Image: Anssi Koskinen
A new report has found that many of Australia’s councils have a big spending problem that’s created a gap between local government expenditure and community demands.
It illustrates a grim picture of the state of the financial issues that the local government sector faces, putting a big question mark on whether councils will be able to deliver the services they promise, or else fail in a similar manner to the Central Darling Shire Council before it was suspended in 2013.
The report, titled Giving Local Governments the Reboot – Improving the Financial Sustainability of Local Governments, was written by the McKell Institute partnering with the University of Technology Sydney (UTS) Centre of Local Government.
According to the report, following a steep rise of community demand over the last two decades, a mismatch has emerged between the community’s propensity to pay for various amenities and the cost to council in providing those services.
This has resulted in local governments under-charging and failing to effectively demonstrate the cost to consumers, the report said.
Essentially, local government revenue has grown by 7.3 per cent over the period between 1995 and 2015, and although this isn’t problematic, the report said, there needs to be a corresponding increase in council revenue if that level of spending continues.
The rub there, according to the report, is that this is “relatively unlikely” as Australians would not be willing to substantially increase their council rates each year.
“Even if state and federal governments provided funding, which seems unlikely in the current political environment, then the money would still be derived from higher levels of tax but just levied by other government sources,” the report said.
The report said at least part of this problem relates to citizens’ awareness and perceptions about how local government services are paid for.
“We argue that part of the answer to the financial sustainability of local governments is to adopt a number of broad measures aimed at re-establishing the link between demand for local government services and the revenue used to meet the demand,” the report said.
“When citizens can perceive the link between the increase in local government services and the price which must be paid to fund that increase, then the current state of fiscal illusion will be tempered by citizens’ willingness to pay.”
Read the full report and its 18 recommendations to bring local government expenditure with community demands.
