Victorian Councils Mandated to Offer Flexible Rate Payments, End Cumulative Interest
Victorian councils are now legally mandated to provide flexible payment options and cease charging cumulative ("snowballing") interest on deferred rates. These new ministerial rules, which took effect this week, aim to address inconsistencies in how councils handle ratepayer debt across the state.
Key Policy Changes
- Flexible Payment Plans: All 79 Victorian councils must offer "modern and flexible" payment methods, such as monthly or fortnightly billing, for residents experiencing financial difficulty.
- Lowered Hardship Threshold: The criteria for residents seeking assistance has been reduced. Ratepayers only need to demonstrate that payment would cause "hardship" to their current quality of life, rather than proving total financial ruin.
- Defined "Necessities of Life": For rates to be waived entirely, residents must show they cannot afford "necessities of life," explicitly defined by the state to include food, medicine, and essential utilities.
- Interest Charges: Councils are now prohibited from applying interest during approved rate deferral periods. They are also discouraged, though not banned, from applying penalty interest in hardship cases.
Background and Context
This policy shift follows a 2021 investigation by then-ombudsman Deborah Glass. Her investigation revealed that many councils were quick to initiate legal action and often failed to inform eligible residents about waivers and deferrals.
The investigation also found varying council policies on arrears, with some contributing to residents, including victims of family violence, being displaced by aggressive debt collection practices.
Local Government Minister Nick Staikos stated that these guidelines provide councils with the necessary tools to support vulnerable Victorians facing prolonged hardship, job loss, illness, or other family circumstance changes.
Arrears Crisis
The new rules come amidst a worsening arrears crisis for Victorian councils. Analysis from rates collection firm Payble indicates that the state average for unpaid council rates reached 10.44% in the 2024-2025 financial year, reflecting a 32% increase in the total amount owed compared to the previous year. Early data for 2025-26 suggests an acceleration of this crisis, with an average of 11.6% of households statewide in arrears.
Outer-suburban growth corridors are particularly affected. Yarra Ranges and Whittlesea councils are reporting almost 20% of residents behind on rates, the highest in Greater Melbourne. Other significantly impacted areas include Port Phillip (18.87%), Brimbank (17.69%), and Frankston (16.84%). Even more affluent areas, such as Stonnington, saw a 66.6% rise in overdue rates between 2023-2024 and 2024-2025.
Payble chief executive Elliott Donazzan noted that many problems originated during the COVID-19 period. Enforcement pauses were often mistaken for rate relief, leading to a quiet build-up of arrears that became apparent as economic pressures increased.
Successful Approaches and Future Measures
The 2021 ombudsman report highlighted that council revenue dependence on resident and commercial rates varied significantly. The City of Dandenong, an outlier, has successfully improved its arrears rate by offering automated weekly and fortnightly installment options, demonstrating the effectiveness of flexible payment plans.
Greater Dandenong Mayor Sophie Tan emphasized that monthly installments help residents avoid falling behind, especially those on tight budgets.
The Municipal Association of Victoria, the peak body for councils, welcomed the new guidelines. They affirmed councils' commitment to collaborating with the state to manage the arrears situation. The state government has also capped rate increases at 2.75% for the 2026-27 financial year to further alleviate cost-of-living pressures.