Kate Forbes, who was speaking to MSPs in Holyrood on Tuesday morning, said the decision was in the hands of local authorities despite what councils have labelled a real-terms cut to their budgets.
Council tax rates have either been frozen or capped at a 3 per cent rise since the SNP came to power in 2007, with the finance secretary stating council tax bills are lower in Scotland than in England on average.
Local authority representatives said there was little appetite for any council tax rate rise above inflation, or around 3 per cent, and accused the Government of “passing the buck”.
Ms Forbes said: "Local authorities have long asked for flexible and discretionary tax setting powers, so for me to now say that this is what I expect of them I think would run the risk of undermining that position.
"Like I have to make tax decisions that reflect the particular challenges facing households, that reflect a particular budget need, I would expect local authorities to do likewise, taking into account some of the burdens on households right now, but also the need to fund local services.”
Ms Forbes was asked whether a 3 per cent rise was her expectation. The finance secretary said a 3 per cent rise would result in around £90m on average raised, adding this was the basis for additional funding for councils last year when council tax was frozen.
The comments from Ms Forbes came after council representatives said the budget for 2022/23 posed serious challenges for local authorities and threatened core services.
Councils also poured water over the suggestion there would be significant increases to council tax this spring, with Cosla’s resources spokesperson saying there was no appetite “to hit households”.
Gail Macgregor said it was likely most councils would decide to raise council tax in line with inflation, equating to around a 3 per cent rise.
She said council leaders were “angry” the Scottish Government had decided to “pass the buck” to local authorities when it came to funding.
The councillor said the decision to scrap the council tax freeze, cut the real terms budget for local government, and fail to raise income tax meant the difficult decisions on financing struggling services had been placed on local councils.
Ms Macgregor said all council leaders across Scotland were “deeply disappointed” by the budget settlement, with Cosla officials telling MSPs councils are in a “very precarious position”.
Earlier in the evidence session to Holyrood’s local government committee, MSPs were told that it was “highly unlikely” the Budget would reduce inequality, despite Scottish Government promises.
Johanna Baxter, head of local government at the union UNISON, said council workers felt like “political footballs” as Cosla and the Government argue over funding.
She said there was a “huge amount of anger and frustration” around pay and recognition of worker’s contribution to the pandemic, adding the union opposed council employees paying for their own pay rise through a rise in council tax.