The organisers of the Chillout gay and lesbian festival have applied to council to fly the rainbow flag from Daylesford Town Hall in 2004, 2005 and 2006, but each time they have been refused.

Flags have flown there for five major local festivals: the Swiss Italian Festa; the Fabulous Flower Festa; Words in Winter; the Daylesford Foto Biennale; but never for Chillout.

On the council’s own estimates, Chillout generates $6m annually for the region -“ more than all the other festivals put together.

Hepburn Shire mayor, Councillor Heather Mutimer, defending the decision, said as far as she was aware only the Swiss Italian Festa had been allowed to fly flags at the Town Hall.

As these were official national flags [of Switzerland and Italy] the council considered it acceptable, she said, especially as the Swiss consul general and other Swiss and Italian dignitaries attend the Festa.

Chillout president Renee Ludekens said the mayor’s recollection was incorrect.

Those flags have been flown whether or not a dignitary was visiting, and other festival flags have been displayed, Ludekens said.

The issue came to a head when councillors voted in May for a new policy, banning all festival flags at the town hall, against the advice of their own staff. Instead they’ll erect a new pole for festivals and event flags at the tourist information centre.

That decision prompted the five major festivals to join Chillout in a campaign to reverse the policy, marching on the Town Hall with their flags last month.

Melbourne Star asked the mayor why Hepburn Shire did not follow the example of the City of Port Phillip, which flies the rainbow flag from its three town halls during Pride, but she had no response.

She said that during the Chillout 2006, councillors had allowed rainbow lights to be shone across the Town Hall, and allowed the Chillout banner to be displayed across the Town Hall’s fence. They also named Chillout Festival of the Year on Australia Day.

Council has demonstrated it is not ashamed to be associated with the gay and lesbian community, she said.

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