This archived article was published on 30 August 2004
Australian local government
sorely needs more resources
By Nick Swift

Australian local government is undergoing rapid change accompanied by significant problems. Only 30 years ago, local government councils were dominated by motifs originating in the nineteenth century: “rates, roads and rubbish” were the main concerns. In the past 20 years, however, while by no means shedding responsibility for those fundamental tasks, it has had to shift its focus to “a range of new and emerging human services. Local government will have a baby capsule ready the day you’re born – and burial plot ready the day you die. And it will provide around a hundred different services to keep you happy in between”.

In his address to the National Infrastructure Summit held in Melbourne on 16 August 2004, Councillor Mike Montgomery, President of the Australian Local Government Association (ALGA), compellingly presented the case for increased investment in local government as part of, but not the whole, answer to meeting the challenge of deteriorating infrastructure and increasing demands.

Even as the demands made on local government in Australia, which, he said, “in many communities... is the last man standing”, increase, “local government in this country continues to be under-funded, under-valued and under-resourced”. The already widely accepted view that a whole-government approach, with federal, state and local levels contributing, is necessary, is, Mr. Montgomery said, the right one, but will still not succeed without increasing overall infrastructure investment.

The new services, from management of health problems to accessible transport, inevitably take away money from the older issues. The Federal Government, and especially state governments, have also shifted many costs to local government: the former, for instance, transferred responsibility for many regional airports in the early 1990s. At the same time, local government has had to step in to provide services where the other levels of government have withdrawn them. “That’s why,” Mr. Montgomery said, “we are seeing more and more councils buying doctors’ surgeries and accommodation – even entire hospitals – in a bid to keep medical services available to people in rural communities.”

A great deal of the roads, bridges and related assets that are the largest single component of local government infrastructure were built in the 1950s and 60s with state and federal assistance. Taking the example of roads, Mr. Montgomery explained that nearly 85 per cent of Australian roads are the responsibility of local governments, and most of them are unsealed and require frequent maintenance. “Councils on the fringe of major cities face particular difficulties. The rapid expansion of suburbia into the rural fringe has increased demand for public infrastructure... It’s a Catch 22 for councils... We have to meet the demands of twenty-first century communities with a nineteenth century funding base.”

An increase in local government expenditure is sorely needed, which means a need for increased revenue, which has three principal sources: rates income, which, as local government’s sole means of taxation, accounts for about 40 per cent of council revenue, yet is “no growth tax”; sale of goods and services, which constitutes about a third of council revenue, and on which some states impose constraints; and federal and state government grants, accounting for about 12 per cent of revenues (increasing for more rural and remote councils with smaller rate bases). Australian local government has the lowest level of intergovernmental grants of any country in the OECD. “We are in desperate need of reform to federal/local government financial relations. We need to... get local government finances back on track with a fair allocation of national taxation revenues.”

Such a situation prevailed in the late 1970s in Australia, “when the then Coalition Government shared personal income tax revenue between the three spheres of government”. In the mid-1980s financial assistance grants tied to inflation and population increases replaced that system, but state governments have reverted to the old arrangement, obtaining a share of the GST. The Fair Share report tabled in the Federal Parliament in 2003 presented the case for local government getting the same, and a response is due soon. Mr. Montgomery urged the major parties to “treat the cause of the problem”, and gave five examples of ways of doing so: “targeted assistance through programs like the highly effective Roads to Recovery initiative; enhanced private sector involvement and investment; adopting a whole-of-government approach to infrastructure funding; access further borrowings; engage in effective asset management and financial performance”.

Local government in Australia is “profoundly grateful to the Commonwealth” (the Federal Government) for the Roads to Recovery programme, which has been “an outstanding example” of cooperation between the two levels. In 2001 the Federal Government began a four-year process of sharing $1.2 billion for local road maintenance and renewal, paying it directly to councils, who determine priorities, thus minimizing red tape. While the commitment was repeated in 2004 for another four years, it comes with the proviso that a third of the amount will be pooled for the funding of road projects by regional local governments, causing some consternation at the local level over whether the regional or state levels will make nominal allocations. ALGA “is optimistic that the Federal Government will address this concern in the near future”, and sees a case for a similar programme about non-road infrastructure.

While local government has long participated in outsourcing arrangements, it has yet to embrace Public Private Partnerships (PPPs) substantially. The problem, said Mr. Montgomery, is inadequate understanding between local governments and financing institutions: the latter lack insight into the workings of the former, particularly the need to engage a whole council instead of the governing group it expects. Councils, conversely, need to acquire specific skills “to ensure they get the best possible arrangements from their private sector partners”.

There is already little or no opposition to the idea that infrastructure, especially public infrastructure, should be seen as a collective responsibility of all three spheres of government, and thus jointly funded. The Labor Party proposed a National Infrastructure Advisory Council some time ago. The difficulty is in implementing the unprecedented level of cooperation it will involve.

The obvious flaw in the suggestion that local governments should simply borrow more is that without increased revenue generating capacity, it would intensify already severe pressures on local budgets.

Attention greater in degree and sophistication is being given to asset management by local governments, and the ALGA has commissioned work to lead to a road asset database that will “provide a basis for better decision-making on national local roads policy and infrastructure management programs”, with a second stage to develop a business case for a national approach to local roads data collection with a view to complementing existing local government asset management initiatives.

“Spending on infrastructure,” concluded Mr. Montgomery, “must be seen as an investment in communities, and investment in appropriate infrastructure builds upon a community’s productive capacity... Local government may not always offer the sexy infrastructure opportunity of an Olympic Games or an Alice to Darwin railway. But it plays an important part in oiling the working wheels of the nation, day in and day out.”