Australian Local Government Association

The financial challenges and sustainability of local governments in Australia, highlight the critical need for adequate funding and structural reforms to ensure the delivery of essential services and economic benefits to communities nationwide.

SGS Economics and Planning analysed the instances and implications of local government finances at risk. This research supported ALGA's submission to the Inquiry into Local Government Sustainability.

Our research highlights that:

Councils are good with money. Local governments’ growth in per capita expenditure lags that of other tiers of government. It also lagged inflation over the last decade, representing a cut in real terms. The majority of councils met debt servicing targets in 2021-22.

Many councils struggle to deliver essential services with inadequate funding. In 2021-22, more than half of all Australian councils are not raising enough own-source revenue to meet operating costs. Over a quarter of councils performed poorly on conventional financial indicators (operating surplus ratio, debt surplus ratio, asset renewal ratio).

Financial pressures are impacting both rural and metropolitan councils. This is a longer-term trend, with many councils consistently falling short of financial sustainability targets in the five years to 2021-22.

These pressures are placing a range of core and valued services at risk in communities Australia-wide.

There are persistent, structural challenges in public finance. The pillars of local government finance - fiscal autonomy, fiscal equalisation, and subsidiarity - are slowly eroding. A growing proportion of NSW councils depend on transfers from other tiers of government (56% of NSW councils had an own-source revenue percentage under the benchmark minimum in 2021-22, compared to just 44% in 2014-15).

Financial Assistance Grants as a share of national Gross Domestic Product (GDP) and Commonwealth expenditure have gradually fallen over the last two decades. At the same time, tied and competitive grant funding to councils is rising. This is problematic for councils, as they are less able to align resources with community priorities.

The improved financial sustainability of the Australian local government is estimated to boost GDP by $7 billion, based on CGE modelling undertaken by the Centre of Policy Studies. This would yield an additional annual boost to Commonwealth tax revenues of around $1.7 billion per annum. These benefits arise from embedding savings and efficiencies into the economy, such as:

  • Saved vehicle operating costs on better-maintained roads
  • Health cost savings and labour productivity gains from better engagement with public open space
  • Faster and better decision-making in planning and building
  • Saved administrative costs from fewer tied and competitive intergovernmental transfers
  • Saved costs from the improved ability to recruit and retain the local government workforce.

Lessons from Germany on local, needs-based assessment can help to ensure that councils have adequate finance to deliver services to communities and to deliver these services equitably across the nation. A successful needs-based assessment approach requires transparency and institutional co-operation.

Read the research here.

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