This is a critical year when local communities are experiencing the negative impacts of significant budget constraint imposed by all levels of government. Nevertheless it is a time when investment in services and infrastructure is of utmost importance to the resilience of local communities. For this reason the ASU is highlighting the issue of local government finances and the importance of allowing individual councils to plan for their local community’s needs.
Councils need revenue to meet growing community expectations
Under state and territory laws in recent times, local government has been increasingly required to do more in areas as diverse as:
- environmental management,
- public health,
- emergency services and
- local regulations.
This can be a source of concern for councils if additional responsibilities are not matched by the addition of adequate funding. When this happens, it is often referred to as a form of cost-shifting because the council is left with the burden of paying for the cost of the additional responsibility shifted from another level of government.
Rate capping is another area of contention, when state governments impose restrictions on the amount of rates that councils may charge for services.
Rate capping and cost shifting can have dramatic impacts on the financial viability of councils and subsequently the type of services that they are able to provide to communities.
Councils must spend more because state & federal governments won’t
For more than 40 years, federal governments have given funding to local councils to ensure our communities can continue to provide vital services, such as those listed above.
This has at times been via direct project funding, which has helped build and restore services. We saw this during the Global Financial Crisis with injection of funds into communities, supporting local employment and local spending. This, in turn, built more jobs and services in our communities, like local store purchases, schools, hospitals, ambulances and much more.
Growing costs to councils exceed CPI
It must also be acknowledged that the Consumer Price Index (CPI) does not measure council cost pressures. CPI tracks changes in prices for a basket of consumer goods and services commonly purchased by households. Some of these items are food, alcohol and tobacco, clothing, health, education, and insurance, among other items.
None of these items are factors in local government expense. Most councils spend their revenue on things like (among a plethora of other cost factors):
- staff wages;
- contract costs;
- construction material costs; and
- plant and equipment costs.
It is notable that none of these key costs is tracked in CPI measurements made by the ABS. Therefore to compare local government cost increases with movements in CPI is to draw false comparisons.
There is also a need to realise that local government faces increased demands from the community as standards of living grow and the population grows and ages.
Federal government financial support is now, more than ever, critical to local government sustainability.
Local Councils = Local Jobs
When federal governments search for answers on creating jobs, local government delivers. In regional areas the local council is often the largest employer - this enables the council to provide much needed career opportunities to young people in their community.
Councils are more accountable to their communities than the other two levels of government and, if ratepayers are dissatisfied with councils’ spending decisions, they can and do make representations to councils. Ultimately, the local community directly votes councillors out who fail to meet the community’s requirements.
Local government is consequently often referred to as the level of government that is “closest to the people”.
Communities have now come to expect an even broader range of services from local government than had been provided in past decades. It has also been noted that services and responsibilities have expanded in response to shifts in public policy from other levels of government.
It is important to remember that local governments play a significant role in response to sudden or unexpected events such as natural disasters. Councils work in mitigation of natural disasters and responding to the devastation which follows events such as floods, cyclones and fires.
The view of local government as being confined to roads, rates and rubbish is long gone, in both practice and in terms of what communities expect. Australians want their local government to be responsible for a diversity of activities in their own local community, with planning for the future being among the most important.
Studies have also shown that the level of trust that communities have in their local council is comparatively high. For example, a Griffith University study found that 60% of Australians have trust and confidence in local government’s ability to carry out its responsibilities and that this is higher than that for federal and state governments (1).
Where rates fit in the picture
Rates are a major source of funding for many councils. They are the sole form of local government generated tax revenue and are considered to be an efficient form of generating funds (2).
The ability of councils to raise sufficient revenue from rates can, however, be suppressed by state governments who impose rate capping policies. It is a process which places limits on the total amount that a council may charge its rate payers (3).
Issues of concern arising from rate capping can include the following:
- the detrimental impact the practice has on local government finance;
- the effect it has on limiting the ability of councils to take responsibility for their own economic affairs;
- the impediments it creates for effective long-term planning, particularly in relation to infrastructure investment; and
- the fact it diminishes local autonomy – as a result of the restrictions imposed at the state level on the local level (4).
Local governments initiate consultations with community members about the need to increase rates in order to improve services and ageing infrastructure. However, a rate capping regime imposed by a state government (such as in NSW) will inhibit municipal authorities from being able to adequately meet goals for infrastructure repair and development, for example. It is estimated that NSW local government has a $7.6 billion infrastructure backlog after decades of rate capping.
The ASU argues that councils need to be responsive and accountable to their communities. The matter of rates flows out of this fundamental responsibility. If individual communities demand particular levels of service delivery that require collecting higher rates, it is their democratic right to expect this from their local council. If the community feels that their council finances have been mismanaged, raised unduly or, in fact, not raised enough to meet demand, they will make their elected representatives accountable, up to and including loss of elected council office, if they choose.
Rate capping is therefore an inappropriate infringement on local council democracy and governance and should not be supported, especially by a level of government that cannot be adequately held responsible by the communities adversely affected by their policy.
- Griffith University (2014), Australian Constitutional Values Survey 2014, Centre for Governance and Public Policy, Griffith University as cited in LGPA Op. Cit.
- Australian Government, Re:Think; Tax Discussion Paper, Commonwealth of Australia, March 2015, p 149, available http://bettertax.gov.au/publications/discussion-paper/
- By way of example, for discussion of rate capping in NSW see B. Dollery and A. Wijeweera, ‘An assessment of rate-pegging in New South Wales local government’, Commonwealth Journal of Local Governance, UTS ePress, issue 6 July, 2010, viewed 14 July 2015.
- See Australian Local Government Association (ALGA), Submission to the Taxation Issues Paper, available online from www.alga.asn.au.