I’m so confused.

I think I can help!

Council Rates are calculated based on the value of the property.

This is already a major increase, since property values have skyrocketed in the last five years.

It's not laid out in a way that makes it particularly clear but the key point of clarification is that council rates don't grow with property values.

Allow me to explain...

First, the council first determines the total amount they will raise through council rates for a given year. The annual cap is a restriction on the growth of that total amount.

Secondly, they divide that total amount by the worth of all properties in the area to get the 'rate in the dollar'.

That is to say, the 'rate in the dollar' is calculated each year only so that the council rates can be charged proportionally to each property. It is not a fixed rate such that council rates would grow in line with house prices.

This is outlined on the page you linked, just above the bit you quoted:

How is a 'rate in the dollar' calculated?

For a council using only a general rate (some use special rates for particular projects or needs), the rate in the dollar is calculated as in the following example:

• A council plans to raise total rate revenue of $10 million.
• The total Capital Improved Value of all rateable properties in the municipality is $2.38 billion (Capital Improved Value means the value of the land, the building and any capital improvements made to the property)
• The rate in the dollar is calculated by dividing $10 million by $2.38 billion to obtain a rate in the dollar of 0.42 cents.

The 'rate in the dollar' has trended downwards over the last few decades precisely because property values have increased faster than local councils have increased their rates. You can find the full list of residential 'rate in the dollar' figures for 2000-2027 for the City of Melbourne on this page, but in summary, it was 6.4 in 2000/2001, and it's 3.98 in 2026/2027.

The rate cap amounts since 2016/2017 can be found on this page.

I haven't read it in full, but this report gives at least some indications that the cap hasn't kept up with inflation:

The fall in capped rates revenue per property is largely due to:
• Difference between inflation and the rate cap: in 2022–23, inflation was around 7 per cent while the rate cap was set at 1.75 per cent; in 2023–24, inflation was 4 per cent and the rate cap was 3.5 per cent

Obviously if a major revenue stream doesn't keep up with inflation, then there's eventually going to be a squeeze on expenditures, including wages.

From an article in 'Council' magazine:

The union said council employees have experienced a decline in real wages in recent years, attributing part of the issue to rate capping arrangements that limit councils’ ability to increase revenue.

According to the ASU, the average Victorian council worker earns approximately $70,000 a year and has experienced a real wage decline of up to 12 per cent since 2021.

I'm sure the ASU is aware that increasing council rates is unlikely to be popular. This is evident when they specify "modest reform to the rate cap" in that 'Council' article. Also, their members are themselves rate-payers, of course. If they thought there was another way to secure a decent deal for workers, they'd be pushing for that instead.