Rising Rates, Sinking Trust
Welcome to the new financial year! Our rates go up today by 12%, adding an average of $3.46 each week to residential bills. You've likely seen Council's general announcement, but it's not well understood where those extra rates will actually go.
Former Shoalhaven City Council (SCC) Chief Financial Officer, Michael Pennisi, summarises Shoalhaven's tenuous situation and examines more closely what SCC said in its submission to the Independent Pricing and Regulatory Tribunal (IPART) - revealing that another rate hike is in our near future.
We're copping 12% today, but is a whopping 29.5% on the cards?
Key Points:
- The 12% rate rise is a short-term reaction that won't achieve financial stability for SCC.
- For the bare minimum of 85% infrastructure renewal, a 29.5% rate rise is needed —plus the $10M in savings and land sales.
- New funds will go to asset renewal projects; $7.7 million in 2025/26 - $6 million of which goes toward road maintenance and renewal.
- The community survey did not ask if rates should be spent entirely on assets.
- Staff increased 10.6%. Governance and administration costs rose by 186%
- Cycle of recurring rate rises indicate deeper governance issues within Council
Shoalhaven Council’s Rate Hike Fuels Debate Over Fiscal Management and Future Increases
by Michael Pennisi /
Last month, IPART approved an overall 12% rate increase (inclusive of the 3.8% rate peg) for Shoalhaven City Council.
But the books imply more increases are on the way as soon as 2026/27.
In its Part B Special Variation Application to IPART, Council says as much:
"Council has acknowledged in its business papers, and throughout the community engagement process, that a future SV will be needed as early as FY2026/27 ... Based on current depreciation figures, a Special Rate Variation (SRV) of 29.5% is required (in conjunction with the $10 million efficiency target and land sales strategy) for Council to achieve an Infrastructure Renewal Ratio of 85% only, with no additional funds being available to address Council’s significant infrastructure backlog issues."
What does this mean? And why isn't it being more broadly discussed?
Shoalhaven City Council (SCC) applied for a special rate variation (SRV) of 12% for the 2025-26 financial year, citing financial pressures that left Council facing a structural deficit of up to $35 million.
The IPART proposal aimed to bolster revenue for infrastructure renewal.
However, some ratepayers question whether Council’s fiscal management has been responsible and whether the proposed increase will lead to long-term stability or simply another short-term fix.
The 29.5% figure was previously mentioned in a Spark Shoalhaven article in December 2024 summarising the rate rise debate: “some councillors predicted that ratepayers would be up for at least a 29.5% rate increase if an administrator were to take charge of Shoalhaven City and remove the current elected councillors from office.”
Despite all the talk about Council’s structural deficit, all of the additional funds from the current rate rise will be used for asset renewal projects. That is, work that returns assets to an “as-new” condition; some $7.7 million in 2025/26, of which $6 million will go toward road maintenance and renewal.
Historical Rate Increases – A Pattern of Funding Requests?
Shoalhaven City Council has applied for, and received, multiple special rate increases over the past decade.
In 2017, Council secured a one-time 13.2% increase, followed by additional special variations of 5% in 2018/19, 2019/20, and 2020/21 to support ongoing service delivery and asset investment.
At the time, Council argued these increases were necessary to meet financial benchmarks set under the Fit for the Future program.
Despite these rate hikes, Shoalhaven’s financial pressures persisted, raising questions about how effectively past rate increases have been managed.
Some believe the cycle of recurring funding requests suggests deeper governance issues within Council—issues that higher rates alone may not solve.
Fiscal Challenges – What’s Driving the Financial Deficit?
The Shoalhaven City Council Financial Sustainability Review (2023), prepared by AEC consultants, outlines key financial challenges driving the Council’s deficit.
While the report acknowledges external factors such as multiple natural disasters and COVID-19 recovery costs, internal decisions were also noted to have contributed to Council’s financial instability:
- Investments in new assets: Shoalhaven has spent $149.5 million on new infrastructure over the past five years, with $43 million allocated to parks and recreation facilities—an expenditure some critics argue has come at the expense of essential maintenance on transport assets.
- Increased operational costs: A salary system review in 2019 led to a $2.6 million increase in employee costs. Between 2019 and 2023, Shoalhaven’s full-time equivalent (FTE) staff increased by 10.6%, while governance and administration costs rose by 186%.
- Failed waste management project: The Bioelektra waste processing facility was abandoned after SCC had already spent $2 million on milestone payments—a setback that forced Council to reassess its waste strategy. However, no details have been forthcoming regarding this crucial issue. In the meantime, a questionable asset value sits on Council’s balance sheet relating to the land earmarked for the project.
- Delays in technology implementation: The rollout of Technology One’s financial management system was significantly delayed, causing inefficiencies in asset tracking and budget oversight.
These factors contributed to Shoalhaven’s poor cash position and structural deficit, raising concerns about whether Council has adequately prioritised financial sustainability before seeking higher rates.
Impact on Ratepayers – Transparency Concerns
Shoalhaven Council has highlighted that community engagement efforts were conducted before lodging its application, with ratepayer surveys showing general support for road and infrastructure investment.
But this is a stretch, as the online survey questions did not ask whether residents wanted additional funds spent entirely on assets.
Specifically, the relevant questions ask whether the respondent is aware of Council’s financial position, whether an increase in rates is necessary in addition to operational savings and productivity improvements and, then, includes a question about what asset classes need more Council investment.
The last question does not connect it to additional funding via an SRV or to trade-offs regarding additional spending.
In addition, the full extent of planned rate increases was not clearly communicated.
In various documents, Council’s suggests that a much larger rate hike of 29.5% may be required in 2026/27 to meet infrastructure renewal targets.
Yet this future increase has not been widely discussed with ratepayers, nor the areas to which it will be directed, though Council’s Part A application to IPART suggests it will be on more asset spend:
“…an SRV in the vicinity of 29.5% will be needed to bring council assets up to a satisfactory condition”.
Governance and Accountability – Is Ratepayer Money Being Managed Effectively?
Questions remain about the effectiveness of Shoalhaven Council’s cost-saving initiatives.
While Council has identified operational savings ($7 million in 2025/26 and $1 million annually for three years after), these measures rely on temporary actions such as:
- Deferring capital projects worth $90 million
- Freezing discretionary spending and recruitment
- Selling assets to boost revenue
These actions provide only short-term relief, with no guarantee of sustainable cost containment.
Shoalhaven Council must first demonstrate fiscal discipline before seeking further rate increases.
Systemic improvements — such as stronger budget oversight, better asset management and substitution of asset projects when circumstances change (rather than additions to Council’s capital program) — could help address financial instability without requiring such frequent funding boosts from ratepayers.
It’s about Council learning to live within its means while focussing on essential services and ensuring the benefits of projects outweigh their cost.
A Band-aid on a Mighty Bleed
Shoalhaven City Council presented its case for a 12% rate increase to IPART, but concerns persist about its long-term financial strategy.
The Council must answer three key questions:
- How effectively have previous rate increases been managed?
- Is concern about transparency surrounding future rate hikes justified?
- Can Shoalhaven improve financial oversight without relying on further rate increases?
Following IPART’s decision and that the increase will be spent on asset renewal rather than addressing Council’s structural deficit, ratepayers are left wondering whether this latest increase is a necessary step toward financial stability or another momentary fix masking deeper structural issues.
Michael Pennisi has worked in variety of finance-related roles across five industries over the last 30 years, including two and a half years as Chief Financial Officer at Shoalhaven City Council when the last large Special Rates Variation was implemented.
