Independent study into council sustainability
ALGA address to the Local Government Association of New South Wales
Cr Paul Bell AM
ALGA President
24 October 2005, Mudgee, NSW
- Mayor Genia McCaffery
- Cr Col Sullivan
- Members of the LGA Executive
- Distinguished guests
- Delegates
First of all, let me congratulate the New South Wales Local Government and Shires Associations on commissioning your independent study into council sustainability. Your inquiry will provide a comprehensive, independent assessment of the financial position of local government in NSW - a state that carries one third of the Australian population. This is a bold move - make no mistake about that. But it is also an important move. It will - without doubt - highlight the mounting fiscal pressure facing local government. By documenting these pressures, it will add to the growing body of knowledge that is calling for real and lasting change - change that will give us the funding certainty and security we crave and our communities deserve.
Your move follows hot on the heels of the independent inquiry commissioned by the South Australian Local Government Association. That inquiry found that councils are struggling to meet infrastructure renewal and replacement costs and are putting the needs of communities ahead of their own financial sustainability. The South Australian study has also provided us with more ammunition at the federal level.
Both studies will augment and inform work underway in other state associations around the country. It will also complement a national study that ALGA will shortly commission. This study will examine the pressure facing local government across the country and make recommendations to address these issues on a national basis. The terms of reference for this study will be consider by the ALGA Board at its next meeting on 6 November.
One important recommendation - however - concerns data. Our first exercise must be to assess the data and information that is available. One of the problems we have faced for some time is the lack of nationally consistent data. We have - of course - been pressing our case with the Australian Government for a number of years. Our case has relied on the data available at the time - much of which is either anecdotal in nature or based on sample studies.
The South Australian study demonstrated that there was - for example - a wide diversity of treatment of important accounting, such as depreciation. It's important that we get our hands on high quality, nationally consistent data that will underpin a comprehensive and water-tight case to the Commonwealth. Once we have overcome this hurdle, we can proceed with the full consultancy and come up with a comprehensive package. Thus package will be put before the major parties well before the next federal election, due late in 2007.
Now, there may be some who say the last thing we need is another review. We know what the problems are - we know what the solutions must entail. But the review process - apart from providing us with high quality, consistent data - will also help on another front. If we are to succeed in getting a better deal for local government - we must have the public on side. The public needs 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.
I'd like to turn shortly to the development of the intergovernmental agreement of cost shifting - the IGA. But before doing so, I'd like to put the IGA in context. ALGA's has four clear goals.
- 1. Fair Federal Funding
- First and foremost, local government in Australia seeks access to fair federal funding. In particular, we have been calling for a fair share of national taxation revenue. We have been seeking to replace the archaic system of financial assistance grants with a share of at least 1% of national tax revenue. That would give local government an immediate $400m increase in funding. In the longer term, it would give us access to a revenue source that grows as the economy grows. This specific ask may change, however, as the results of our studies emerge.
- 2. Fair treatment - cost shifting
- Second, we seek fair treatment of local government. In particular, we want to put and an end to cost shifting. We need 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 $500 million and $1.1 billion 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 $1.35 billion 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
- information and communication technology.
- 4. Formal recognition
- And fourth, we seek formal recognition. Most importantly, we need recognition in the Australian Constitution to afford local government with some level of protection from arbitrary interference. While this is clearly a longer-term goal, it would without doubt help secure our place as equal and valued partner within the Australian federation - not a toy of the states.
So, 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 - at long last - 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, committed his government to a limited, but significant, range of activities. There are four key components.
- It will press ahead with an intergovernmental agreement on cost shifting
- It will commission a Productivity Commission study on barriers to local government revenue
- It will move a motion to formally recognise the role of local government in both Houses of Federal Parliament
- 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 to the development of a draft IGA.
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 principles that guide decision-making
- ensures the deals made with local government are adequately funded, and most importantly
- 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. What's the next step?
ALGA and state associations have set up a strategic policy group which is working up a draft text. This group will next meet again on 31 October to complete the draft. This draft will then go to the ALGA Board meeting next month for consideration. Once the Board has settled on a form of words, the hard work begins in earnest as we meet with officials from the state, territory and federal governments to progress negotiations. This meeting is scheduled for mid-November.
Our basic position is clear. 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. I 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 six fronts.
- We face rapidly escalating 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 levels to fund council services;
- Cost shifting by state and federal governments has become widespread and commonplace;
- Demographic change and an ageing population are imposing additional burdens on councils across the country;
- 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. As Peter Woods was fond of saying - it's our money, give it back!
The simple fact is this - financial assistance grants have failed to match the increasing 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 that 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. And while the federal coffers are full, the states aren't doing too bad either. In the last financial year, they have reaped a $2bn windfall from the GST alone. In other words, they've got $2bn more than they would have received under the old system of - yes, you guessed it - financial assistance grants.
Your independent study and ALGA's national work come at a good time. 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 also 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. We 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.
We will use the coming National General Assembly as a rallying point to press ahead on all three fronts. In summary, its full steam ahead. Good luck with your conference - I hope to see you again very soon in Canberra for the GA.
Thank you
Cr Paul Bell AM
ALGA President
24 October 2005, Mudgee, NSW
