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Local Government Finances
Local government is not a big player in the public sector.
Compared to outlays by local government in other countries
own-purpose outlays by Australian councils in relation to
state and national governments are relatively small. Local
government own-purpose outlays comprise just 5 compared with
53 per cent and 42 per cent respectively for state and Commonwealth.
As pointed out above, when comparing Australian local government
with that in other countries it must be remembered that functions
such as health, education, public housing and policing are
all predominantly state and/or Commonwealth responsibilities.
Although local government's proportion of the national outlays
may be small the sums involved are not insignificant. Consolidated
outlays by purpose indicate the scale of activity and the
spread between the various functions. The relative dominance
of providing physical infrastructure can be seen in the three
large spending areas of health and community amenities, recreation
and culture and transport and communications.
Local government receives 16 per cent of its revenue from
Commonwealth and 7 per cent from state governments. Funds
flow from these two external sources in the form of grants
and special purpose payments. Grants are made primarily by
central agencies (those determining policy and funding); firstly
as Commonwealth Financial Assistance Grants (FAG) from the
Commonwealth, secondly distributed within the state by State
Local government Grant Commissions (LGGC). Special purpose
payments are those flowing to local government from the line
agencies (those delivering programmes) at both Commonwealth
and state levels. Road funding through state road authorities
comprises a significant proportion of Special Purpose Payments
(SPPs) made to local government. In a significant step the
government linked Commonwealth funding of local government
to one per cent of Commonwealth income tax receipts in 1976,
This was to rise in subsequent years, but the fiscal restraints
of the subsequent government resulted in this link being dropped
in favour of the present grant system where payments to local
government are linked to payments to state governments.
Figure 5. Composition of Total Public Sector Own-Purpose
Outlays 1993-1994
Source: McNeill 1997:29
Table 9. Consolidated Outlays by Purpose of
Local Governments
| Purpose |
1990-1991 |
1991-1992 |
1992-1993 |
1993-1994 |
1994-1995 |
| $m |
$m |
$m |
$m |
$m |
| General public services (includes staff costs) |
1,476 |
1,552 |
1,492 |
1,479 |
1,323 |
| Public order and safety |
116 |
120 |
127 |
190 |
222 |
| Education |
36 |
38 |
45 |
31 |
35 |
| Health (includes health inspection services,
immunization) |
154 |
166 |
154 |
174 |
215 |
| Social security and welfare (includes children's
play centres) |
311 |
358 |
409 |
450 |
485 |
| Housing and community amenities (includes
land use planning and development control) |
1,331 |
1,314 |
1,418 |
1,400 |
1,508 |
| Recreation and culture |
1,137 |
1,144 |
1,338 |
1,424 |
1,537 |
| Fuel and energy |
405 |
324 |
391 |
23 (1) |
4 (1) |
| Agriculture, forestry and fishing |
16 |
17 |
16 |
12 |
13 |
| Mining, manufacturing and construction |
117 |
115 |
112 |
96 |
128 |
| Transport and communications (includes roads,
bridges, etc.) |
1,906 |
1,946 |
2,117 |
2,073 |
2,109 |
| Other economic affairs |
61 |
64 |
73 |
71 |
20 |
| Other purposes |
1,264 |
1,026 |
1,009 |
672 |
623 |
| Total |
8,329 |
8,183 |
8,702 |
8,096 |
8,223 |
Source: Government Financial Estimates (Australia
1996-1997);
(1) Responsibility for electricity distribution
was for the most part removed from the jurisdiction of local
government.
Table 10. Share of Outlays by Major Functions
by Level of Government (1992-1993)
| Categories |
Local
% |
State & territory
% |
Commonwealth
% |
| General public services |
10.0 |
36.6 |
53.5 |
| Defense |
-- |
-- |
100.0 |
| Public order and safety |
2.2 |
84.4 |
12.4 |
| Education |
0.2 |
86.5 |
13.3 |
| Health |
0.7 |
51.6 |
47.8 |
| Social security and welfare |
0.9 |
7.3 |
91.8 |
Housing and community
amenities |
36.1 |
60.8 |
3.0 |
| Recreation and culture |
35.2 |
39.3 |
25.6 |
| Fuel and energy |
1.6 |
59.1 |
39.3 |
| Agriculture, forestry, fishing and hunting |
0.5 |
57.3 |
42.2 |
| Mining and mineral resources |
21.4 |
36.2 |
42.4 |
| Transport and communication |
18.7 |
55.7 |
25.6 |
Source: McNeill 1997:36
Given the significant power they have over them state/territory
governments inject minimal funds of their own into local governments.
While the Commonwealth government provides more funds than
the state governments, between them these higher levels of
government contribute less than one quarter of direct local
government income.
Table 11. Sources of Local government Revenue
| Source of revenue |
Share (%) |
| Tax on immovable property |
58 |
| Fees |
3 |
| Fines |
1 |
| Net operating surplus of trading enterprises |
6 |
| Interest received |
4 |
| General purpose grants ex Commonwealth |
13 |
| Specific purpose grants ex Commonwealth |
3 |
| Special purpose grants ex states/territories |
7 |
| Other revenues |
4 |
| Total |
100 |
Source: Gerritson & Osborn 1997:71
Accrual accounting has replaced traditional fund accounting.
As Australian Accounting Standard No 27 (AAS27) has been adopted
and incorporated in state local government legislation, councils
have been required to move to the new accrual basis. For some
councils the transition was relatively straightforward, some
were operating on an accrual basis already. For others, particularly
councils comfortable with the traditional fund accounting,
the transition has demanded a steeper learning curve. More
importantly, AAS27 introduced a new asset management regime.
Local governments are now required to bring onto the balance
sheet all physical assets under their control. Since 1992
buildings, parks, roads, utilities and communication networks
are being brought progressively to account. This has involved
councils in identification, classification, inventories, condition
assessment, valuation and depreciation of previously unrecorded
community infrastructure involving substantial demand on council
resources. Once this task is completed policy implications
will follow. In New South Wales, for example, in their annual
reports councils are required to report on the condition of
the physical assets, gaps between that and satisfactory levels,
how the gaps will be bridged and how the assets will be maintained
at the satisfactory level. Under present funding constraints,
particularly where property rates and taxes are pegged, many
councils will be unable to bridge gaps and sustain higher
maintenance spending. Another looming issue is when in a few
years time depreciation of these assets begins to show up
in the balance sheets creating significant deficits. Councils
may find their communities questioning their fiscal responsibility
when presented with such balance sheets.
Personnel Systems in Local Government
In 1994 local government employed 159,000 people, representing
about 10 per cent of public sector employment but less than
3 per cent of the total wage and salary earners.
Table 12. Employed Wage and Salary Earners
(May 1994)
| Sector |
NSW |
VIC |
QLD |
SA |
WA |
TAS |
NT |
ACT |
AUST |
| '000 |
'000 |
'000 |
'000 |
'000 |
'000 |
'000 |
'000 |
'000 |
| Private |
1471.9 |
1098.6 |
682.9 |
331.6 |
383.6 |
96.1 |
36.0 |
56.3 |
4156.9 |
| Commonwealth |
115.1 |
87.1 |
44.7 |
24.8 |
22.1 |
7.6 |
3.8 |
54.5 |
359.8 |
| State |
344.7 |
242.3 |
191.3 |
103.8 |
117.3 |
34.0 |
15.9 |
20.0 |
1069.3 |
| Local |
53.1 |
44.8 |
33.8 |
9.1 |
13.3 |
3.9 |
1.2 |
- |
159.2 |
| Total |
513.0 |
374.2 |
269.8 |
137.7 |
152.7 |
45.5 |
20.9 |
74.5 |
1588.3 |
| Total |
1984.9 |
1472.8 |
952.7 |
469.3 |
536.2 |
141.6 |
56.9 |
130.8 |
5745.2 |
Source: ABS (6248.0)
Employment statistics indicate that 63 per cent of local
government staff are male and 37 per cent female, although
in 1996 in Victoria the number of female employees exceeded
the number of males. The occupational characteristics of local
government are changing. Occupations dealing with people increased
while the numbers of staff using plant and equipment decreased.
Changes between the censuses of 1986 and 1991 are shown in
Table 13. Results from the 1996 census are not available at
the time of writing although the trend is expected to have
continued.
Table 13. Change in Local Government Occupations
(1986 to 1991)
| Occupation category |
1986 |
1991 |
Change % |
| Managers and administrators |
3884 |
7208 |
85.6% |
| Professionals |
12,104 |
14,960 |
23.6% |
| Para-professionals |
13,499 |
18,117 |
34.2% |
| Tradepersons |
21,404 |
18,932 |
-11.5% |
| Clerks |
23,493 |
22,654 |
-3.6% |
| Sales and personal service workers |
5,089 |
10,254 |
101.5% |
| Plant and machine operators, drivers |
25,028 |
23,058 |
-7.9% |
| Labourers & related workers |
36,020 |
28,344 |
-21.3% |
| Inadequately describer |
2,143 |
3,238 |
- |
| Not stated |
945 |
620 |
- |
| Total |
143,6098 |
147,385 |
2.6% |
Source: Osborn, R, ACRLGS, University of Canberra
Many of these changes are outcomes from Australia's microeconomic
reform pursued by all three spheres of government. "Microeconomic
reform is mainly concerned with removing market impediments
which discourage or prevent input resources (...) being used
in the most efficient manner or which limit the flexibility
and responsiveness of both workers and enterprise" (Aulich
1977). For its part, local government has worked to reform
workplace procedures and practices, introduce enterprise bargaining
in the workforce, improve regulatory systems and upgrade strategic
and financial management practices and service delivery. Increasing
use of contracting out to the private sector, impacts of technology
and changing patterns of work all contribute to these trends.
Victorian local authorities, in particular, have been forced
to competitively tender many of their services. To operate
in this competitive environment, local authorities have established
internal business units that lodge tenders to perform work
for their council in competition with external organizations.
It has not been uncommon for an external contractor to win
over the internal business unit. Not all external contractors
are from the private sector, nor are they always Australian
organizations. In several instances the winning contractor
has been a business unit of a New Zealand council.
Many of these changes have not been universally welcomed,
such as the downsizing of the local government workforce.
Some have argued that withdrawal from service delivery by
local authorities has enhanced local business opportunities.
Others have lamented the impact that workforce downsizing
has had, especially in smaller communities (Aulich 1997).
Whether these changes have generated costs savings has been
debated vigorously. "Private sector proponents argue that
there are indisputable cost savings to be had from contracting
out government services and figures as high as 20 per cent
have been frequently cited" (Aulich 1997). Preliminary investigations
undertaken by the Public Sector Research Centre at the University
of New South Wales (Paddon 1991) highlights a number of weaknesses
in the studies from which figures of this kind have been derived
and draws attention to a series of hidden costs that have
often not been taken into account (Aulich 1997)
Workplace reform
Recent workplace reform began with a National Review of Local
Government Labour Markets. An early outcome was a far-reaching
deregulation of employment by removing legislative restrictions
attached to local government positions. Senior staff positions
were opened to appointment on merit without legislative or
professional constraint. Engineers, for example, could be
and were, appointed as CEOs of councils without having to
first obtain the previously mandatory Town Clerks' Certificate.
Equally, a lawyer could, for instance, be appointed to head
a technical team of professional engineers. Contract employment
was also introduced for senior staff, usually for five-year
terms. This aimed to introduce new blood into what was regarded
as a closed shop. Some state have introduced an American style
council/city manager model with council responsible for policy
direction and overall funding - a central agency role - and
the CEO or general manager responsible to engage staff and
manage the operations of council - a line agency role. As
an instance, in New South Wales within the first year after
an election the incoming council must adopt an organization
structure and ensure a general manager is in place. The general
manager in turn is responsible for staffing and running the
organization.
In general terms Australian local government staff are industrially
aware and organized. Considerable work has been done recently
to reform industrial rules by consolidation of the many different
and outdated awards and classifications. Negotiations between
the industrial unions and employers (councils) have introduced
fewer broad-banded awards to cover local government employees.
An emerging feature is enterprise agreements negotiated between
employees and council in individual local authorities. In
both cases employees are afforded the protection of the Commonwealth
Industrial Relations Commission. Employees, other than contracted
senior staff, are provided with employer/employee contributed
superannuating schemes and enjoy typical public service conditions
of employment: four weeks annual leave, sick leave, maternity
leave, long service leave. Many local authorities encourage
education and training and some provide financial assistance
in meeting educational expenses.
Education and training
Australia has no central strategy or programme of education
and training for local government. In the early 1990s a national
system of industry training boards was established to implement
competency based training programmes. Until 1996 the industry
had a National Local Government Training Board and subsidiary
State Training Committees. The Commonwealth government also
introduced a Training Guarantee Levy whereby employees were
required to either allocate funds for training or pay an equivalent
amount in tax. For a short period it seemed training in local
government, like all other sections of Australian industry,
would be coordinated and funded adequately. The levy system
was abandoned in 1995 and the industry training boards diminished
in 1996. No state has a compulsory training scheme for either
staff or elected members. What training is provided is spasmodic
and uncoordinated. Education and training is now left entirely
to the discretion of local authorities, the associations of
local authorities and professional institutes.
Central-Local Links
When describing local government within the Australian Federation,
it has been suggested often that the Commonwealth has all
the money, the states have all the power and local government
has all the problems. The comment may be simplistic but it
is, in essence, true. Power and control does not flow down
from the national government, through the state, to local
government. Power and control over local government rest with
the respective state Parliaments. Wresting this away from
the states has long been an issue for local government. So
far the main strategy has been to seek recognition in the
Australian Constitution, aiming to strengthen local democracy
by recognizing local governments and granting them broad competence
powers to respond to local needs. Such recognition requires
a national referendum; one attempt in 1988 was unsuccessful
but another case is being mounted within the broader context
of the current debate about Australia changing to a republic.
Within this present structure of control, each State Parliament
has promulgated specific local government legislation. The
respective acts set out the form, roles and functions of local
councils. Administration of the legislation in each jurisdiction
is the responsibility of state government line agencies. In
some states these are full government departments with specific
ministerial control, in others local government forms part
only of a broader ministerial portfolio. The status of local
government ministries and agencies is generally low. The government
Minister with the local government portfolio is not always
a full member of Cabinet. While prescriptive control over
local government has been reduced in the last decade, state
governments retain ultimate control through their power to
dismiss councils. This power was demonstrated most dramatically
in the recent amalgamation of councils in Victoria when the
Victorian government dismissed all two hundred councils before
forcing restructure of the system into the present seventy-eight
councils. For the most part, state powers are exercised less
dramatically, being used to deal with specific problems of
mal-administration in individual councils. In recent years
the absolute power of the Minister to dismiss a council has
been reduced by the provision, at least in some states, that
a public inquiry must first be held. For its part, local government
continues to press for a full local referendum as the only
basis for dismissal of a council. At the national level the
status of local government waxes and wanes depending on the
policy priorities of the incumbent government. Where control
is exercised it is done through intermediary institutions
such as the Council of Australian Governments (COAG) and the
Local Government Ministers Conference (LGMC), or more coercively
through tying Commonwealth funding grants to desired policy
outcomes. The current Commonwealth government has intimated
it may link its Financial Assistance Grants (FAG) to evidence
of local government structural reform.
Extent of Public Participation
In addition to basic democracy and the electoral system,
three factors influence participation of the community in
local government: population, geographic size and level of
local activity. If population were the only factor, with so
many local authorities with small populations, more than one
third with less than 3000 people, direct participation would
be expected. Local politicians with small constituencies are
obviously able to more directly represent their electorates.
In this century while population has increased the number
of local authorities has decreased resulting in less direct
personal representation.
These averages are distorted by the urbanization factor;
most population growth has taken place in the urban areas.
Many rural local populations have fallen over time. The immense
physical size of most of the small authorities mitigates against
direct participation. However, levels of local activity in
many small communities are not great, although they are important.
For some isolated rural councils the dominant activity is
road maintenance with few other council services and activities.
Declining population of the rural areas and towns is an important
issue for local government.
There are no mandatory requirements that a local government
electorate be subdivided into small areas called wards. Many
local electorates function on a ward basis but it is a matter
for local communities. A referendum may be needed, but it
is up to the community to decide whether to elect their local
government representatives from the community as a whole or
divide it into wards. A typical ward-council may have four
wards with three councilors elected for each ward, a total
of twelve. In a non-ward council twelve councilors would be
elected for the area as a whole. Wards offer formal electoral
subdivisions of local government areas. Some areas operate
precinct committees as a mechanism for involving the community
in local governance. While these have no legislative status,
where they operate well they are accepted as legitimate participants.
Some councils provide administrative services for the precinct
committees to function. These work best where there is community
support for participative democracy and generally in areas
with significant change and choices occurring. Local government
legislation makes provision for the appointment of special
purpose committees to manage such things as sports grounds,
community halls, public gardens, art galleries and the like.
These committees may have delegated authority to manage the
particular activity or facility but they remain accountable
directly to the council.
Local authorities are required by law to exhibit publicly
a range of plans and policy documents and seeks participation
prior to adoption. Land use plans, strategic management plans,
financial plans and development policies are examples. Most
states have some form of "neighbour notification" requirements
where owners of adjoining properties must be notified of any
changes to land use or building proposals for adjoining properties.
Provision exists for the affected neighbour to lodge an objection
to council or to take the matter further to the courts. With
slight variations between states, local government legislation
provides opportunities for direct participation in the affairs
of councils. Faced with an issue a council may initiate a
poll of citizens or even a referendum. The outcomes of a poll
are not binding on the council but the outcome of a referendum
is. Despite its promotion citizen initiation of polls and
referendums does not currently operate in Australia. Members
of the community may put their case before council at any
time, either directly to a local politician or by way of petition
to the council or through the media. Local government affairs
are covered in national and local newspapers. Many local authorities
commence their meetings with an open question time - normally
for about one-hour, during which the public is free to address
questions to the councilors. It is common for a developer
seeking approval for a project to attend a council committee
meeting to explain the proposal. Committees of council are
less formal and not binding on the full council. Having spoken
to the committee the applicant may also be granted permission
to explain the proposal to full council and answer questions.
The Way Ahead
The Australian Local Government Association and its state/territory
counterparts form the key body representing local authorities
before the higher levels of government. Representatives of
the councils meet in a National Assembly each November to
agree on a National Agenda for Australian Local Government.
By setting out its National Agenda, local government seeks
a fuller and more productive partnership with Commonwealth,
state and territory governments. The main items of the 1996
National Agenda provide both a conclusion to this paper and
point the way forward for local government in Australia. The
Agenda is structured under eleven headings reflecting the
main issues being addressed by local government. These are
listed below as strategic actions or principles to be adopted.
Local democracy
Recognition of local government in the Australian Constitution
will continue to be sought. Diversity in local communities
should be both expected and valued as a strength of local
democracy. For effective local democracy there is a need for
broad competence powers to respond to local needs. Restructuring
of local government should only be effected through extensive
public engagement and referendum. Local government must endorse
and support the Council of Aboriginal Reconciliation and pursue
partnerships with Indigenous Australians.
Finance and taxation
It is essential to correct the restrictive and regressive
nature of local government's revenue base and the vertical
fiscal imbalance in current financial sharing. Local government
must have greater flexibility in determining sources of local
revenue, freedom to undertake business enterprises and commercial
activities and a guaranteed real terms share equivalent to
1 per cent of Commonwealth general taxation revenue. Revenue
sharing grants should remain untied and specific purpose grants
should continue. Funding must take into account extra costs
of service delivery in rural and remote communities. Councils
should have access to a realistic range of loan funds and
sources of borrowings.
Micro-economic reform
Local government is committed to partnerships with other
spheres of government in achieving further micro-economic
reform, especially reform of regulatory. Cooperation and resource
sharing between councils should be pursued. Councils should
continue to support implementation of the National Competition
Policy and national benchmarking systems.
Economic and regional development
Economic and regional development should be fostered through
a range of measures, seeking balanced national development.
Provision of appropriate and affordable housing should be
pursued as a key element of regional development. There should
be further major investment in strategic infrastructure, including
roads, increasing the viability and competitiveness of existing
industry and encouragement of new industry to establish in
regional Australia.
Transport and infrastructure
Ensure continued recognition that provision of roads and
other transport and community infrastructure is one of local
government's most important responsibilities. The national
objective must be a safe, efficient, integrated, accessible
and environmentally sustainable transport system - roads,
rail, air and sea - that meets the economic and social needs
of every Australian community. There should be a planned national
approach to provision of information technology infrastructure.
People and community
Continue to promote Integrated Local Area Planning, integrating
provision of housing with that of transport and other essential
community services. Stronger links are essential between the
various forms of health and community care, public health,
health promotion, community safety, leisure, sport and recreation,
cultural development and environmental management. There should
be considerable financial and resource support for home and
community care, family and children's services and youth.
Councils must build effective partnerships with other stakeholders
in local cultural development. Councils have a key role in
facilitating community-based safety and crime prevention strategies.
Environment
Equal partnerships are necessary between all spheres of government
in development and implementation of national environmental
policy. Principles of ecologically sustainable development
must be supported. Local government should accept responsibility
to ensure traditional owners of land are consulted and actively
involved in environmental planning and management processes.
Total catchment management, joint efforts to maintain quality
of water resources for human use and as part of environmental
systems, waste minimization and recycling are all environmental
management strategies to be pursued. Local government should
cooperate with other spheres of government to ensure effective
controls on greenhouse gas emissions, encourage energy conservation
and alternative energy use.
Urban affairs
Principles of integration should be applied to local and
regional planning for urban areas. Tripartite cooperation
between the three spheres of government should be sought in
the development of area-based urban strategies which reflect
integrated planning principles and which adopt holistic approaches
to the needs of urban communities.
Rural affairs
It is essential that local government continues to support
and promote policies aimed at safeguarding the continued viability
and opportunities for development of Australia's rural regions
and communities.
Inter-government relations
Local government is committed to necessary processes of change
to strengthen local government's position as third tier of
government. It supports continuation of and seeks participation
in the Council of Australian Governments; it seeks equal partnership
in intergovernmental processes affecting those activities
for which local government carries legislative and financial
responsibilities. Agreements or protocols should be negotiated
setting out agreed objectives, roles, responsibilities, decision-making
processes, procedures and financial/administrative arrangements.
International links
Australian local government reaffirms support for the World-Wide
Declaration of Local Self-government adopted by IULA, continues
to seek closer relations with local governments in other countries,
particularly in the Asian Pacific region and wherever possible
offers assistance to emerging systems of local government
in the region and elsewhere.
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