Some rural councils fear it will restrict their ability to maintain road networks and provide community services, while the Victorian Farmers’ Federation welcomed the move, saying it would put greater scrutiny on the setting of rates.

The Essential Services Commission yesterday released a discussion paper seeking comments before preparing a draft report and a subsequent final report by October 31.

Local Government Minister Natalie Hutchins said the commission had been asked to develop the best framework for the government’s planned Fair Go rates cap which would impose a CPI limit.

“This is about making local rates fairer and we encourage communities and councils to be part of the consultation,” Ms Hutchins said. “The commission will consult across the local government sector so our capping policy strikes the right balance.”

Moyne Shire mayor and Great South Coast Group chairman Colin Ryan said rates capping would restrict councils’ ability to operate effectively.

“Hopefully we can have fruitful discussions with the state government so rates capping doesn’t have a detrimental effect on ratepayers,” Cr Ryan said.

“There is a lot of cost-shifting from the government to councils — if we have to cut back it might be a service used by the community.

“The CPI figure isn’t derived from costs councils have to bear. We will be seeking for the cost of rubbish disposal to be excluded from the capping equation.”

VFF president Peter Tuohey said the CPI cap was one way of holding local councils to account.

The discussion paper says average Victorian council rates and charges per property assessment rose 6 per cent between 2006 and 2013 while the local government cost index rose by only 4 per cent.

Submissions to the discussion paper close on May 15 and the draft report is listed for July which will trigger another round of consultations and public meetings.

Port Fairy-based upper house MP James Purcell warned in Parliament this week that some rural councils could become unfinancial because of rates capping, indexation freeze and scrapping of the roads and bridges funding program.

He called for Ms Hutchins to immediately undertake a review of duplication, overlap and inefficiencies in local government.

Submissions should be sent to localgovernment@esc.vic.gov.au or mailed to Level 37, 2 Lonsdale Street Melbourne.