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Approach to setting a local government efficiency factor

The local government efficiency factor aims to lower rates by creating incentives for councils to operate more efficiently and to pass those savings on to ratepayers in lower rates. We’ll use this factor when we prepare rate-cap advice for the Minister for Local Government.

To identify the best way to set an efficiency factor, we have undertaken a productivity study, Measuring productivity in the local government sector. The study looks at productivity trends in the sector and identifies options to estimate an efficiency factor.

We are now looking for feedback before preparing a draft and final position paper with a recommended approach to setting an efficiency factor.

Why set an efficiency factor?

In September 2015, we issued our final report on the local government rate capping and variation framework. We advised the minister that the annual rate cap should take into account changes in the Consumer Prices Index (CPI) and the Wages Prices Index (WPI) and include an efficiency factor.

Incorporating an efficiency factor into pricing formulas is a common way used in other sectors to encourage service providers to pursue efficiencies in their operations and pass them on to customers.

Project timeline

  • Productivity study released and open for consultation – Wednesday 13 September 2017
  • Submissions on productivity study close – Friday 13 October 2017
  • Release draft position paper and open for consultation – early December 2017
  • Submissions on draft position paper close – end January 2018
  • Final position paper – end February 2018


Responses to the Measuring productivity in the local government sector study close on 13 October 2017.

Please email submissions to with subject title: ‘Submission to Productivity Study: Victorian Local Government’.

Alternatively, you can mail submissions to:

Attention: Local Government Division
Essential Services Commission
Level 37, 2 Lonsdale Street
Melbourne VIC 3000


Associated Documents