Restrictions to councils’ revenue-raising ability, including almost 40 years of rate pegging, mean local councils cannot meet the needs of growing communities.
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Treasury Corporation’s 2013 assessment of the financial sustainability of NSW councils raised serious concerns about councils’ ability to fund current and future service levels. Councils also have a large and growing infrastructure renewal backlog ($7.4 billion at June 30, 2012).
In many instances, councils are already being forced to cut services and defer critical infrastructure expenditure.
If NSW councils are to meet the growing needs of NSW communities, it is essential that they have access to adequate financial resources. It is clear that that the current financial base of councils is inadequate to meet these needs.
NSW councils’ financial capacity to maintain existing services and infrastructure is already stretched.
In many instances, councils are already being forced to cut services and defer critical infrastructure expenditure.
Since 1976, when the Fraser government introduced the Personal Income Tax (PIT) Grants to Australian local government councils, at 2 per cent of PIT collections, councils have received a share of Commonwealth taxation revenue.
Gradually, the amount of the allocations has reduced in real terms and as a percentage of tax collected, to now well less than 0.7 per cent of collections. In recent years, the name of the grant was changed to Federal Assistance Grants (FAGs).
For your council, between 2010 and 2015 the combined increase in the FAGs allocation was only $473,000. Therefore, in real terms, once the Consumer Price Index (CPI) is applied, council’s grant has been declining. This continues a very long-term trend.
The burden of the current FAGs freeze policy has been moved directly to the ratepayer and the council has had to absorb the funding reduction.
In the 2014-15 federal budget, the decision was made to pause the indexation of FAGs for three years.
Consequences
The continuation of this freeze means the grants have not increased in line with CPI and population increases.
The subsequent reduction of FAGs to local government has cut hundreds of millions of dollars from local communities each year.
According to government estimates, the “frozen” portion of FAGs amounts to more than $300 million per year being taken out of communities during the three years of the freeze, and almost $1 billion over the budget out-years.
Although the 2016-17 federal budget out-years signalled an expectation that annual indexation of FAGs would return from 2017-18, the local government sector has not received a cast-iron guarantee that the federal government will deliver on its promise to restore the indexation of FAGs in the 2017-18 budget.
A key factor in improving local government council revenue capacity will be for the federal government to restore the FAGs annual indexation, and more importantly to increase the percentage of income tax collections to the sector to a much more realistic and acceptable level.
Dr Ian Tiley is the administrator for Armidale Regional Council.
