To assist its Council members in assessing the real costs of operations and delivering services, the Local Government Association of Tasmania (LGAT) has recently released its first Council Cost Index.
LGAT has found that most Councils use the Consumer Price Index (CPI) as the benchmark to assess rate increases but this may not always be the most appropriate measure. It points out to Councils that services provided by Local Government include a relatively high proportion (around 50 per cent) of general construction activity, such as roads, bridges, water supplies and sewerage systems.
LGAT says that costs of these general construction activities bear little relationship to the CPI but rather are captured by a series of indexes grouped under the General Construction Industry Index. This index includes price movements for such activities as house construction, building construction and road and bridge construction.
While the mix of construction and non construction activity will vary from Council to Council, LGAT says that over the 12 month period ending December 2005, the CPI increased by around 2.9 per cent but the General Construction Industry Index increased at a rate of 5.0 per cent. In the previous year, the difference was even greater with 3.3 per cent for CPI and 8.3 per cent for the General Construction Industry Index.
LGAT has assessed, that on the basis of the known movement in prices and the general split of Council costs, the average movement in costs for Tasmanian Councils would be in the vicinity of 3.95 per cent. It is encouraging Councils to consider this Council Cost Index in their budget deliberations and setting of rates.
President of LGAT, Councillor Lynn Mason, said that the release of this index is not a signal for Councils to increase rates by this exact amount but to provide a better understanding of the impacts of costs on operations, and the ability to better make choices in terms of service levels, asset maintenance levels and the resources needed to provide these services.
LGAT is intending to release its Council Cost Index each year to assist Councils with their rating deliberations as well as improve understanding in the community of the actual costs incurred by Councils in the delivery of services. As most Councils around the nation commence their annual budget deliberations, this approach by LGAT to help their members assess the real costs of doing business is an indication of the immense value to the sector of the State Local Government Associations and their peak body, the Australian Local Government Association (ALGA).
On the financial front at the national level, ALGA has been working with representatives from the other spheres of government on the Intergovernmental Agreement (IGA) a key recommendation from the Cost Shifting Inquiry. At the time of going to press, the final sign off by the three spheres was expected on 12 April.
Prior to the signing, ALGA President, Councillor Paul Bell, said that the IGA will “probably not in itself” solve the issue of cost shifting by the Federal and State Governments to Local Government, but will definitely open the way for improved bilateral and sometimes trilateral agreements to specific services and function provision. However, the vexing issue of fair funding – specifically Local Government receiving a direct share of the tax dollar – remains as the major impediment for Councils as they strive to deliver for their communities.
