history of family violence, mental health concerns. Councils may opt not to take legal action against pensioners or other vulnerable groups as a matter of policy, or may require senior manager approval before taking any action.

• considering waiving legal costs where it becomes clear the ratepayer was in hardship at the time of legal action or where the legal costs are exacerbating the ratepayer’s hardship.

Decision-making and reporting

• managing conflicts of interest within the council by deciding hardship relief applications outside rates or revenue collection teams
• ensuring staff who decide applications have relevant training or experience in identifying and responding to financial hardship
• ensuring provision for hardship relief is factored into the council’s annual budget
• developing timeliness and quality targets for deciding hardship applications
• developing referral arrangements and regular consultation with local financial counselling and support organisations
• reporting regularly to senior council managers on hardship relief applications, hardship agreements and debt recovery actions
• reporting publicly on hardship relief applications, hardship agreements and debt recovery actions, either in annual reports or through statutory performance reporting arrangements
• keeping proper records of council decisions.

Disputes and complaints

• advising ratepayers who are dissatisfied with the council’s decision about internal complaint and review options
• advising ratepayers who are dissatisfied about external complaint options, including the Victorian Ombudsman.

Appendix

Appendices for this report can be found in the downloadable PDF.