Nobody enjoys receiving their rates notice in the mail. But have you every stopped to wonder how local governments actually calculate the amount of rates we pay as residential property owners? This article answers this question.

Councils start by setting an annual budget to fund local services and facilities, such as roads and parks, footpaths, rubbish collection and libraries. This budget is then shared amongst rate payers in the form of rates that are based on the value you can gain from your property compared to your neighbours.

So, if you can gain more value from your property or improve its value, say by adding extra bedrooms for instance, then you would pay a larger share.

The value you can gain from your property is determined by periodic assessments by the Valuer General. You have a right to appeal the decision if you disagree with the value applied to your property.

Why don’t my rates go down when there is a drop in the property market?

The answer is that your rates are not directly linked to movements in the property market. So, just as they don’t go down when the market drops, they also don’t increase when the market is performing better. It all comes down to the comparison between your property value and your neighbour’s.

If everyone’s property value goes up or down with market movement, such as in a property boom or depression, the proportion of your share of rates doesn’t change.

While it may seem unfair in a downturn, if rates were directly linked to the property market, ratepayers would be paying far more than they currently are.

By using each year’s budget as the starting point for setting our residential rates, councils collect only what is required and protect ratepayers from property market increases, which are not directly aligned with the provision of local services.