Australian Local Government Association

Contact:
Amanda Lynch
Director, Government Relations
ALGA
Phone: 02 6122 9434
amanda.lynch@alga.asn.au

Showcasing Local Government Conference

ALGA address to the Local Government Association of South Australia

Cr Bill Mitchell
ALGA Vice President

7 October 2005, Adelaide

• Mayor John Rich
• Cr John Legoe
• Executive Members
• Distinguished guests
• Delegates

First of all, let me congratulate Cr John Legoe - not only for his contribution as your president over the past two years, but also for his continuing national contribution as an ALGA Board member. Thank you, too to Cr Max Amber, who is stepping down from the ALGA Board after three years. You have been a very valuable member of the Board and - on behalf of ALGA - I thank you for the insightful and strategic contributions you have made to our deliberations. I would also like to extend our congratulations to John Rich - we look forward to working closely with you during this particularly interesting time for local government.

It's a time of challenge - but also - if we play our cards right - opportunity. We have - at the national level - been watching developments in South Australia with great interest. You are, in many ways, at a flashpoint where the financial pressures facing local government is very much in the public eye. And again - I congratulate your President, your association and you, the councils, on the way you have taken up this issue and pressed home your case. You are telling the story as it is. Councils are under increasing pressure. We cannot continue as we are.

In particular, as your independent inquiry found, councils are struggling to meet infrastructure renewal and replacement costs and are putting the needs of communities ahead of their own financial sustainability. Importantly, the South Australian inquiry is - quite possibly - the first independent inquiry to be commissioned by local government itself. This demonstrates strong leadership by local government in this state. The public need to understand the pressures we face. The more they understand - the better our chances are of securing a better deal at both the state and national level. If we are to fulfil our obligations to our communities, we need a better deal. And this requires - above all else - a commitment from our federal and state counterparts to meaningful change.

As state associations examine the pressures at the state level, ALGA is in the process of commissioning a major study of the financial pressures facing local government at the national level - a study we hope to have completed in the first part of next year. The results of your inquiry will be of great value as we work through these critical fiscal issues at the federal level. While the way ahead for local government nationally will not be easy, the ALGA Board has four clear goals.

1. Fair Share

2. Cost shifting

Second, we seek an end to cost shifting and the development of proper agreements to ensure fair deals are the order of the day - agreed additional responsibilities must come with agreed additional resources. Cost shifting - after all - is an exercise in theft. Nothing more, nothing less. It is robbing communities of between $500m and $1.1bn each and every year.

3. Federal partnerships

Third, we seek to grow our relationship with the federal government so that we can work together on agreed national priorities. The Roads to Recovery model - a model that will see the Australian Government invest more than $1.3bn in local roads over the next four years - is now seen as a model for the future. We now want to see new partnerships forged in areas such as natural resource management, infrastructure and information and communication technology.

4. Constitutional recognition

And fourth, we seek recognition in the Australian Constitution for local government to afford us some level of protection from arbitrary interference. This would also help us to become an equal and valued partner within the Australian federation. Our goals are clear. In short, we want fair funding, fair treatment and formal recognition.

So, how are we travelling? There have been a number of significant developments this year.

In June, the Australian Government finally brought down its response to David Hawker's Fair Share report - a report that examined the pressures facing local government and made some significant recommendations for reform. In response, the Federal minister responsible for local government, Jim Lloyd, has committed his government to a limited, but significant, range of activities.

There are four key components.

1. It will press ahead with an intergovernmental agreement on cost shifting;
2. It will commission a Productivity Commission study on barriers to local government revenue;
3. It will move a motion to formally recognise the role of local government in both Houses of Federal Parliament;
4. It will conduct a review of interstate distribution of the identified roads component of financial assistance grants.

In addition, Jim Lloyd has committed the Australian Government to - and I quote - "explore opportunities to further develop partnerships with local government to the benefit of local communities". Of these key responses, the development of the IGA has the potential to make the biggest difference to councils. In August, state and federal local government ministers met with ALGA to consider the IGA.

I have to tell you that the states are not exactly brimming with enthusiasm about the concept. But they have at least given the green light for further work to be done. We now expect a draft agreement to be considered at the next meeting of the Local Government and Planning Minister's Council early next year.

What can we expect from an IGA? There is a danger that we could end up with a document full of fine words but with little meaning on the ground.

We - of course - have other ideas. ALGA is pressing hard for a robust agreement with 'teeth' - that is an agreement that has some measure of redress for local government if cost shifting takes place. Put simply, we want an IGA that will have two primary functions. It needs to have a set of principles guiding how roles and responsibilities should be divided between the spheres of government. And it needs to have an effective mechanism to discourage cost shifting. Most importantly, it must be based on the principle that funding must follow function. More specifically, we want an IGA that:

• secures an agreement that the three spheres of government will work together on who does what;
• establishes some principles that guide decision-making;
• ensures the deals made with local government are adequately funded, and most importantly; and
• provides assurance that the deals we reach actually 'stick'.

The IGA won't dictate or spell out who does what. Rather it will ensure that - when local government takes on new roles or activities - both sides will agree on who will do what within the context of this new responsibility. The coming months will be critical ones for us as the detail is thrashed out around the table. We need an IGA. It needs to be robust. And it needs to put the brakes on cost shifting and secure fair treatment for councils at the hands of our state and federal counterparts.

The forthcoming Productivity Commission study on council revenue also holds some promise. At first blush, you can be forgiven for feeling a bit cynical about this exercise. The Australian Government is responding to a review with another review. Hardly the stuff of determined reform. Nonetheless, this further study will - we believe - again highlight the pressures facing local government and the difficulty we have in raising revenue to meet expanding demand. It is likely to add further impetus for significant reform of federal-local government financial relations. And this brings me to the question of quantum.

You may recall that the cost shifting inquiry was prevented - by way of its terms of reference - from making recommendations that were anything but revenue neutral for the Commonwealth. Despite this, ALGA has continued to press the Australian Government to address the issue of quantum. The President, Cr Bell, met with the Prime Minister in August to discuss a range of issues, including ALGA's case for fair funding arrangements. Our case is clear. Local government is under increasing financial pressure on at least five fronts.

• We face rapidly escalating community demand for human services. In fact, spending on human services has trebled in the past three decades;
• Rates - our only source of taxation revenue - are politically sensitive and have, in general, not been set at realistic and sustainable level to fund council services;
• Cost shifting by state and federal governments has become widespread and commonplace;
• State and federal grants have failed to keep pace with costs and escalating demand;
• And local government infrastructure is rapidly ageing and in dire need of renewal or replacement.

Increasingly, we look to the Federal Government for help. And we are justified in doing so. It is the Commonwealth that is the principal tax collector in this country. And it is the Commonwealth's duty to share these funds to its state and local counterparts to ensure we can meet the service and infrastructure needs of our communities. The simple fact is that financial assistance grants have failed to meet the increasing costs of meeting the demands made on 21st century councils.

As you are well aware, the escalation factor used to calculate these grants is based on CPI and population changes. In other words, there is no real growth built into the formula. Over the past 20 years, the application of this escalation factor has resulted in a decline of FAGs as a percentage of total Commonwealth taxation revenue. The value of FAGs, as a proportion of total Commonwealth taxation revenue, will have fallen from 1.2% in the early 1990s to less than 1% by 1996-97. In two years time, it is projected to fall to less than 0.8%. While Commonwealth revenue grows - the value of our funding falls. And we need to remember that the Commonwealth coffers are bursting at the seams.

The final budget outcome for 2004-05 - revealed a couple of weeks ago - shows a budget surplus of $13.6 billion - a result which exceeds expectations by $4.4 billion. And it's not as if there are any storm clouds on the horizon, either. The IMF - for example - anticipates the economy will continue to perform strongly, forecasting growth of 3.2% in 2006. ALGA is now planning to undertake some further research to underpin our case for change. The timing is good.

The opportunity for change lies in the build up to the next federal election. Both sides will be looking to reshape their policies and ensure they have broad appeal to Australian communities. It is our job to convince both sides that investing in our communities makes sound financial, social and political sense. Further opportunities to access federal funds can be found in growing our partnerships with the Australian Government. We have already made some progress here.

In the May Budget, the Government made good on all of the key election commitments made to us last year. Roads to Recovery will be delivered in full - another $1.35 billion for local roads over the next four years. The Black Spot program has been extended - another $90m.

We have secured access to the $2 billion Australian Water Fund - in fact the first three grants were made to local government water utilities. $15m has been provided to help rural councils that have to step in and buy or build medical facilities to attract or retain doctors in their communities. And there's $33m for an emergency management grant scheme, additional funding for regional programs and a boost to community crime prevention grants as well.

We look to the Australian Government to further engage councils and to assist us with our work through an expansion of special purpose funding programs. e will - for example - shortly lodge a final submission with the Commonwealth that outlines our Better Rural Services plan. This calls for substantial new funds - $275m in totally - to assist regional councils improve service delivery through the use of information and communication technology.

Other opportunities exist in health care, ageing, coastal zone management, the environment and transport. Jim Lloyd has committed the Australian Government to exploring further options for growing partnerships with local government. We need to keep them to their word and make sure they deliver for local government and the communities we serve.

In conclusion, we shouldn't delude ourselves that the Australian Government is going to pull out it cheque book and solve all our problems overnight. It won't. The journey for local government will continue to be long and hard. But we are making progress. In particular, there appears to be a great deal of goodwill on both sides of the House for local government. Our task is to now build on this goodwill and achieve our three primary objectives:

• Secure a meaningful IGA
• Build new partnerships with the Commonwealth
• And - above all - press home our case for fair funding.

Thank you.

Cr Bill Mitchell
ALGA Vice President
7 October 2005, Adelaide