Reports from Australia indicate the local government sector has reached a crossroads, where federal and state funding no longer covers the extra services and responsibilities being lumped on councils over past decades, with growing financial burdens.
Australia’s 537 councils employ around 213,500 people, or about 12 per cent of the country’s public sector. Around 5500 elected councillors are responsible for A$643 billion in public assets and infrastructure, or a third of Australia’s total.
In the 2023-24 year, the local government sector spent A$48 billion, up almost 10 per cent on the previous year. About $3.5 billion of this comes from the Australian Federal Government which represents just 0.51% of total tax revenue, and trending down over the past three decades.
Meantime, local government responsibilities in areas such as disaster relief, health and infrastructure have increased; roles that could be performed by other levels of government. For instance, the Australian Local Government Association estimates local governments will spend over A$2 billion in the next five years on severe weather mitigation alone.
Council roles were expanded in the mid-1970s when the Federal Government started offering “general purpose” grants to be used beyond the traditional three R’s (roads, rates and rubbish). This was backed with grants representing 1.5 per cent of Commonwealth taxation revenue in 1976, which increased to two per cent, before being wound back from1986, and declining since.
Dependent on geography
Financial challenges among Aussie councils are not evenly spread when it comes to coping with the cost of natural disasters. Councils north of the Tropic of Capricorn are more exposed to cyclones; those in the Murray-Darling Basin are more exposed to riverine floods; South Australia has historically been a drought-prone state; and Victoria and NSW are always at risk of massive fires.
The country is also huge, and councils closer to major cities are advantaged over the 55 per cent of councils located in remote areas, which face greater financial and service delivery challenges. For instance, the Shire of East Pilbara Council covers 372,000 square kilometres, which is bigger than Germany, and has an annual budget of less than $100 million. The Brisbane City Council manages a population of 1.5 million and a budget of over A$4.1 billion.
Local government funding
One of the problems is the way Federal funding is allocated, with a lot of it on 50-50 basis, where a council might have to put in half of the funding for a grant to be successful. This means smaller regional and remote councils just don’t have the money to match what’s required or can’t afford to have a grant writer to prepare the paperwork.
Wealthier councils with affluent populations have an obvious advantage and the ALGA has been lobbying for this to change for more than two decades. A preferred suggested model is the A$1 billion Roads to Recovery programme, which broadly allocates funding on a needs basis. This would see allocated formula-based funding based on the likes of road length and population size.
ALGA wants annual Australian Federal Government grants to be raised to at least one per cent of tax revenue, about double what it is now. It also proposes a funding model that is formula-based, like Roads to Recovery, and split between: A$1.1 billion per year for enabling infrastructure to unlock housing supply; A$500 million per year for community infrastructure; A$600 million per year for safer local roads; A$900 million per year for increased local government emergency management capability and capacity; and A$400 million per year for weather adaptation.
State Governments have ultimate power
Local governments are established and operated under Australian State regulations, and the separate states have power over the structure and functions of councils. But, in practice, some states control their councils more tightly than others, with Victoria and NSW capping council rate increases each year and providing few practical mechanisms for other means of revenue raising. Victorian councils were limited to a 3.5 per cent rate increase this year, which was well below projected average expenditure increases.
In the state of NSW, forced council amalgamations were the answer to those councils who said they couldn’t pay for basic infrastructure. In 2016, 44 local governments in NSW were amalgamated into 19 new councils which came as a shock to most councils who had considered themselves a separate democratic entity, rather than an administrative extension of the NSW State Government.