Resolving the problems
The argument for 1%
A consequence of a strong national economy is a growth in demand for government services at all levels and demand for local government services has increased accordingly. As such, local government funding must increase in line with the growth in the economy. This revenue growth can only be achieved through the transfer to local government of a fair share of Commonwealth taxation revenue. ALGA contends that the fair share quantum should increase from its current Financial Assistant Grants (FAGs) level of 0.80 per cent to 1 per cent of total Commonwealth taxation revenue (excluding GST).
By linking Australian Government revenue transfers to local government to a fixed percentage of Commonwealth taxation, councils will gain access to a revenue stream that grows in line with growth in the economy. This approach would provide local government with financial certainty matching that of the other two spheres of government and enures local government financial resources keep pace with demand for the service delivery and infrastructure provision.
Adopting such a system would increase payments to local government from $1.61 billion to $2.01 billion in 2005-06. In light of solid growth in Australian revenue and substantial budget surpluses, ALGA considers the annual transfer of 1% of total Commonwealth taxation revenue to local government to be both justifiable and affordable.
Such reform would better meet the specific objectives of the Financial Assistance Act by:
- improving the delivery of services to local communities
- maintaining and improving the quality of social and physical infrastructure across Australia
- helping to counter growing regional inequality
A prompt move from the current FAGs system to a 1% share of Commonwealth taxation revenue would best serve the needs of the community. An alternative, but less effective approach would involve phasing this reform in three stages. These would be:
- amending the FAGs escalation
- changing the appropriation of FAGs to ensure local government receives an amount equivalent to the 1% of Commonwealth total taxation revenue
- moving away from a grants program and linking financial assistance to a fixed share of total Commonwealth funding
