A new deal for local government?

Stephen Jones, University of Queensland

In the Australian federal system there is on-going tension between the three levels of government, based largely on differences in expenditure requirements and revenue raising capacity. (This is what economists call this ‘vertical fiscal imbalance’.) Consequently, local governments find themselves to be creatures of state governments, which pass on responsibilities without adequate resources. This ‘cost shifting’ has been the source of friction between local and state levels of government for decades.

Since the 1980s local governments have moved well beyond the traditional three Rs (roads, rates and rubbish). They are now responsible for projects and services in a diverse range of areas such as health, Indigenous youth, environmental management, climate change mitigation, and child care (Department of Transport and Regional Services 2007). Local governments argue that the on-going tensions with state governments have reflected poorly on them, as they are increasingly unable to attract sufficient revenue to fulfil their responsibilities.

In December 2008, the Australian Local Government Association (ALGA) conducted a three day summit in Melbourne attended by 570 local council representatives from all states and territories. The purpose of the summit was to agree on the best course of action to improve access to the resources councils need to carry out the responsibilities and (re)instate community confidence. The summit finally agreed that the solutions are to be found in a more direct relationship with the federal government and that nothing less than reform of the Constitution is required. At the conclusion of the summit the President of ALGA, Cr Geoff Lake said, ‘Today local government has developed a plan for the Australian Government and the Australian people to drag Australian federalism into the 21st century’ (Australian Local Government Association 2008).

Since the 1980s
local governments have moved well beyond the traditional three Rs.

Current circumstances suggest achieving their objective will be like winning the Olympic marathon without training. Yet the ALGA argues its plan can work if we conduct a referendum to formally recognise local government in the Australian Constitution. The end result, so the argument goes, will be a nirvana where councils will be more accountable to their communities and, because of formalised access to more federal resources, they will be better able to provide local infrastructure and services to meet community expectations.

Perhaps local governments have some reason to be optimistic about their capacity to propose such a plan. After all, the Rudd Government had just established the Australian Council of Local Government (ACLG) to give councils greater access to federal decision makers on issues that have traditionally been in the states’ domain including: national infrastructure, Indigenous disadvantage, housing affordability, regional development, climate change and community wellbeing (Australian Council of Local Government 2008a). At the first meeting, on the 18 November 2008, the Prime Minister wined and dined our mayors and committed at least $250m for local councils to spend on neglected infrastructure. Developments such as these have given our much maligned and neglected lowest level of government a glimmer of hope that, at last, their sorry plight will be reversed.

A previous attempt to improve the position of local government was made by the Howard Government in 2006 when it established an intergovernmental agreement (IGA) between the federal government, local councils and state governments. Prime Minister Howard established the Hawker Inquiry in 2003 to examine issues of rates and taxes for local government. Hawker concluded that, as a result of ‘cost shifting’, many councils were unable to generate enough revenue themselves and were reliant on grants to fulfil their responsibilities (House of Representatives Standing Committee on Economics, Finance and Public Administration 2003). The IGA was the Howard Government’s response to some of Hawker’s recommendations (Local Government and Planning Ministers Council 2006). Unfortunately the end result only committed the federal and state governments to evaluate the impact of services or functions they ‘require’ local governments to undertake, not to provide additional funding for projects local councils see as meeting the needs of their communities.


Many Australian local governments have a proven track record of being a positive force within their communities. The annual local government excellence awards demonstrate that councils can be very innovative in identifying solutions to community problems and in developing new initiatives (Department of Infrastructure, Transport, Regional Development and Local Government 2008). Local councils have also proven to be very good project managers of federal and state programmes.

The Rudd Government has been establishing closer links with local government.

The Hawker Inquiry heard submissions from government departments that local councils were often the best partner to the federal government for the co-ordination and delivery of federal programs in areas such as environmental management, tourism, coastal management, and transport. This is partly why the Rudd Government has been establishing closer links with local government, through arrangements like the Regional and Local Community Infrastructure Program, the Housing Affordability Fund, the Caring for our Country program and such bodies as the ACLG (Australian Council of Local Government 2008b). With the economy in trouble Rudd is looking for ways to get projects up and running quickly while avoiding political stoushes and delay tactics by the states.

There is also no doubt local government can be an essential element to a viable democracy by providing local representation and management of community issues. Recent research by the World Bank reinforces the importance of local government to local communities. These governments understand the concerns of local residents, and local decision making is responsive to the people for whom services are intended. Thus fiscal responsibility and efficiency are encouraged, especially if financing of services is also decentralised (Shah & Shah 2006). However, research by one of the presenters at the ALGA summit suggests the level of public attachment to Australian local government might not be as strong as many local councillors would hope. A national survey conducted in May 2008 found that while 57 per cent of Australians rate the performance of the local level of government as ‘quite good or very good’, only 19.9 per cent rate the local government as the most effective at what they do (Brown 2008).

There may be a number of reasons why Australians rate local government so poorly. Current assessments show that, in many respects, Australian local governments have become so degraded by the cost shifting and blundering of state governments that up to 40 per cent are essentially broke. Research by Price Waterhouse Coopers suggests the proportion of financially unsustainable councils varies between 25 per cent in NSW and 58 per cent in WA (Australian Local Government Association 2006). Of course some councils have contributed to their own financial problems through poor investments. The Gosford City Council, for example, could lose up to $22 million as a result of investment decisions (Department of Local Government 2008). However, the Productivity Commission (2008) argued that revenue shortages, combined with little opportunity to raise funds, severely restricts the capacity of local councils, particularly those in outer metropolitan and rural areas, to provide the services and infrastructure their communities need.

Money is a fundamental issue, but local councils also face other hurdles that rest directly within their own bailiwick. Public attitudes to local government have not been improved by allegations of corruption and favouritism. The popular media seems to have no problem finding stories about dodgy local councillors. Examples like the favours shown to developers by the Wollongong City Council (Independent Commission Against Corruption 2008) and the inquiry by the WA Corruption and Crime Commission (2008) into the election campaign donations to the Mayor of the City of Cockburn reinforce bad stereotypes and do nothing to raise public confidence in the capacity of local councillors to act without close supervision.

Public attitudes have not been improved
by allegations of corruption and favouritism.

The end result of this mixed bag of facts and perceptions is that approximately 60 per cent of Australians who rate local government poorly see it as primarily due to a lack of good governance procedures to prevent corruption and the lack of skills and incompetence of staff and councillors (Brown 2008). This is clearly not the case for all councils; Melbourne City Council, for example, continues to maintain a AAA credit rating. The Productivity Commission (2008) found there are considerable differences between the states on these issues, but it is generally the case that metropolitan councils are in the best financial position and that the management skills of elected councillors, managers and staff played a critical role in how well councils are run.


The local government councillors who attended the ALGA summit see a new relationship with the federal government and constitutional recognition as a panacea for the problems local governments face. While constitutional reform might be desirable, it is improbable in the short term. There have been two previous failed attempts at this recognition in 1973 and 1988, and divisions between local governments themselves were seen as a contributing factor to the outcomes (Chapman 1997). And, in what can really be the only conclusion to draw from the comments of constitutional experts at the summit, success in a referendum is almost like discovering plutonium by accident. So, on the basis of current perceptions of our local governments, there may be little likelihood the ALGA grand plan will be accepted. We therefore need to consider other immediate national measures that could improve the current situation many local councils and their communities face.

While the first meeting of the Council of Local Government focused on issues such as infrastructure, the challenges facing our cities and Constitutional recognition, it is unclear what tasks it will be pursuing in its first year. A few ideas that should be considered to help improve the current malaise include the following.

First, federal and state governments need to improve current funding arrangements for local government. Drip feeding with one-off payments will not be enough. Financial conditions for local councils, including the possibility of revenue from tax sharing options and improvements to conditions under specific purpose payments, need serious review. The introduction of rate capping by some state governments has been shown to exacerbate local government’s inability to raise sufficient revenue (Hawker 2003). Perhaps we could look at examples in Belgium, France, Denmark, Finland, Italy, Spain and Sweden where local governments have a broader range of local taxes, which increase their capacity to raise their own revenue and provide more services (Carson 2007).

Second, management skills in areas such as finance and asset management, which are lacking in many local councils, need attention. The management responsibilities for local governments rest with Chief Executive Officers (CEOs). These are generally positions recruited by the elected councillors and operate under specified conditions enshrined in state government legislation. CEOs need a unique skill set, combining legal, financial and management expertise. Problems attracting such people are not helped by the inordinate pressures councillors place on CEOs, who are often called upon to be both ‘strategic’ and ‘hands on’, particularly in smaller councils. Attraction and retention of talented managers will remain a problem until there is a national approach to this critical area. Research shows that we need to continue to look for ways to make the role more attractive if high quality candidates are to be attracted to rural and remote councils (Local Government Association of Queensland 2004). A centre for leadership excellence in local government along the mentor-based lines of the UK model, which works with both elected and appointed officers, is worth considering (Leadership Centre for Local Government n.d.). Making regular training/education a legislated feature of CEO contracts could help guarantee skills are kept up-to-date, and to ensure that managers remain professionally competitive even if they take up positions in rural and remote areas.

Local councils need to get serious about regional co-operation.

Third, leadership skills of local councillors could also be improved through national consistency in eligibility criteria, (involving pre-requisite courses that provide understandings of the basic roles of councillors and their responsibilities), pre-election screening, codes of conduct, and on-going training. Perhaps the Council of Local Governments could establish a body, such as centre for leadership excellence mentioned above, to develop and oversee such programmes.

Fourth, local councils need to get serious about regional co-operation. There are many examples of councils working together on specific projects, but most remain insular and self absorbed. Recent survey results show that a substantial proportion of Australians perceive themselves as living in an identifiable region and see regional government being the way of the future (Gray & Brown 2007). While such restructuring is unlikely in the short to medium term, there is room for local government to be less competitive and work co-operatively on a regional basis to reduce costs and more effectively manage resources.

Finally, inter- and intra-government co-ordination must be improved so that federal and state governments work more closely with local government to deal with the variety of community issues. One notable positive example is the work of some education departments that co-operate with local councils in establishing recreational, education and sporting facilities on a single site.

The drive for change needs to come from local government, which must look for ways to convince the community and the other levels of government that it is ready for greater control over its own destiny. The ALGA, in combination with state-based local government associations, has a critical role to play here in raising awareness with councillors. Currently, co-operative federalism is the favoured political model (Council of Australian Governments 2007) and there will be significant opportunities for local governments to demonstrate their capacity to be capable and effective partners in this climate. By effectively managing local issues and finances, and successfully co-ordinating the resources of the federal and state governments, local councils would raise their standing considerably with their ratepayers.

An old Australian political adage suggests that with the motivation of self interest, real change is possible. In the end it will probably come down to local councils themselves taking a revolutionary approach to change. Joint ventures and public private partnerships pursued by Brisbane and Melbourne City Councils provide examples of creating new ideas to contribute to economic development (Jones 2008). Local councils must keep looking for new ways to improve and keep pushing new and innovative policy initiatives. The recent ALGA summit marks the potential beginning of a more unified platform to achieve this end.


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Stephen Jones is a lecturer in the Business School, University of Queensland and an Associate of the Centre for Local Government at the University of New England.

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