Australian Local Government Association

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Federal Budget submission 2002-2003

15 February 2002

Contents

• Letter to the Treasurer
• Who is ALGA?
• What is ALGA seeking?
• The role of local government in Australia
• Federal relations
• General Purpose Payments (GPPs)
• Road funding
• Better environments
• Learning Communities
• Regional aviation services
• Integrated transport solutions
• Indicative costings for ALGA's Budget proposals
• Local government finance at a glance
• Local government in Australia

Letter to the Treasurer

Dear Treasurer

ALGA 2002-2003 Federal Budget submission

I am pleased to present you with the Australian Local Government Association's (ALGA) 2002-2003 Federal Budget submission.

The Government's policy statement "Building Stronger local government" recognised that strengthening local government and local communities is a high priority. The Howard Government has committed itself to a future action plan that would see the Commonwealth continue to provide local government with funding to support its function as an essential sphere within Australia's system of government.

As a member of Council of Australian Governments (COAG), I am pleased to commit local government to a 'whole of government' framework that gives effect to genuine co-operative federalism. Major policy themes in which local government's involvement is crucial include, but are not limited too:

• regional co-operation and development
• social capital renewal within urban communities
• transport infrastructure maintenance and development
• planning and development
• public health, aged and community care
• reconciliation
• social justice
• environmental management
• intergovernmental financial relations.

Local government is committed to a co-operative relationship with the Commonwealth based on mutual respect and recognition of the contribution made to the national good by both spheres of government. In this context, ALGA discusses the following key issues in the accompanying Budget submission:

• improving financial relations between the Commonwealth and local government
• collaboration with local government to achieve improved environmental outcomes;
• improving quality of life for regional and rural Australians
• a strategic approach to the development of an integrated national transport system
• the threatened demise of aviation services across regional and rural Australia.

Local government has an important role in the governance of Australia. ALGA looks forward to realising the potential benefits of co-operative federalism as we work together to achieve a learning, innovative, connected and compassionate Australian community, living within a cherished and sustainable environment.

 

Yours sincerely

 

Cr John Ross
President
Australian Local Government Association
15 February 2002

Who is ALGA?

ALGA is constituted as a federation of the peak local government Associations in the six states, the Northern Territory and the Government of the ACT.

Each year, the National General Assembly of Local Government provides local governing bodies with the opportunity to consider national policy directions and convey their views to the national executive.

Through these processes, ALGA is able to speak on national issues for the 698 local governing bodies throughout Australia and the local communities they represent.

ALGA represents local government nationally through its membership COAG and a number of Ministerial Councils.

Internationally, local government seeks to assist and foster the growth and strengthening of local community participation through its membership of the International Union of Local Government Authorities and the Commonwealth Local Government Forum.

Local government also participates in a number of aid projects designed to develop and foster community participation in democratic institutions.

What is ALGA seeking?

Local government calls on the federal government to:

• stabilise the real decline (in terms of Commonwealth taxation revenue growth) in the value of General Purpose Payments (GPPs) via a simple tax sharing agreement which would see GPP's set at 0.6% of total Commonwealth Taxation Revenue including GST but excluding excise on petroleum products.
• maintain the separation of Identified Local Road Funding Grants(ILRGs) from (GPPs) and to hypothecate 20% of the excise on petroleum products towards the funding of roads, 25% of which should fund ILRGs.
• recognise the significant role local government plays in environmental management. ALGA also calls on the Commonwealth to ensure that resources from the Natural Heritage Trust and the National Action Plan for Salinity and Water Quality are made available to local government in order to achieve superior and sustainable environmental outcomes.
• work in collaboration with local government to develop a National Learning Communities program targeted at local governing bodies to actively engaged in learning based initiatives; and require Commonwealth agencies in collaboration with local government to develop initiatives that are consistent with developing learning communities.
• introduce a universal service plan for the provision of aviation services to regional and rural Australia.
• develop an Integrated Transport Policy that is appropriately funded and implemented in a reasonable timeframe.

The role of local government in Australia

Local government has existed since 1840 and anchors the Australian system of government at the community level. It is committed to the overarching principles of local democracy, peace, social and economic justice, and ecologically sustainable development.

Australia currently has 698 local governing bodies representing local communities. local government serves its community as:

• a local representative government, providing a voice for community aspirations and concerns
• a policy maker, setting local agendas and priorities
• an advocate, representing local communities to other spheres of government and various community based agencies
• a regulator, in areas such as construction controls, public health and the environment
• a planner, overseeing the development of local planning frameworks
• a co-ordinator, ensuring integrated, effective and efficient service delivery to the local community
• a service deliverer, providing social and physical infrastructure
• an agent, providing services to the community on behalf of other spheres of government
• an information broker, between suppliers and consumers, across all spheres of government, business, community organisations and local residents.

Employing almost 140,000 people and, spending almost $15 billion annually, the activities of local government are based on general competency powers and are therefore determined by local governing bodies on behalf of local communities.

ALGA welcomes the Coalition's election commitment to actively work with local government in raising debate concerning constitutional recognition of local government.

Federal relations

ALGA is a full member of COAG and represents local government at the national level on relevant Ministerial councils. This framework provides an effective mechanism for a 'whole of government' response to issues of national significance. It forms the basis for greater clarity in the roles and responsibilities across the three spheres of government.

The subsidiarity principle holds that functions of government should be exercised as closely as practicable to the citizens affected. This principle allows flexibility in the choice of services provided to communities. It is a fundamental tenet at the heart of our federation.

However, a federal system requires at least two other elements in order to function at its best. First, accountability between spheres of government must be clear and unambiguous. Second, fiscal equivalence is essential. Therefore, each sphere of government should possess the resources to fund relevant actions across its own domain of responsibility.

The functionality of Australia's federal system is retarded by:

• limited recognition of local government as an integral part of the federation
• vertical fiscal imbalance and inequitable financial arrangements between the spheres of government
• unclear delineation of the roles and responsibilities of the spheres of government
• ineffective mechanisms for cooperation and consultation between governments.

A model of integrated cooperation between spheres of government would assist in achieving the broad objectives of government in Australia by:

• facilitating flexibility as to the roles and functions of each sphere of government
• improving the exchange of information between spheres of government
• adopting flexible administrative and fiscal requirements; and
• improving vertical and horizontal program integration between and across the spheres of government.

ALGA welcomes the Coalition's election commitment to maintain local government's representation, through ALGA, on COAG and relevant Ministerial councils.

General Purpose Payments (GPPs)

Both Commonwealth and state/territory governments (through access to the GST) have tax bases that currently exhibit high levels of real growth. This may be expected to continue into the future. Stable revenue bases, exhibiting real levels of growth, are critical to the efficient and effective operation of any sphere of government.

Financial relations between the Commonwealth and local government are characterised by the significant difference between the revenue-raising and expenditure responsibilities of the two spheres of government. This mismatch of spending and taxing powers is known as vertical fiscal imbalance (VFI).

Local government taxes do not grow at the rate of other taxation regimes available to the Commonwealth, states and territories. This leads to a worsening of VFI between the Commonwealth and local government.

In partial compensation, the Commonwealth (with excess revenue) distributes surplus revenues to other spheres of government (which have deficient revenue sources) in the form of GPPs.

GPPs have been provided by the Commonwealth to local government since 1974-75. Their primary objective is to attenuate VFI and strengthen local government, enabling the provision of a wider range of services while promoting both financial equity between councils and certainty of funding.

The quantum of local government GPPs are indexed annually, via an escalation factor determined by the Treasurer on the basis of changes in the level of inflation and population changes in each state. Thus, GPPs grow at a rate significantly less than that of GDP or Commonwealth taxation revenue. ALGA considers this methodology to be an unfair and discriminatory mechanism of sharing the nation's tax resources.

In the absence of an equitable GPP escalation methodology, a serious VFI gap is emerging. This widening VFI gap is already undermining the financial viability of local government. Financing this gap is problematic for local government, which has few alternatives, none of which are desirable:

• declining unfunded mandates imposed by the Commonwealth and the States (although some of these may be difficult as they are legislated and difficult to neutralize)
• increasing local tax (property rates) collections (a basic shifting of the tax burden from the Commonwealth and states to local government)
• increasing user charges (the level of cost recovery in local government is already quite high particularly when compared with other levels of government and presents limited opportunities); or
• increasing net local government debt.

Setting the level of GPPs to a an appropriate percentage of total Commonwealth Taxation Revenue (incl GST) would stabilize the VFI gap and offset the need for less desirable financing alternatives.

The extra funds provided via such a methodology will enable local governments to:

• improve their capacity to provide standard levels of service to communities across Australia
• improve the delivery of local services
• maintain and improve the quality of social and physical infrastructure
• assist in the repair of environmental degradation across Australia
• improve community cohesion.

ALGA welcomes the Coalition's election commitments to:

• consult with local government on the recommendations of the Commonwealth Grants Commission's review of the Local Government (Financial Assistance) Act 1995 prior to making any changes to the current arrangements.
• undertake a review into cost shifting by state governments on to local government.
• continue to provide funding to local government for the provision of aged care, disability and children's services.

However, ALGA further calls on the Federal Government to stabilize the real decline (in terms of Commonwealth taxation revenue growth) in the value of GPPs via a simple tax sharing agreement which would see GPPs set at 0.6% of total Commonwealth Taxation Revenue including GST but excluding excise on petroleum products.

Road funding

Australia has approximately 811,000 kilometres of roads. local government is responsible for 80% of this national road network. Construction and maintenance of such a vast network requires a reliable source of funding.

Local roads significantly impact on the economy, safety and the environment of local communities. Roads also provide the basis for long-term employment opportunities and income stability in regional areas. Further, the efficiency of the regional road network impacts on the cost of living in Australia and the international competitiveness of locally produced goods, due to the importance of regional road transport to key industries such as primary production, mining and tourism.

ALGA believes road maintenance funding should reflect the real cost of maintaining Australia's road infrastructure. In this regard, petroleum excise was originally conceived as a road user charge intended to underpin the cost of road construction and maintenance.

However, the link between this road user charge and the funding of Australia's road infrastructure has long been severed. The excise on petroleum products has grown over the years to become a substantial source of revenue to the Commonwealth. Indeed, petroleum excise, now wholly channeled into consolidated revenue, accounts for approximately 7.5% of Commonwealth taxation receipts.

In 1997-98, total Commonwealth road funding (including Identified Local Road Grants) amounted to $2.1 billion or 19.0% of the excise collected on fuel in that year. By 2004-05, total road funding (including the Government's recent commitment to renewing the Black Spots program) will be $1.8 billion or 14.1% of the excise collected on petroluem products.

ALGA welcomes the Government's announcement to continue the Black Spots program. The past year has seen a significant improvement in the level of Commonwealth road funding. However, in real terms, total Commonwealth road funding (incl ILRGs) is still well below the level achieved in 1997-98.

A recent comprehensive study, conducted by the local government Association of South Australia (LGASA), found on average that the annual rate of deterioration induced depreciation of the local road network in South Australia is three times greater than growth in the level of expenditure on replacement/rehabilitation. This finding is consistent with a similar previous study of asset management by local governments, commissioned by the Victorian Government.

In financial terms, the maintenance requirements of the current local road network are beyond the capacity of local government. Effectively, local road users - often not local ratepayers - no longer pay for their use (consumption) of road assets. This disconnect between consumer and supplier can be transparently and equitably overcome through improved resource allocation directions for both users and providers of road infrastructure. That is, through an appropriate level of fuel tax hypothecation to fund expenditure on the local road network.

ALGA therefore believes the Commonwealth should at least partly reinstate the hypothecation of petroleum excise to road funding. Such a measure would equitably apply the user-pays principle and ensure increasing road use generates a commensurate increase in road funding.

ALGA welcomes the Coalition's election commitments to:

• continue funding the four-year Roads to Recovery program with a review of the program in conjunction with ALGA before the program is due to end in 2005;
• provide $180 million for the Black Spots program over four years from 2002-03 to 2005-06; and
• address the recent decisions of the High Court in relation to the highway rule and the impact they may have on Local Government.

However, ALGA also calls on the Federal Government to maintain the separation of Identified Local Road Funding Grants from GPPs and to hypothecate 20% of the excise on petroleum products towards the funding of roads, 25% of which should fund ILRGs.

Better environments

Australian local governments spent a total of $2.5 billion on measures to protect the environment in 1999-2000, according to data from the Australian Bureau of Statistics. Approximately 86% of local government spending on the environment is sourced from locally generated rate revenue.

In 2000 - 2001, the Commonwealth and state/territory Governments recognised the need to make a greater investment in Natural Resource Management (NRM) through the $1.4 billion investment in the National Action Plan for Salinity and Water Quality (NAP) and a further $1 billion in the Natural Heritage Trust Extension (NHT 2). ALGA welcomes these initiatives and urges the Commonwealth to ensure that NAP and NHT 2 programs build upon the existing efforts of local governments, as well as enhancing the capacity of local governments to achieve long-term sustainable environmental outcomes.

Local government is in an excellent position to engage in partnerships with the Commonwealth and the state/territory Governments for the implementation of the NAP and NHT 2. In addition to being a major investor in environmental management, local government has a range of powers, functions, capabilities and responsibilities, enabling it to influence natural resource management (on both private and public land), which are vital to the effective delivery of these programs. The Commonwealth and State Governments must recognise local government's responsibilities for strategic planning; development control; enforcement powers; pest, plant and animal risk control measures; management of local open space and advocacy/coordination of local community groups and interests. These are valuable tools that are currently under-utilised in the design and proposed implementation of the NAP and NHT 2.

ALGA welcomes the Coalition's election commitment to support local government's significant role as environmental managers with increased funding and targeted programs available for local government.

ALGA calls on the Federal Government to ensure that resources from the Natural Heritage Trust and the National Action Plan for Salinity and Water Quality are made available to local government in order to achieve superior and sustainable environmental outcomes.

Learning Communities

At the 2001 Regional Cooperation and Economic Development Forum, run in conjunction with the National General Assembly of Local Government, the State of the Regions 2001 report was launched. The themes of this report were employment and learning regions. The report highlighted the widening gap between those regions that share in the benefits of globalisation and the digital revolution, and those that do not. The report argues that regions not participating in the knowledge-based economy risk marginalisation in terms of low paid jobs, economic insecurity and high unemployment.

State of the Regions 2001 demonstrates that globalisation and the knowledge-based economy has accelerated economic growth, but that many of the benefits are concentrated geographically in the few core metropolitan regions of our most globally competitive cities. It concludes that there is an urgent need for a strong national policy framework that enables all regions to attain their economic potential.

To better position Australian regions in the knowledge-based economy, a number of proposals were put forward:

• regional knowledge-based economic strategies
• industry cluster and network policies and programs
• increasing investment in education, research and technological infrastructure
• community economic development
• a strong national framework through which to achieve better coordination between the three spheres of government in support of local and regional knowledge based initiatives
• policies to increase investment in regional infrastructure and industry
• a national Learning Communities Program targeted at local governing bodies which are actively engaged in learning based initiatives; and
• benchmarking - new indicators for understanding where communities are and what they should be doing

ALGA calls on the Federal Government to work in collaboration with local government to develop a National Learning Communities program targeted at local governing bodies to actively engage in learning based initiatives; and require Commonwealth agencies in consultation with Local Government to develop initiatives that are consistent with the development of learning communities.

Regional aviation services

Over 200 airports in Australia are owned and operated by local government. They are the major component of infrastructure required for the provision of aviation services to regional and rural Australia and are often critical for the social and economic development of local and regional communities. Regional aviation services provide medical services and supplies, regular deliveries of mail, educational materials, fresh food, urgent supplies and passenger services.

The collapse of Ansett has led to a reduction of regular aviation services to regional and rural Australia and a direct loss of approximately $10 million in revenue arising from unpaid airport charges to local government. The reduction in aviation services to regional and rural Australia has resulted in:

• increased isolation of communities
• diminished viability of many local government operated aerodromes/airports across Australia which may see the closure of some aviation support facilities.

Local government continues to play a major role in ensuring that regular aviation services are provided to regional and rural communities. ALGA welcomes the removing of en route air traffic control charges. However, this in itself will not be sufficient to sustain regular commercial services.

ALGA seeks the introduction of a universal service plan by the Federal Government, to ensure that regular aviation services are provided to regional communities at a reasonable cost. The universal service plan could operate similarly to the Universal Service Obligation for Telecommunications.

Such a plan would enable aviation providers to tender and compete for provision of services to regional and rural areas. The universal service plan would enable the Federal Government to ensure that all Australians, regardless of where they live and work, have reasonable access to affordable aviation transportation.

ALGA welcomes the Coalition's election commitment to directly reduce the costs of regional airlines by removing the en route air traffic control charges imposed by Airservices Australia

However, ALGA calls on the Federal Government to introduce a universal service plan for the provision of aviation services to regional and rural Australia.

Integrated transport solutions

ALGA supports the Australian Transport Council's commitment to achieve a safe, efficient, reliable integrated national transport system that supports and enhances our nation's social, economic and environmental well being. Achieving such a goal requires a strengthened commitment to the National Transport Planning and Policy Framework through the provision of integrated transport solutions and a reliable source of funding.

Local government believes the Commonwealth should financially support integrated transport solutions that achieve increased integration between freight transport modes, and various modes of public transport.

In the past, government inquiries have traditionally focussed on short term single modal efficiencies, rather than an examination of the efficiency and effectiveness of the whole transport system that would meet long term community needs. It is now time that the Government's attention be focussed on providing the infrastructure needed to satisfy community demand for more sustainable and livable communities.

ALGA calls on the Federal Government to develop an integrated transport policy that is appropriately funded and implemented within a reasonable timeframe.

Indicative costings for ALGA's 2002-2003 Federal Budget proposals

	2002-03 $million	2003-04 $million	2004-05	2005-06 $million
Total impact	437	573	916	1,133
Setting GPP's at 0.6% of Commonwealth taxation receipts *	50	84	113	152
Setting total Commonwealth road funding at 20% of excise on petroleum products **	357	459	773	951
Better environments***	10	10	10	10
Learning Communities	-	-	-	-
Regional aviation services	20	20	20	20
Integrated transport solutions	-	-	-	-

Proposed composition of Financial Assistance Grants to Local Government

Cost to the Commonwealth Budget of ALGA's proposals

Local government finance at a glance

Local government in Australia

State	Population	Rates collected	Local road length	Local governing bodies	No of employees
Australia	19.2 million	$6,002 million	637,197 km	698	139,400
New South Wales	6.5 million	$2,080 million	142,460 km	172	44,600
Northern Territory	0.2 million	$43 million	12,562 km	67	2,700
Queensland	3.6 million	$1,162 million	144,469 km	136	34,700
South Australia	1.5 million	$510 million	74,334 km	69
Tasmania	0.5 million	$150 million	14,079 km	29	3,800
Victoria	4.8 million	$1,427 million	127,727 km	78	32,100
Western Australia	1.9 million	$629 million	121,565 km	142	13,600