"Rates and Taxes: A Fair Share for Responsible Local Government"
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Local Government across Australia has large, complex and expanding roles, is limited to one tax (Council rates), has been short-changed by other governments and suffers from unfair distribution of untied Commonwealth Financial Assistance. These are the essential findings of a major Federal Parliamentary report into Local Government responsibilities and funding. Concern about the growing size of Council responsibilities, cost shifting by State (and Federal) Governments, limited resources and the impact of the distribution of Federal financial assistance to Local Government led the Federal Parliament to establish an inquiry in 2001. The Inquiry Committee, charied by Mr David Hawker MP delivered a unanimous report in late 2003. The inquiry received 406 submissions and a further 128 responses to its discussion paper. It held 18 public hearings across Australia. The Commonwealth has formally responded to the inquiry report and its response and a joint media release can be downloaded here. More can be found on the ALGA's website and on the National Office of Local Government website. The key elements of the Commonwealth's response for SA are:
The Full Inquiry Report, its terms of reference, membership and all submissions made can be found on the Commonwealth Parliamentary website. The LGA's response to the report can be downloaded here and a larger discussion paper which provides a more extensive summary of the report (the recommendations of which were varied slightly as recorded in the final response above) can also be downloaded here. The Australian Local Government Association also has a resource centre on the report here. The LGA's original submission to the Inquiry made in 2002 can be downloaded here. A research report prepared for the LGA by the SA Centre for Economic Studies on financing Local Government in the future is also available here. |
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Findings of the Inquiry
The inquiry strongly supported the thrust of Local Government submissions to it. The following is extracted from the media release issued by the chairman David Hawker at the report's release:
"The unanimous report of the inquiry into cost-shifting onto local government, released today, finds local government has been short-changed, particularly by the actions of state governments, with more functions expected of local government but no or insufficient funds provided to undertake them."
There has been a tendency to overlook the report's findings and to focus on its recommendations. The findings present a very important reference point at the national level in relation to the development of Local Government. Their impact will depend on the degree to which the report's recommendations are acted on, but nonetheless provide many opportunities for Councils to quote them on appropriate occasions.
Key findings of the report are paraphrased below:
1) Local Government Roles & Performance
Local Government makes an important contribution and its roles and responsibilities are significant and have grown over the past 25 years.
"2.29 As demonstrated, local governments' roles are large, complex and expanding." (P. 12)
"2.65 Local government has proved it has the capacity to respond to problems and provide solutions and the maturity and experience to deliver services. DOTARS (Commonwealth Department of Transport and Regional Services) has recognised that in many cases local government can be the best partner to the Federal government for the coordination and delivery of federal programs." (P. 20)
"2.66 The Committee recognises how successful local government has been on the delivery of services, such as employment, health, environment, roads and aged and community care, on behalf of the Federal and State governments." (P. 20).
2) Local Government Revenue
In relation to the funding of Local Government rates have grown slowly, slightly ahead of consumer costs (CPI), Commonwealth funding to Councils has grown while State Government funding to Councils has not;
"3.52 The Commonwealth Grants Commission (CGC) reported that the level of State Specific Purpose Payments (SPPs) has increased over time, but has fallen as a proportion of local government revenue. Indeed, State SPPs have fallen as a proportion of local government revenue from about 15% in 1974-75 to about 7% in 1997-98." (P. 38)
"3.54 Since the introduction of the Act in 1974-75, local government revenue from all sources has grown on average by 3.6 per cent per annum in real terms. The fastest growing revenue source was user charges (6.4 per cent per annum in real terms). Other local government revenue (4.5 per cent), Commonwealth assistance (4.3 per cent) and municipal rates (3.0 per cent) grew at about the average rate. The slowest growing revenue source was State assistance (0.4 per cent)." (P. 38)
3) Road Funding
The Committee found very clearly that "identified local road grants" distributed with Financial Assistance Grants are distributed unfairly with SA being particularly disadvantaged. The committee's proposal to distribute funds nationally would effectively remove the interstate division of both general purpose FAGs and identified local road grants hence ensuring that State borders no longer produce significant distortions in equity around Australia. Notwithstanding the inquiry's terms of reference restricting the committee to an approach which was "budget neutral to the Commonwealth" the Committee recommended that the successful Roads to Recovery program be continued.
"4.34 SA receives less per head than other States of these grants and a lower per capita and per road length amount than any other State or the NT. The LGASA claimed that the distribution of identified local road grants on a road length or population basis would provide an additional $24.7 million or $9.4 million per annum respectively for South Australian councils." (P. 63)
"4.35 In comparing the difference in identified local roads funding between two similar councils - Grant District in South Australia and Glenelg Shire in Victoria - a large discrepancy in funding is demonstrated. If Grant District Council received the same roads grant per kilometre as Glenelg Shire ($703.94), it would have been better off by $898,012 during 2001-02." (P. 63)
"4.38 The Committee recognises the disadvantages to South Australian councils under the Local Roads component of FAGs and agrees that the historical formula of the Local Roads component lacks transparency." (P. 64)
"4.49 The Committee is required under the Inquiry's terms of reference to recommend budget neutral outcomes to the Federal government. However, the Committee considers the continuation of the R2R (Roads to Recovery) program funding to be worthwhile because:
* it is designed and tied specifically to the improvement of road infrastructure;
* it is directly paid to local government;
* local government supports its distribution methodology; and
* it further strengthens a partnership between the Federal and local governments." (P. 66)
"4.50 The Committee considers that, if R2R funding is to be continued, there must be an assurance from each State government that road funding will be maintained at least at pre-R2R levels. If not, the Commonwealth could consider cutting R2R funding by the same amount obliging the State government to reconsider its road funding. This would help to reduce cost shifting by the States on roads". (P. 66)
4) Infrastructure Funding
The growth in Local Government's roles and responsibilities without matching growth in revenue has been funded at the expense of infrastructure renewal and maintenance - infrastructure maintenance and renewal is a major challenge for Councils;
"4.8 Hearings and submissions have revealed that infrastructure has been allowed to run down because local government has had to replace the funds withdrawn by the States, often with little or no notice, on social, health, recreational and cultural programs." (P. 58)
"4.12 Local government's capacity to fund infrastructure is constrained by its general revenue raising capacity. As the Committee identified in Chapters 2 and 3, a number of factors have contributed to downgrading the maintenance of local infrastructure, including:
* pressure to broaden the range of local government services;
* unfunded mandates from State and Federal governments; and
* revenue raising restrictions imposed by State governments." (P. 59)
5) Cost Shifting
Both Commonwealth and State governments have shifted costs onto Councils but the States have practiced more extensive cost shifting;
"The unanimous report of the inquiry into cost-shifting onto local government, released today, finds local government has been short-changed, particularly by the actions of state governments, with more functions expected of local government but no or insufficient funds provided to undertake them." Media Release by Inquiry Chairman David Hawker MP (24/11/03)
"4.2 It is clear from Chapter 3 that cost shifting by State governments has been a major cause of the increasing financial concerns of local government and neglect of asset maintenance. Also, State-imposed restrictions on council revenue are burdening local councils particularly in the case of the huge distortions created by rate capping in NSW. This situation is not new and has been building for many years under successive governments." (P. 57)
"4.3 In many instances the cost of a service is shifted from a State government onto local government without any corresponding transfer of income to provide the service." (P. 57)
The report also notes that while substantial cost shifting has occurred, there were circumstances in which Councils may have taken on additional tasks as a result of community demand, when it may have been more prudent to say "no". [P. 10, 11 & 15]
6) Inter-Government Relations
Duplication and inefficiency between governments would be reduced if Local Government was involved more effectively in national forums and agreements.
"2.46 If local government were involved earlier in the process of determining service delivery, this could reduce areas of unnecessary overlap or duplication between the spheres of government. Further, the reduction of duplication in advice and service delivery between the spheres of government would improve overall cost effectiveness of government services and achieve significant savings (see Chapter 7)." (P. 16)
"2.51 Significant progress has been made in several states in terms of negotiating state-local government protocols covering areas of shared responsibility and, more recently, through partnership agreements. Partnership agreements are in place or under negotiation in Tasmania, SA, WA and Queensland." (P. 17)
"2.59 The Committee considers that one of the keys to reform is intergovernmental partnerships. Partnerships help to ensure that government services are effectively and efficiently delivered at the local level. They are an important step towards improving the relationship between local government and other spheres of the government in the future." (P. 18)
"2.61 It is time for partnerships also to include the Federal government where appropriate and Federal-local government relations functions should act as a conduit to link common areas of interest between the levels of government." (P. 19)
These findings draw a picture of Local Government making an invaluable contribution to the nation. Its contribution has grown over the past 25 years and continues to grow. What it also shows however is that other governments are enthusiastically passing on new functions to Local Government but without the revenue to do the job and/or are withdrawing the revenue over time. The Committee argues that the time has come to take stock of these issues and to make conscious decisions in the national interest about how we want to see Local Government in the future Australia.
