The Inflation Threat !

A lot of people will be very suspicious about moves to remove the rate cap that has long been imposed on the council rating system.   Council rates are a part of the taxation system and without a curb on the extent of rate rises each year the flood gates would be open for big spending councils to implement grandiose plans that are beyond the ability of average homeowners to finance.

The Australian economy took a big hit when the Coronavirus made a lockdown a necessity.  There was a need to spend a lot of money very quickly to try and preserve some sort of stability and as we emerge from that lockdown we face the grim reality of debt reduction.  Usually that is the scenario when a war ends - and that end is accompanied by a bout of inflation.

Even in normal times the Reserve bank is hoping for inflation to come in at about two percent and there has been worry that we are not experiencing wage growth.  When inflation increases the cost of living it drives upward wage pressures which play havoc with savings and superannuation.  It also creates the illusion that the national debt is not such a frightening figure.

Council rates are taken into account when economists calculate the cost of living and it is these living costs that usually fuel union pressure for wage rises.  We are heading into the financial unknown as this lockdown eases and the wizards who understand finance may be thinking that a little inflation could be a good thing.  It could unlock the demon of wage inflexibility that has been with us for some time.

Councils have developed into the third tier of government and both Federal and state have consistently devolved responsibilities from their own shoulders into council hands - and have not increased funding to finance those new liabilities.  As a consequence, most councils have a massive backlog of deferred work schedules which will never be fitted into the existing financial structure.

We are warned that there is the expectation that some councils will fail and a move to forcibly make them amalgamate to achieve economy of scale was prevented by public opposition.  If that annual rate cap is removed there is a very real danger that rates may spin out of control and lead to repossession.  The council rating system could destroy the concept of families living in a home within their ability to afford.  With that cap removed, the sky is the limit.

Coming out of this virus lockdown will certainly be a new experience that we will have to learn as it evolves.  But taking that cap off council rate rises will not be helpful in keeping inflation under control and it is runaway inflation that could destroy home affordability for the average citizen.