Speaking at the recent Local Government Managers Australia NSW 100th Annual Conference, Professor Percy Allan said that Australian Local Government is operating from a position where its total expenditure per head is much smaller than that of comparable developed nations.
“In 2006 total expenditure by councils equated to just 2.3 per cent of our GDP compared with 15.1 per cent of GDP in Japan, 12.9 per cent in the UK, 12.7 per cent for the European Union and 8.5 per cent in the USA,” he said.
Professor Allan advises National, State and Local Governments in Australia and Asia on public policy, finance and management. He was Chairman of the Premier’s Council on Cost and Quality of Government from 1999 to 2007 and is currently Chair and Research Director of Review Today Pty Ltd, which undertakes financial sustainability reviews for Local Governments.
“Local Government accounts for only 6.4 per cent of total government spending, which is also lower than other developed nations,” he said. “Yet Australian councils generally service a larger number of residents.”
Professor Allan said that Australian Local Government therefore operates with less resources, but is at the same time servicing more people. To equate to the average population sizes of Local Governments in the European Union, Australia would have around 3,800 councils, not the 565 we currently have.
He said a council’s financial sustainability benchmarks should ideally be:
- a minimum 2.5 per cent
budget surplus ratio - a minimum 60 per cent
net debt and other financial
liabilities to total operating
revenue ratio so debt
charges remain affordable - no backlog of unsatisfactory
infrastructure that is unsafe,
unsound or unsightly.
“Sustainable councils are able to achieve responsible and prudent financial and infrastructure outcomes within ten years without having to raise rates, fees or charges each year by more than one and two thirds of the rate of CPI inflation,” Professor Allan said.
“Unsustainable councils are those that need to raise rates and charges each year more than double the inflation rate to achieve sustainable financial and infrastructure outcomes.
“Vulnerable councils fall between being unsustainable and unsustainable.
“Councils that are unsustainable need to make unpopular decisions, that is raise more revenue or cut services, to rectify the situation. The longer they leave this task the greater the community backlash.”
The 2009 FiscalStar financial sustainability survey of NSW’s 100 largest councils commissioned by Review Today (and sponsored by Dexia) found that 37 were financially unsustainable and a further 16 vulnerable.
A large number of these councils were fast growing regional and metropolitan councils, with 12 of the State’s 18 regional coastal councils currently unsustainable.
Half the 22 outer metropolitan councils were either unsustainable or vulnerable, while a majority of the inner metropolitan and rural regional councils were sustainable.
“The four goals of sustainability are sustainable services, sustainable infrastructure, affordable rates and charges, and financial viability,” he said.
Professor Allan said that the key is to find a balance across these four goals, that is to find the least painful way to find this balance.
“It is important to bring your stakeholder groups together to see the priorities of others alongside their own and then come up with acceptable decisions,” he said.
Undertaking a council wide financial sustainability review, he said, will
deliver the following benefits:
- an integrated solution
- all areas of councils
come together to
produce a consistent
data set for sustainable
analysis creating an
interdisciplinary
approach across the
organisation - it produces a non
technical sustainability
report that all can
understand that is
underpinned by robust
technical reports for
stakeholders with
a more detailed
knowledge of such an
analysis - where necessary, it
provides a business
case for raising rates
and charges to put to
the community and
State Government - councillors have a
clear understanding
the challenges and
choices to achieve
sustainability.
“Councils need to act now,” Professor Allan said. “Don’t wait for either the State or Federal Governments to rescue councils.”
For further information contact Review Today on 1800 500 035 or visit www.reviewtoday.com.au
