Councils all over Australia are in the process of developing their budgets for the next financial year. This year, they are doing this in times of unprecedented (at least in recent times) economic pressure. There is much talk about ‘living within our means’, ‘tightening our belts’ and ‘looking after our ratepayers’.
This raises the question of how Local Governments should behave during times like these. How are ratepayers best looked after when unemployment is rising, interest rates are at generational lows and economic activity is stagnant?
This article was prepared during the post Federal Budget debate about whether a projected deficit of $57.6 billion was appropriate to counter the impacts of the global financial crisis. Whether you think it’s a good idea or not, the Federal Government has gone out on a limb in putting forward a Budget that would have been unthinkable a mere 12 months ago. State Governments have seen their previously comfortable surpluses slashed or disappear.
In this environment, each council’s goal ought to be to do what it can to stimulate economic activity and protect jobs in its local area. It is one of the few sectors that has the capacity to generate its own revenue and therefore be able to take counter cyclical measures.
This is the time for Local Government to invest in much needed capital works and this is also the time in which local communities will need the services that Local Governments deliver. Capital works will receive a boost from the Federal Government’s recent economic security package. The Federal Government has pledged $800 million for Local Government through its Regional and Local Community Infrastructure Program. This needs to be backed by a vigorous Local Government effort from its own coffers and loans. Tighter budgets in the name of providing relief to or benefiting ratepayers will have very marginal or no impact on their taxation situation, but could in fact have a very detrimental impact in terms of employment and service delivery.
‘Belt tightening’ and ‘living within our means’ are redolent of the impact of the Premiers Plan during the Great Depression, when expenditure in State and Federal budgets was reduced, thereby exacerbating the lack of demand in the economy and prolonging the downturn.
While the governments in the 1930s were more focused on providing returns to British bondholders than benefiting Australian taxpayers, the impact was obvious. It has been argued that the Great Depression was only ended by the increased expenditures required by World War 2.
The most important contribution that Local Governments can make towards the ultimate wellbeing of their communities is to stimulate local economic activity and employment. This is the time to intensify effort to bring forward infrastructure projects that will both benefit the local community, underwrite economic activity and help tackle the infrastructure deficits that have been identified over the past few years.
Local communities will also need services during these difficult times. Welfare, recreation and cultural services are very important means by which communities support those who are most impacted and also hold communities together generally.
Economic downturns always affect the neediest among us most heavily, yet this impact is often less visible. Local Government, as the level of government closest to the community, must ensure that their needs are not forgotten.
How is all this to be paid for? In difficult times, pressure goes on to Local Governments to minimise rates increases and borrowings. As well as ratepayers associations, the local media usually has a fine time with headlines of rates hikes and debt burdens. The arguments around debt are being aired prominently on the national stage, with the consensus among developed economies at least, that debt is appropriate in these times.
The important issue around debt is the capacity to service it and as long as there is proper capital works planning and financial strategies, together with a guaranteed revenue stream from rates, Local Government is very well placed.
With regard to rates, talk around the traps is that three per cent increases are ‘good’ and ‘responsible’ and ‘sensitive’. Six per cent increases are a ‘burden’, ‘hike’ and ‘grab’.
Let’s look at the situation of a ratepayer whose 2008–2009 rate bill was $1000. The difference for this ratepayer between a three and a six per cent increase in their rate bill is $30 per year or about 58 cents per week.
One can argue that any increase is significant, but the point is that this differential is not going to adversely, in itself, impact on the ratepayer. However, if there are say 40,000 assessable properties in the municipality, the extra $30 per property results in an extra $1.2 million in revenue.
For any size Local Government, this represents a significant boost in its capacity to develop and maintain infrastructure and deliver services. And it is sustainable – once the Local Government has it, it becomes part of the rates base for the following year.
Sustainable strong Local Government needs to take a broad and long view as to how it can best help its communities during these difficult times. It needs to look past short tem and populist shibboleths and be prepared to make responsible and strategic decisions.
*Ron Exiner has held senior management positions in corporate, executive and financial services in various Victorian councils, spanning more than 20 years. As Director of Exintel Pty Ltd, a consultancy focusing on governance, strategic planning and policy development, he prepared the Good Governance Guide (2004) for the Good Governance Advisory Group (Victorian Government, Municipal Association of Victoria and Victorian Local Governance Association), and Excellence in Governance for Local Government (2005) for CPA Australia. He is currently working for the Victorian Local Governance Association (VLGA) in a policy role. The views expressed in this article are not necessarily those of VLGA.
