National Inquiry into Cost Shifting:

There is no doubt that local government has, over a number of years, been on the wrong end of cost shifting largely by State governments. The 2003 government inquiry into the cost shifting and revenue sharing arrangements by the three spheres of government has a single overriding message:

In order to fix the cost shifting on the part of all levels of government, a revision of the governance arrangements and tax/rate spending has to be done.

The report recommends a new approach of Federal Government to Local Government funding, claiming duplication and inefficiency adds $20 billion per annum to the cost of all levels of Government. It also identifies the main source of cost shifting as the complex and expanding role of the Local Government, exacerbated by the State restrictions on revenue raising for Local Governments

Examples of cost shifting click here

The recommendations, if met, will have wide-ranging implications for all levels of government. Specifically, the Federal and State Governments have to recognise and acknowledge the problem of cost shifting, whereas, the Local Governments have to increase accountability and efficiency (by cooperation, partnerships, and/or amalgamations) of their operations.As a result Local Governments have to become increasingly more aware of cost and benefits of projects and have to increasingly adopt user-pay principles. There will be increasing pressure for structural reforms – amalgamations, shared service providers and resource sharing.

For details see report click here

In a 1996 report on grant trends, ORION foreshadowed that financial assistance grants would become increasingly more performance oriented, and the National Inquiry is heading in that direction. For example, the Committee recommended that ‘local government bodies be required to audit the state of their infrastructure (using a nationally accepted methodology) and provide status reports to the Commonwealth Grants Commission as one of the inputs into the needs based formula for Federal FAGs to local government.
The infrastructure data collected should be used to adjust FAGs where councils are found to be negligent in managing infrastructure.’ (para 4.29) "All renegotiated and future Federal-State SPP agreements: specify performance indicators that are directly linked to the objectives to ensure financial accountability"

Some major implications are:

• Elimination of Minimum Grants (phased out over three years) which will affect most urban Councils.
• Combining the Identified Road Grant and equalisation grant in the same pool (The combination of these two recommendations could mean that many Councils receive no grants in a few years time).
• A National Approach to determining FAG’s (to be determined by the Commonwealth Grants Commission), possibly affecting Qld Councils the most since there are major differences in Qld – eg the scaleback method which has dramatic impacts.
• New, national financial reporting requirements.
• Direct payment of FAG’s to Councils from the Federal Government.
• Adjustment of FAG’s for potential amalgamations or regional co-operation.

By David Spearritt Director ORION

How this pans out is anybody’s guess. NSW and Victoria are worried that their overall share of the pool will decrease if the per capita funding is dropped. So a big fight can be expected.
The Committee recommended that, in line with the Tasmanian Partnership Agreement, Federal and State governments pay rates to local government. The Committee recommended that the Federal government consider extending ANAO’s powers to examine the expenditure of Federal Specific Purpose Payments to and through the States to local government.
Many of these changes are unlikely to occur before a National Summit is held in 2005. However, already the recent Federal Government announcement on additional Road funding follows the themes of the National Inquiry.

“Democracy is the theory that the common people know what they want and deserve to get it good and hard.” H. L. Mencken

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- Return to: Queensland Local Governmentt News February 2004