The WA Local Government Association (WALGA) has announced that it wants the State Government to justify the 0.6 percent increase in the Government Guarantee Fee (GFEE) on loans to Councils, given the current economic climate.
WALGA President Mayor Troy Pickard said the increase had come without warning for Councils and would most likely have to be passed directly onto ratepayers.
“It is quite alarming for Local Governments to find that at a time when global interest rates have decreased to an all-time low, the State Government is increasing its borrowing charges.
“Local Governments are currently finalising their budgets and were given no warning that this increase would be imposed.
“It is completely out of step with all other borrowing charges and will result in costs to Councils that at this late stage will most likely only be able to be recovered through rate rises.”
The WA Treasury Corporation (WATC) has written to Local Governments across the State advising that the GFEE would increase on all new and existing loans from 0.1 percent to 0.7 percent from 1 July.
The GFEE is charged by the WATC as a guarantee against loans by Local Governments, much in the same way as homebuyers pay mortgage insurance.
In the letter to Councils, the Treasury Corporation said it is acting on instruction from the State Treasurer and that ‘it is important to note that the GFEE is a charge imposed by the State Government, not by WATC’.
Mayor Pickard said Councils and their communities deserved an explanation from the State Government as to the rationale behind increasing the GFEE borrowing charge.
“It is very difficult to justify given that borrowing costs everywhere else are declining and at record lows and that there is no evidence of any increased risk or occurrence of Councils defaulting on loans.
“If the increase is a consequence of the State Government losing its AAA credit rating and as such having to pay more for finance itself, or if it is simply a mechanism to redress State budget problems, then the community deserves to know.”
