The need for fair funding is the top priority. The Australian Government collects the lion’s share of Australian taxation revenue. It is the Australian Government’s duty to share these funds with its state and local government counterparts to ensure they meet their service and infrastructure obligations to communities. By doing so, the Australian Government can counter the destructive impact of vertical fiscal imbalance.

A Coalition Government in the late 1970s linked payments to local government to a share of taxation revenue – in that case, personal income tax. This gave local government, for the first time, access to a fair share of revenue – that is access to growth funding. This sensible and fair arrangement unfortunately was axed in the 1980s by the Hawke Government as a cost cutting exercise. Since then, local government has been steadily losing ground. Federal financial assistance grants have failed to match the increasing demands made on councils in the 21st century. The value of these grants, as a proportion of total Commonwealth revenue, has fallen from 1.2% in the early 1990s to less than 1% in 1996-97 (ALGA 2006). In two years time, it will have fallen to less than 0.8% (ALGA 2006). Local government's share of the Australian tax base has fallen from around 6% in the 1970s to about 3% today (PwC 2006). In fact, local government in Australia now has the fourth lowest share of taxation among the 30 industrialised nations of the OECD, and as shown at the outset (Brown this volume), a far lower share than in most other federations. And yet, councils have undergone a period of profound change over the past 40 years. Traditionally, local government has provided property-based services – the old ‘roads, rates and rubbish’. To these traditional ‘three R’s’ we can now add regulation, recreation, relief (as in welfare, childcare, aged care and health care services), regionalism and regional development, and retail services such as water, sewerage and transport services.

Local government continues to perform its traditional roles. But there is now much greater demand for councils to provide a growing range of human services. In recent years, councils have acquired new responsibilities including arts and culture, management of health, alcohol and drug problems, community safety and accessible transport. Local government is also playing a growing regulatory role in areas such as development and planning, public health, and environmental management, to name a few. Like a hungry caterpillar, these new services are now gobbling up the expenditure once reserved almost exclusively for traditional services and infrastructure maintenance. In the 1960s, around 50% of local government expenditure was allocated to the maintenance of roads. By the 1990s, this had fallen to just over 25% and local governments now have a significant issue in maintaining infrastructure (see PwC 2006). In the early 1960s, just 4% of expenditure was allocated to education, health, welfare and public safety activities. By the late 1990s, this had risen to 12% – a threefold increase.

These changes have been partly driven by community demand and partly by a range of other factors beyond the control of local government. Significantly, these factors have not only added to the range of services required of local government – they’ve also come largely without new or adequate sources of revenue.

ALGA argues that financial assistance grants should be replaced with a share of Commonwealth taxation revenue. This is supported by the recent Pricewaterhouse Coopers report into local government funding which recommends revising the escalation methodology for Financial Assistance Grants from a mix of population growth and Consumer Price Index to a new escalation formula tailored to local government cost movements (PwC 2006). The funding provided to local government through Financial Assistance Grants should also be fixed at a rate of at least 1% of taxation revenue, providing councils with funding that grows as the economy grows.

Apart from the need for fair funding, we also need to ensure fair treatment – and that means putting an end to cost shifting. Local government has been on the wrong side of cost shifting for decades, with state governments and – to a lesser extent – the Australian Government, passing functions to local government with inadequate or no off-setting revenue source. The Australian Government, for example, transferred responsibility for a large number of regional airports to local government in the early 1990s. The PricewaterhouseCoopers report (PwC 2006) shows that while some initial funding was made available, councils have been substantially out of pocket in their efforts to maintain and upgrade these important economic assets. The total infrastructure backlog for local government across Australia is estimated at between $11 billion and $16 billion. PricewaterhouseCoopers’ conservative estimate is that between 10% and 30% of councils have financial sustainability issues. It recommends a new infrastructure fund for local government – a Local Community Infrastructure Renewals Fund – to provide a source of revenue to upgrade existing community assets, many of which were built in the 1950s and 1960s and are deteriorating, such as swimming pools, ovals, community centres, libraries and health centres.

In many rural communities, local government is the last man standing. Once the federal or state governments withdraw services, if local government doesn’t step in, no one will. That’s why we are seeing more and more councils buying doctors’ surgeries and accommodation, and entire hospitals in some cases, in a bid to keep medical services available to people in rural communities.

In essence, cost shifting amounts to theft, diverting scarce council dollars to fund a function imposed on it by another sphere of government. The impact of cost shifting on local government has been estimated to be somewhere between $500m and $1.1 billion each and every year (House of Representatives 2003). Importantly, all three spheres of government – the Australian Government, the State and Territory governments and local government – have recently come together and signed an intergovernmental agreement in an attempt to set up some guidelines and principles to put an end to cost shifting (IAG 2006). Essentially, this agreement seeks to ensure that when agreements are made by a state or federal government which wishes to transfer a function or service to local government, then the cost of that function or service will be taken into account. It is possible that this historic agreement will pave the way to greater cooperation between all three spheres of government, ensuring proper consultation and negotiation takes place over the movement or shifting of responsibilities and functions between spheres of government. Time will tell – but it’s a promising start.

A further welcome initiative has been the Tripartite Partnership Agreement on Population Ageing that has recently been reached between the Australian Government, Tasmanian State Government and Tasmanian Local Government (Tripartite Partnership Agreement 2006). This Agreement is the first of its kind, and seeks to achieve a coordinated and cooperative approach to ageing in Tasmania. This would include joint work on planning, services and facilities to meet demands of an ageing population.

The third element of ALGA’s campaign is formal recognition: that is, constitutional recognition. Councils should not be merely creatures of state and territory governments. They should be seen as expressions of Australia’s commitment to community democracy. This is why recognition of local government in the Australian Constitution is so important. A milestone towards local government’s long-term goal of constitutional recognition was reached with the Commonwealth parliamentary resolution on recognition of local government, which passed the Senate on 7 September 2006 and the House of Representatives on 17 October 2006. The resolution stated:

ALGA has representation on 14 ministerial councils; so local government is at the table but not formally recognised. Local government should not only be recognised and valued, but should also be recognised and protected as a sphere of government.