04 November 2025
Should Budget Approval and Levy Setting Be Separate Motions?
What the Budget Doesn’t Show You
For many strata managers, budget preparation is a detailed and thoughtful exercise, factoring in anticipated costs, historical trends, and planned works. In well-managed buildings with stable cash flow and consistent owner contributions, aligning levies with the approved budget can seem entirely reasonable.
However, there are circumstances where following this approach too closely may leave the strata company underfunded. This is because the budget, while accurate in forecasting expenditure, does not always reflect the full picture of cash flow requirements.
Loan Repayments: A Hidden Cash Flow Item
When a strata property has arranged finance, commonly for capital works or remediation, repayments include both interest and principal. Only the interest component appears (or 'SHOULD appear') in the budget. The principal, although significant, is a balance sheet item and does not form part of the profit and loss.
This creates a mismatch. If levies are raised to cover only the budgeted expenses, the strata company may not have the funds needed to meet its full repayment obligations.
Example: A building with $100,000 in annual loan repayments, where only $5,000 is interest, still needs to raise the remaining $95,000, despite it not being reflected in the budget.
Budgeting and recording full loan repayments as expenditure is not the answer. This would distort financial reports, either by creating budget-to-actual discrepancies or by misrepresenting the loan balance on the balance sheet.
Low Cash Reserves and Levy Arrears
Another consideration is the building’s cash position at the end of the financial year. If available funds are low, levies that match the budgeted expenses may not be sufficient to meet obligations in the first few months of the year, particularly where large annual costs, such as insurance, fall due early.
Chronic levy arrears can also create difficulties. Even with a well-prepared budget, if a portion of owners regularly pays late, the building may not receive the cash it needs when it is needed. In these cases, it may be necessary to raise slightly higher levies to ensure financial commitments can be met.
Why Levy Consistency Matters
As both an accountant and a strata owner, I’ve seen how consistent levy amounts support better engagement and forward planning. Sudden increases often generate resistance and long-running, argumentative AGMs.
Where there's a pre-existing and adequate cash balance, introducing levy increases progressively over time, rather than in a single large adjustment, can reduce pushback from owners, even when projected expenditure rises sharply. It’s a pragmatic approach that can still be financially responsible but not punish owners. As an additional benefit, I'd imagine it makes for much smoother AGMs.
Separate Motions, Better Financial Oversight
The above factors suggest that the standard approach should be that budget approval and levy setting be treated as two separate motions:
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Approve the budget to confirm expected operating expenditure.
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Set levy contributions separately, factoring in not just the budget but also actual cash needs, loan repayments, arrears, and the desired levy trajectory.
A two-step process allows for a broader financial assessment, one that considers both the Income & Expenditure side but and also needs that may exist on the balance sheet. It enables more accurate and sustainable decision-making.
Strata managers are well placed to support this process and guide the conversation, ensuring councils have the full financial context when planning for the year ahead.
Quick Takes
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Budgeted expenses don’t always reflect true cash needs.
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Low cash reserves, loan repayments and arrears can materially affect cash flow, often justifying levies that differ from budgeted expenditure.
- Owners are often very resistant to sudden increases in levies, even when budgeted expenditure may demand it. Progressive increases over time can help mitigate this.
- Separate motions give flexibility and support better planning