News National Rate capping restricts local community growth: ASU

Rate capping restricts local community growth: ASU

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This is a critical year when local communities are experiencing the negative impacts of significant fiscal constraint imposed by all levels of government.

Nevertheless, it is a time when investment in services and infrastructure is of utmost importance to the resilience of local communities.

For this reason the ASU wishes to highlight the issue of local government finances.

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Councils need revenue to meet community expectations; exacerbated by growing populations:

Under State and Territory laws in recent times, local government has been increasingly required to do more in areas such as planning, environmental management, public health, emergency services and local regulations.

This can be a source of concern for councils if additional responsibilities are not matched by the addition of adequate funding. When this happens, it is often referred to as a form of cost-shifting because the council is left with the burden of paying for the cost of the additional responsibility shifted from another level of government.

Rate capping (pegging) is another area of contention, when state governments impose restrictions on the amount of rates that council may charge for services.

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Rate capping and cost shifting can have dramatic impacts on the financial viability of councils and subsequently the type of services that they are able to provide communities.

Council spend money because state and federal government won’t contribute:

For more than 40 years, federal governments have given funding to local councils to ensure our communities can continue to provide these vital services.

This has at times been via direct project funding which has helped build and restore services. We saw this during the global financial crisis injection of monies into communities, supporting local employment and local spending. This, in turn, built more jobs and services in our communities, like local store purchases, schools, hospitals, ambulances and much more.

Council costs exceed CPI which does not measure LG cost pressures:

It must also be acknowledged that CPI does not measure council cost pressures. CPI tracks changes in prices for a basket of consumer goods and services commonly purchased by households. Some of these items are: food, alcohol and tobacco, clothing, health, education, and insurance among other items.

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None of these items are factors in local government expense. Most councils spend their revenue on things like staff wages, contract costs, construction material costs, plant and equipment costs among a plethora of other cost factors. It is notable that none of these key costs is tracked in CPI measurements made by the ABS. Therefore to compare local government cost increases with movements in CPI is to draw false comparisons. There is also a need to realise that local government faces increased demands from the community as standards of living grow and the population grows (in both numbers and age).

Federal government financial support is now, more than ever, critical to local government sustainability.

Local Councils = Local Jobs

When federal governments search for answers on creating jobs, local government delivers. In regional areas the local council is often the largest employer, this enables the council to provide much-needed career opportunities to young people in their community.

Councils are more accountable to their communities than other governments and if ratepayers are dissatisfied with councils’ spending decisions they can make representations to councils and the local community can directly vote councillors out:

Local government is often referred to as the level of government that is “closest to the people”.

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Local government is ‘closest to the people’.

Communities have now come to expect an even broader range of services from local government than had been provided in past decades. It has also been noted that services and responsibilities have expanded in response to shifts in public policy from other levels of government.

It should also be noted that local governments tend to play a significant role in response to sudden or unexpected events such as natural disasters. Councils often play a significant role in mitigation of natural disasters and responding to the devastation which follows events such as floods, cyclones and fires.

The view of local government as being confined to roads, rates and rubbish is long gone, in both practice and in terms of what communities expect. Australians want local government to be responsible for a diversity of activities in their local community, with planning for the future being among the most important.

Other studies have also indicated that the level of trust that communities have in their local council is fairly high. For example, a Griffith University study found that 60 per cent of Australians have trust and confidence in local government’s ability to carry out its responsibilities and that this is higher than that for federal and state governments.

Imposition of rate pegging:

Rates are a major source of funding for many councils. They are the sole form of local government-generated tax revenue and are considered to be an efficient form of generating funds.

The ability of councils to raise sufficient revenue from rates can be suppressed by state government imposed forms of rate pegging (also referred to as ‘rate capping’). It is a process which places limits on the total amount that a council could charge its rate payers.

Issues of concern regarding the experiences of rate pegging can include the following:

• the detrimental impact the practice has on local government finance;

• the effect that it has on limiting the ability of councils to take responsibility for their own economic affairs;

• the impediments it creates for effective long-term planning, particularly in relation to infrastructure investment; and

• the practice diminishes local autonomy – as a result of the restrictions imposed at the state level.

In many cases, local governments are initiating dialogue with community members about the need to increase rates in order to improve services and ageing infrastructure.

However, a rate capping regime imposed by a state government (such as in NSW) has inhibited municipal authorities from being able to adequately meet goals for infrastructure repair and development. It is estimated that NSW local government has a $7.6 billion infrastructure backlog after decades of rate capping.

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