Chapter 2: Financial Assistance Grants to Local Government


Overview of current arrangements
Determining the quantum of the grant
Determining entitlements for 2001-02 and 2002-03
Interstate distribution of the grants
Quantum of financial assistance grants allocations
Principles for determining the distribution of grants within States
Determining the distribution of grants within States
Bodies eligible to receive financial assistance grants
Local Government Grants Commissions methods
Local roads needs assessments
Revenue assessments
Expenditure assessments
Needs of Indigenous communities
Allocation of grants to councils in 2001-02
Councils on the minimum grant
Reviews of Grants Commission methods
The impact of Grants Commission 'capping' policies
Increasing accountability and transparency of Grants Commission processes

In 2001-02, the Federal Government provided $1.394 billion nationally in financial assistance to Local Government - on average, about $72 per capita or $1.93 million per council. These financial assistance grants were paid through the States and have two components - general purpose grants and identified local road grants. In 2001-02, the general purpose grants were $965.8 million and identified local roads grants were $428.6 million.

The objective of general purpose assistance from the Federal Government to Local Government is to strengthen Local Government to enable it to provide a wider range of services and to promote equity between councils and certainty of funding (see box 'Objects of the Act'). These grants are untied in the hands of the receiving council - that is, councils are able to spend the grant according to the priorities of their communities.

The general purpose grants began in 1974-75 with allocations in the 1974 and 1975 Budgets distributed according to Commonwealth Grants Commission (CGC) recommendations. This was followed, over the next two decades, by development in legislative arrangements for providing financial assistance to Local Government. These grants are currently provided under the Local Government (Financial Assistance) Act 1995 (the Act), which replaced the Local Government (Financial Assistance) Act 1986 and came into effect from 1 July 1995.

From July 1991, as a result of a decision at the 1990 Special Premiers' Conference, local roads grants to Local Government were provided under the 1986 Act (as amended). These grants are intended to help councils with the cost of maintaining their local roads but, as they are also untied, councils are not required to spend them on local roads.

In 2000-01, the CGC reviewed the operation of the 1995 Act and handed its report to the Government in June 2001.1 In May 2002, the Federal Minister for Regional Services, Territories and Local Government announced an inquiry into Local Government and Cost Shifting to be conducted by the House of Representatives Standing Committee on Economic, Finance and Public Administration. The inquiry is to look at the financial position of Local Government. One of the terms of reference for the inquiry is to examine the findings of the CGC review of the Act. The Committee is to take into account the views of interested parties. The Inquiry is discussed further in Chapter 6.

1 Commonwealth Grants Commission 2001, Review of the operation of the Local Government (Financial Assistance) Act 1995, Commonwealth of Australia, Canberra.

Overview of current arrangements

In determining the distribution of grants to councils, the current arrangements are:

  1. At the beginning of each financial year, the Federal Government determines the quantum of general purpose and local roads grants estimated to be available for Local Government nationally. This is equal to the quantum of the grants received nationally in the previous financial year adjusted by an estimated escalation factor.
  2. The estimated quantum of general purpose and local roads grants for each State is then calculated according to requirements of the Federal legislation, and these amounts are advised to States.
  3. Local Government Grants Commissions in each State determine the allocation of general purpose and local roads grants among local governing bodies in their State.
  4. The Local Government Grants Commission recommendations are then sent by the State Minister to the Federal Minister for approval.
  5. Once these grants have been approved by the Federal Minister, quarterly payments are made by the Federal Government to the States and, without undue delay, these are passed on by the States to local governing bodies as untied grants.
  6. Toward the end of the financial year, the escalation factor is revised and the final quantum of the grants for the financial year is recalculated.
  7. An adjustment to the allocations to local governing bodies is made and their payments in the following year adjusted.

More details on these steps are given in the sections that follow.

Back to Top

Determining the quantum of the grant

Section 8 of the Act specifies the formula to be applied by the Federal Treasurer each year to determine the increase in the level of Local Government financial assistance grants. Up to and including 1999-2000, the annual increase in Local Government grants was based on the increase in financial assistance grants and special revenue assistance to the States.

Since 1994-95, these State grants have increased annually in line with population and consumer price index movements. Grants to Local Government also increased in line with the State grants except for 1997-98, when Local Government grants were increased for inflation but not population growth.

Following the introduction of The New Tax System in July 2000, increases in State financial assistance grants are no longer related to the consumer price index and population. This link was abolished from 1 July 2000 under the terms of the Intergovernmental Agreement on the Reform of Commonwealth-State Financial Relations. The States now receive the goods and services tax (GST) revenue.

In June 2000, the Act was amended to remove the nexus between movements in the Local Government financial assistance grants and State grants. The escalation factor for Local Government financial assistance is now on a real per capita basis similar to that previously operating for the State grants.
As with the existing provisions, the amended Act provides the Treasurer with discretion to increase or decrease the escalation factor in special circumstances. In applying that discretion, the Treasurer is required to have regard to the objects of the Act (see box 'Objects of the Act') and any other matters thought relevant. The same escalation factor is applied to both the general purpose and local roads components of the grant.

Objects of the Act

Subsection 3(2) of the Act explains the objects of the Parliament in enacting the Local Government (Financial Assistance) Act 1995:

'The Parliament wishes to provide financial assistance to the States for the purposes of improving:

  • the financial capacity of local governing bodies; and
  • the capacity of local governing bodies to provide their residents with an equitable level of services; and
  • the certainty of funding for local governing bodies; and
  • the efficiency and effectiveness of local governing bodies; and
  • the provision by local governing bodies of services to Aboriginal and Torres Strait Islander communities.'

Back to Top

Determining entitlements for 2001-02 and 2002-03

Actual entitlements for 2001-02 and estimated entitlements for 2002-03 are calculated using the respective final factor and estimated factor, which are determined in accordance with the Act.

The factors used and the entitlements calculated for the 2001-02 actual entitlement and the 2002-03 estimated entitlement are set out in Figures 2.1 and 2.2 respectively. In determining the final factor for 2001-02, the Treasurer exercised the discretion available to him under the Act to increase the factor (see box 'Determining the final factor for 2001-02').

The estimated entitlement for 2001-02 was $1.375 billion, comprising $952 million in general purpose grants and $423 million in local roads grants (see Figure 3.2 in the 2000-01 Local Government National Report). In 2001-02 the Federal Government paid this amount in grants to Local Government through the States in respect of that year. However, at the end of 2001-02 and once the final factor for 2001-02 had been determined, the final entitlement for 2001-02 was calculated as $1.394 billion, comprising $966 million in general purpose grant and $429 million in local roads grants (see Figure 2.1). As a result, Local Government had been underpaid $19.5 million in 2001-02, comprising $13.5 million in general purpose grants and $6.0 million in local roads grants.

The estimated entitlement for 2002-03 is $1.449 billion, comprising $1004 million in general purpose grants and $445 in local roads grants (see Figure 2.2). The actual cash paid to Local Government from the Federal Government in 2002-03 will be $1.469 billion. That is, $1.449 billion in estimated entitlement for 2002-03 plus the $19.5 million underpaid in 2001-02 (see box 'Calculation of grants').

Figure 2.1 Calculation of financial assistance grants, actual entitlements for 2001-02

Figure 2.2 Calculation of financial assistance grants, estimated entitlements for 2002-03

Figure demonstrating the calculation of the final factor for 2001-02

Calculation of grants

Each year, the quantum of the grant to Local Government is determined at the start of the financial year, using a formula based on estimates of the consumer price index and population increases for the year. Councils are advised, usually in August, of the grant to be paid that financial year.

At the end of each year the estimated grant for Local Government is adjusted to an 'actual' entitlement, calculated using the actual consumer price index and population figures.

Inevitably there is a difference between the estimated and actual grant entitlements. This difference is added to or subtracted from the grant paid to the State in the following year.

Therefore for each year there is an estimated grant entitlement, an actual grant entitlement and an actual grant paid.

Back to Top

Interstate distribution of the grants

The Act specifies that the national allocation of the general purpose component of the grant is to be divided amongst the States on a per capita basis. This uses the Australian Bureau of Statistics' estimate of each State's population and the estimated population of all States as at 31 December of the previous year.

In contrast, the State shares of the local roads component of the grant are fixed. The distribution is determined on the basis of shares inherited from the former, tied grant arrangements (see box 'History of the Interstate Distribution of Local Roads Grants'). Therefore, each State's share of the local roads component is obtained by multiplying the previous year's funding by the escalation factor determined by the Treasurer.

History of the Interstate Distribution of Local Roads Grants

The history of State shares of road grants dates back to 1923. According to the 1986 Report of the Inquiry into the Distribution of Federal Road Grants (the 'Cameron Report') 'The 1923 Commonwealth road grants legislation allocated grants on the basis of three-fifths according to population and two-fifths according to area.' In 1959, reliable data on vehicle registrations became available and Commonwealth legislation divided the funds between the States on the basis of one-third population, one-third area and one-third vehicles on register. However, this formula did not apply to Tasmania, which received 5 per cent of the grants (pp. 48-49 of the Cameron Report)..

Annual Federal grants to Local Government, first made in 1974, were grants for general purposes. The Road Grants Act 1974 provided grants to the States for urban arterial, rural arterial, urban local roads and rural local road projects and some of these grants were passed on to Local Government. The grants were made following a 1973 Commonwealth Bureau of Roads Report on Roads in Australia, which had examined the needs of the whole road system.

The report suggested that 'the distribution of grants between the States [be] determined on the one hand by the distribution of the warranted and feasible road program and on the other, by taxable capacity as indicated by numbers of motor vehicles and people and by incomes per capita.' In other words, shares would be determined in part by actual needs (as modified by what was actually feasible in the time frame) and in part by future expenditure effort, with States being required to provide some matching funds. A special equalisation grant was suggested for Tasmania as it had 'the lowest level of income per head and the highest road construction and maintenance costs'.

Federal grants for local roads continued to grow over the next decade, and as they became an integral part of council budgets, councils sought greater clarity, predictability and control over the grants. This came in the 1980s as agreement was reached with the States on principles for the intrastate distribution of these grants to Local Government.

One issue that blurred transparency of the local roads grants was the fact that State road authorities were responsible for some local roads mainly those in unincorporated areas. The Cameron Report noted that 'Many local roads are the direct responsibility of State governments, mainly in areas not incorporated as local authorities' (p. 25). According to this report, the State was responsible for 2.5 per cent of the local road system in New South Wales, 5.1 per cent in Victoria, 12.2 per cent in Queensland, none in Western Australia, 12.1 per cent in South Australia and 6.1 per cent in Tasmania (p.26).

The Report noted 'In all except one of the States a significant amount of local roads grants is allocated to State road authorities. In two of the States, this is about one-third of the total' (p. 27). The amounts retained by State governments for local roads under their control were negotiated privately between the States and State Local Government Associations (p. 27). Therefore, Local Government shares were not separately identified in Federal departmental annual reports.

In 1987, the Bureau of Transport Economics prepared a report called Assessment of the Australian Road System (No.61, 1987). The report noted that 'The distribution of Commonwealth Local Government road grants among local authorities and States is based on formulae which broadly take into account, inter alia, both the population and road lengths of a particular area' (p. 137). As an example of this, from 1977-78 through to 1990-91, South Australia's share of the local roads grants across a number of Federal road programs ranged between 7.5 per cent and 8.1 per cent of the total local roads grants. In 1990-91, it was $24.3 million or 7.5 per cent of a total local roads grant of $323.8 million.

On 29 May 1991, the Federal Government introduced a Bill under which local roads grants would be separately identified and paid under the Local Government (Financial Assistance) Act 1986. The Second Reading Speech said the Local Government (Financial Assistance) Amendment Bill 1991 implemented the Special Premiers' Conference decision 'that funds for local roads would be untied and paid to Local Governments, or to State Governments where they are responsible for local roads, via general purpose grants.'

Federal Budget Paper No.1 for 1991-92 (p. 3-267) records that 'Heads of Government agreed at the October 1990 Special Premiers' Conference that Commonwealth funds for local roads be untied and paid at the same real level. Interim arrangements decided in April 1991, provide for a portion of these funds to be paid to the States from 1991-92 as grants in lieu of funding for local roads under their direct control (e.g. those in national parks and unincorporated areas).'

In 1991-92, $39.4 million was provided in general revenue assistance to the States for local roads maintained by the States (p. 3-266). Payments to the States were as follows: $4.543 million in New South Wales; $2.653 million in Victoria; $6.019 million in Queensland; $8.771 million in South Australia; $5.193 million in Tasmania; and $12.205 million in Northern Territory (Federal Budget paper No. 4, p. A-42). This led to a commensurate reduction in the amount available for Local Government financial assistance grants for local roads in each State except Western Australia. In the case of South Australia, its grant was reduced to $17.7 million or 5.85% of the local roads funds provided under the Local Government (Financial Assistance) Act 1986 in 1991-92.

There were some subsequent changes that enlarged the national local roads grant pool:

  • In 1992-93, the Tasmanian Government restored all of its local roads grants to councils under the financial assistance grants. This is one reason why Local Government in Tasmania has a higher than expected share of the local road grants.
  • In 1992-93, some of the grants in the Northern Territory (mostly for unincorporated Aboriginal councils) were returned to the local road financial assistance grants.
  • In 1995-96, local roads grants were paid to the ACT Government for the first time under the Local Government (Financial Assistance) Act 1995.

These changes had no effect on the entitlements or payments for the other States under the Act but did reduce their share of the local roads grant pool. For instance, the impact of these changes caused South Australia's share to fall from 5.85% to 5.68% and finally to 5.5%.

In 1993-94, the payments to the States for local roads maintained by the States were untied and were subsumed within general purpose payments to the States.

Table 2.1 shows the allocation of the final entitlement for 2001-02 amongst the States while Table 2.2 shows the allocation of the estimated entitlements for 2002-03 amongst the States. Table 2.2 also shows the percentage change in the grants from 2001-02 to 2002-03.

Table 2.1 General purpose and local roads grants, allocation amongst States, 2001-02

State

General purpose grant

Local roads grant

Total grant

$m

% of
total

$ per
capita

$m

% of
total

$ per
capita

$m

% of
total

$ per
capita


NSW

327.7

33.9

49.89

124.3

29.0

18.92

452.1

32.4

68.82

Vic

239.1

24.8

49.89

88.4

20.6

18.44

327.4

23.5

68.33

Qld

179.8

18.6

49.89

80.3

18.7

22.29

260.1

18.7

72.18

WA

94.5

9.8

49.89

65.5

15.3

34.61

160.0

11.5

84.50

SA

75.4

7.8

49.89

23.6

5.5

15.59

99.0

7.1

65.48

Tas

23.6

2.4

49.89

22.7

5.3

48.09

46.3

3.3

97.98

NT

9.9

1.0

49.89

10.0

2.3

50.58

19.9

1.4

100.47

ACT

15.9

1.6

49.89

13.7

3.2

43.04

29.7

2.1

92.93


Total

965.8

100.0

49.89

428.6

100.0

22.14

1 394.4

100.0

72.03

Note: All variations are due to rounding adjustments

Source: Department of Transport and Regional Services

Table 2.2 Estimated grant entitlements and percentage change from previous year by State, 2002-03

State

General purpose

Local roads

Total grant

$m

% change

$m

% change

($m)

% change


NSW

340.2

3.79

129.2

3.92

469.4

3.82

Vic

248.6

3.98

91.8

3.92

340.4

3.96

Qld

188.0

4.55

83.4

3.92

271.4

4.36

WA

98.3

4.00

68.1

3.92

166.4

3.97

SA

77.8

3.15

24.5

3.92

102.3

3.34

Tas

24.2

2.84

23.6

3.92

47.8

3.37

NT

10.2

3.35

10.4

3.92

20.7

3.64

ACT

16.5

3.70

14.3

3.92

30.8

3.80


Total

1 003.7

3.92

445.4

3.92

1 449.1

3.92

Note: All variations are due to rounding adjustments

Source: Department of Transport and Regional Services

Table 2.3 provides the per capita relativities of the State allocations for the general purpose, local roads and total grants in 2001-02. The State per capita relativities for GST revenue are provided for comparison. The per capita relativity for a State is the ratio of the per capita grant for the State to the average per capita grant across all States. Per capita relativities have values around 1.0. If the per capita relativity for a State is less than 1.0, the State receives less than its per capita share of the grants. If the per capita relativity is greater than 1.0, the State receives more than its per capita share.

Table 2.3 shows that New South Wales, Victoria and South Australia receive less than their per capita share for financial assistance grants while the remaining States receive greater than their per capita share. South Australia has the lowest per capita relativity and the Northern Territory the highest for the financial assistance grants.

The GST revenue relativities have a far greater variability than the financial assistance grant relativities. The GST revenue relativities for all States, except Western Australia and South Australia, have the same direction of movement away from 1.0 as the financial assistance grant relativities.

Table 2.3 Per capita relativities for general purpose, local roads, financial assistance grants and GST revenue, by State, 2001-02

State

Population as
at 31 Dec 2000

General
purpose
per capita
relativities

Local roads
per capita
relativities

Financial
assistance
grants per
capita relativities

State GST
revenue
per capita
relativities


NSW

6 568 902

1.0000

0.8550

0.9554

0.9203

Vic

4 791 268

1.0000

0.8330

0.9487

0.8754

Qld

3 603 043

1.0000

1.0066

1.0020

1.0027

WA

1 893 490

1.0000

1.5632

1.1731

0.9752

SA

1 511 183

1.0000

0.7040

0.9090

1.1794

Tas

472 288

1.0000

2.1721

1.3602

1.5010

NT

198 487

1.0000

2.2846

1.3948

4.0217

ACT

319 303

1.0000

1.9440

1.2901

1.1463


Total

19 357 964

Sources: Department of Transport and Regional Services and Table 3 in Federal Financial Relations 2002-03, Commonwealth Budget Paper No. 3

Back to Top

Quantum of financial assistance grants allocations

Table 2.4 shows the level of general purpose grants since the Federal Government began providing general purpose assistance to Local Government in 1974-75, together with untied local roads grants since 1991-92.

Table 2.4: National financial assistance grant allocation, 1974-75 to 2002-03 ($)

Year

General purpose

Local roads

Total


1974-75

56 345 000

n/a

56 345 000

1975-76

79 978 000

n/a

79 978 000

1976-77

140 070 131

n/a

140 070 131

1977-78

165 327 608

n/a

165 327 608

1978-79

179 426 870

n/a

179 426 870

1979-801

222 801 191

n/a

222 801 191

1980-81

302 226 347

n/a

302 226 347

1981-82

352 544 573

n/a

352 544 573

1982-83

426 518 330

n/a

426 518 330

1983-84

461 531 180

n/a

461 531 180

1984-85

488 831 365

n/a

488 831 365

1985-86

538 532 042

n/a

538 532 042

1986-87

590 427 808

n/a

590 427 808

1987-88

636 717 377

n/a

636 717 377

1988-89

652 500 000

n/a

652 500 000

1989-90

677 739 860

n/a

677 739 860

1990-91

699 291 988

n/a

699 291 988

1991-922

714 969 488

303 174 734

1 018 144 222

1992-933

730 122 049

318 971 350

1 049 093 399

1993-94

737 203 496

322 065 373

1 059 268 869

1994-95

756 446 019

330 471 283

1 086 917 302

1995-964

806 748 051

357 977 851

1 164 725 902

1996-97

833 693 434

369 934 312

1 203 627 746

1997-98

832 859 742

369 564 377

1 202 424 119

1998-99

854 180 951

379 025 226

1 233 206 177

1999-2000

880 575 142

390 737 104

1 271 312 246

2000-01

919 848 793

408 163 979

1 328 012 793

2001-02

965 841 233

428 572 178

1 394 413 411

2002-035

1 003 702 209

445 372 208

1 449 074 417

Notes:
1 Grants to the Northern Territory under the Act began in 1979-80, the initial allocation being $1 061 733.
2 Before 1991-92 local roads grants were provided as tied grants under a different Act.
3 In 1992-93 part of the local roads grant entitlement of the Tasmanian and Northern Territory Governments was reallocated to Local Government in the respective State.
4 Grants to the Australian Capital Territory under the Act began in 1995-96, the initial allocation being general purpose ($13 572 165) and local roads ($11 478 714).
5 For 2002-03 the national grant allocation is the estimated entitlement.

Source: Department of Transport and Regional Services

Table 2.5 provides the level of general purpose grants, local roads grants and total financial assistance grants for States over the five years from 1998-99 to 2002-03.

Table 2.5 Grant entitlements for all States by type of grant, 1998-99 to 2002-03 ($m)

State

Type of grant

1998-99

1999-00

2000-01

2001-02

2002-03


NSW

General purpose

289 122 909

297 893 674

310 670 281

327 747 092

340 161 401

Local roads

109 967 111

113 365 094

118 421 178

124 342 237

129 216 452

Total

399 090 020

411 258 768

429 091 459

452 089 328

469 377 853

Vic

General purpose

212 348 975

218 827 409

228 730 976

239 054 282

248 565 220

Local roads

78 141 293

80 555 859

84 148 650

88 356 082

91 819 641

Total

290 490 268

299 383 268

312 879 626

327 410 365

340 384 861

Qld

General purpose

157 152 792

162 692 473

170 764 707

179 769 293

187 952 916

Local roads

71 015 440

73 209 818

76 474 975

80 298 724

83 446 434

Total

228 168 232

235 902 291

247 239 682

260 068 017

271 399 350

WA

General purpose

83 128 999

86 223 641

90 349 594

94 473 299

98 256 102

Local roads

57 953 514

59 744 277

62 408 872

65 529 316

68 098 065

Total

141 082 513

145 967 918

152 758 466

160 002 614

166 354 167

SA

General purpose

68 005 311

69 591 120

72 250 229

75 398 572

77 776 866

Local roads

20 830 002

21 473 649

22 431 374

23 552 943

24 476 218

Total

88 835 313

91 064 769

94 681 603

98 951 515

102 253 084

Tas

General purpose

21 683 676

22 002 166

22 731 964

23 564 215

24 233 779

Local roads

20 085 659

20 706 306

21 629 807

22 711 297

23 601 580

Total

41 769 335

42 708 472

44 361 771

46 275 512

47 835 359

NT

General purpose

8 636 642

8 938 475

9 382 393

9 903 259

10 234 625

Local roads

8 878 600

9 152 948

9 561 170

10 039 228

10 432 766

Total

17 515 242

18 091 423

18 943 563

19 942 487

20 667 391

ACT

General purpose

14 101 647

14 406 184

14 968 649

15 931 221

16 521 300

Local roads

12 153 607

12 529 153

13 087 954

13 742 351

14 281 052

Total

26 255 254

26 935 337

28 056 603

29 673 572

30 802 352

National
total

General purpose

854 180 951

880 575 142

919 848 793

965 841 233

1 003 702 209

Local roads

379 025 226

390 737 104

408 163 979

428 572 178

445 372 208


Total

1 233 206 177

1 271 312 246

1 328 012 773

1 394 413 411

1 449 074 417

Notes:
All years are actual entitlement except 2002-03, which is an estimated entitlement.
All variations are due to rounding adjustments.

Source: Department of Transport and Regional Services

Back to Top

Principles for determining the distribution of grants within States

The 1995 Act requires national principles to be formulated by the Federal Minister in consultation with State Ministers and a body or bodies representative of Local Government. These national principles provide guidance for allocating the financial assistance grants for a State to councils within the State.

The national principles first came into effect from 1996-97 and apply to both grant components. The national principles applying to the general purpose component provide additional criteria to the objectives of full horizontal equalisation and the minimum grant (see box below) which are established in the Act. The national principles are set out in full in Appendix A.

What is horizontal equalisation?

Horizontal equalisation would be achieved if every council in a State, by means of reasonable revenue-raising effort, was able to afford to provide a similar range and quality of services. The Federal Government pursues a policy of horizontal equalisation when it distributes general purpose funding for State Governments.

More formally, section 6(3) of the Act defines horizontal equalisation as being an allocation of funds that:

a) ensures each local governing body in a State is able to function, by reasonable effort, at a standard not lower than the average standard of other local governing bodies in the State

b) takes account of differences in the expenditure required to be incurred by local governing bodies in the performance of their functions and in their capacity to raise revenue.

Horizontal equalisation distribution of grants is determined by estimating the cost each council would incur in providing a normal range and standard of services, and by also estimating the revenue each council could obtain through the normal range and standard of rates and charges. The grant is then allocated to compensate for these variations in expenditure and revenue and (ideally) bring all councils up to the same level of financial capacity.

This means councils that would incur higher relative costs in providing normal services, for example, in remote areas (where transport costs are higher), or areas with a higher proportion of elderly or pre-school aged people (where there will be more demand for specific services), will receive relatively more grant monies. Similarly, councils with a strong rate base (highly valued residential properties, high proportion of industrial and/or commercial property) will tend to receive relatively less grant monies.

What is the minimum grant?

Section 6(2)(b) of the Act requires the Minister to ensure that:

'No local governing body in a State will be allocated an amount under section 9 (the general purpose component of the grant) in a year that is less than the amount that would be allocated to the body if 30 per cent of the amount to which the State is entitled under that section in respect of the year were allocated among local governing bodies in the State on a per capita basis.'

For the general purpose grant, the most important principle is that the grants are distributed so as to contribute to achieving horizontal equalisation. Horizontal equalisation is achieved if each council in a State is able to provide the average range, level and quality of services by reasonable effort, taking account of differences in their capacities to raise revenue and in their expenditure needed to provide average services.

The distribution of grants between States on a per capita basis, rather than on a horizontal equalisation basis, evolved as a result of difficulties in determining the latter. In the 1991 CGC report on the per capita relativities for the distribution of general purpose assistance, the Commission did not recommend using the relativities it had calculated. It considered its assessments to be subject to important reservations about the appropriateness of the methods it had used and the quality of available data.2

2 Commonwealth Grants Commision 1995, Equality in Diversity - History of the Commonwealth Grants Commission, Australian Government Publishing Service, Canberra, p. 131.

Horizontal equalisation within States aims to bring all councils in that State up to the same fiscal level. The effect of distributing grants between States on a per capita basis means councils in different States may be brought up to different fiscal levels.

The Effort Neutrality principle requires that a council's grant be independent of its policies. This means the grant to a particular council is not influenced by that council's actual rates charged, its actual expenditure on particular functions or the extent of its reserves or debt. This process allows a council to decide its own spending priorities and revenue-raising policies knowing that the decisions it takes will not affect its grant entitlement.

The Minimum Grant principle ensures that each council receives at least a minimum level of general purpose assistance as required by the Act. This minimum is set at 30 per cent of a council's per capita share of general purpose grants.

The Other Grant Support principle requires other grants provided to a council by another sphere of Government for the provision of services to be regarded like any other source of revenue and taken into account when assessing the overall financial capacity of each council. In the assessment of each council's financial capacity, local roads grants provided under this Act should be included as well as any other grants that relate to the provision of Local Government services that are within the scope of services covered by the grant allocation process.

The Aboriginal Peoples and Torres Strait Islanders principle seeks to address the specific needs of Aboriginal and Torres Strait Islander peoples in the provision of council services. The principle requires that the level of grants received by councils should reflect the Aboriginal and Torres Strait Islander population within council boundaries. This means that calculation of the grant for councils should reflect differences in the demand for services by Indigenous people, the cost of providing services to them and the capacity to raise revenue from them.

There is one national principle applying to the Identified Road Component. It requires distribution of this component on the basis of road expenditure needs, including consideration of factors such as length, type and use of roads.

Section 26 of the Act allows the Federal Minister to approve transitional modifications of the national principles for individual States for specified years. For 2001-02, transitional arrangements were sought by Queensland and agreed to by the Federal Minister. Queensland has been granted transitional modifications each year since the 1996-97 grant year.

Back to Top

Determining the distribution of grants within States

Local Government Grants Commissions, established within each State (except the Australian Capital Territory), determine individual council allocations in accordance with the national principles. In the Australian Capital Territory, Local Government is integrated with the Territory government and there is no role for a Commission.

Local Government Grants Commissions are State authorities required by the Federal Government as a condition of the State receiving Local Government financial assistance grants (see box below). The State determines the membership of its Commission and provides the resources for it.

After the Local Government Grants Commission has determined the grant distribution, the State Minister recommends the allocation to the Federal Minister for approval. One of the conditions for approval is that the Federal Minister is satisfied the State has adopted the recommendations of its Grants Commission.

The Federal Government pays grants to each State government as a tied grant to be passed on to councils in accordance with the approved distribution. Although a tied grant to the States, the grants are untied in the hands of Local Government, to give councils discretion regarding local priorities.

Section 15 of the Act requires, as a condition on the payment to Local Government from the States, that the grants are paid by the State without undue delay and without conditions. Further, each State Treasurer must give the Federal Minister, as soon as practicable after 30 June each year, a statement detailing payments made to councils during the previous financial year as well as the date the payments were made. The State Auditor-General must certify the statement.

Local Government Grants Commissions

Section 6 of the Act specifies the criteria a body must satisfy to be eligible to be recognised as a Local Government Grants Commission for a State. These criteria are:

  • the body is established by a law of the State
  • the principal function of the body is to make recommendations to the State Government about the provision of financial assistance to local governing bodies in the State
  • the Federal Minister is satisfied that the body includes at least two people who are or have been associated with Local Government in the State, whether as members of a local governing body or otherwise.

Sections 11 and 14 of the Act require Local Government Grants Commissions to:

  • hold public meetings in connection with the recommendations
  • permit local governing bodies to make submissions to the Commission in relation to the recommendations
  • make their recommendations in accordance with the national principles and any agreed State-specific principles.

The grants are paid to the States in equal instalments in the middle of each quarter. The first payment for a financial year is paid as soon as statutory conditions are met. One of the requirements of the Act is that the first payment cannot be made before 15 August.

Back to Top

Bodies eligible to receive financial assistance grants

Only local governing bodies are entitled to receive financial assistance grants. All councils constituted under State Local Government Acts are automatically local governing bodies. In addition, Section 4(2) of the Act provides for 'a body declared by the Minister, on the advice of the relevant State Minister, by notice published in the Gazette, to be a local governing body for the purposes of this Act'.

In total, 722 councils received grants in 200102. Included in this figure were 38 declared local governing bodies, made eligible under this provision. Table 2.6 shows the distribution of declared bodies by State.

There are two councils in Australia that receive the equivalent of financial assistance grant payments but are not entitled to receive funding under the Act. These are the Cocos Islands and Christmas Island Councils that are part of Australia's Indian Ocean Territories. For an explanation of the arrangements for these councils see the box 'Funding of councils in Australia's Indian Ocean territories' following.

Table 2.6 Distribution of local governing bodies by type by State at June 2002

Type

NSW

Vic

Qld

WA

SA

Tas

NT2

Total


Councils established
by legislation1

173

78

157

142

68

29

37

684

Declared

2

1

0

0

6

0

29

38


Total

175

79

157

142

74

29

66

722

Notes:
1 These are local governing bodies eligible under section 4(2) of the Act as they are constituted under State Local Government Acts.
2 Includes Northern Territory Road Trust Fund.

Source: Department of Transport and Regional Services

Funding of councils in Australia's Indian Ocean territories

Under an arrangement between the Federal and Western Australian Governments, the Western Australian Local Government Grants Commission provides an annual assessment of the general purpose and local roads grants for the Christmas Island and Cocos (Keeling) Islands Shire Councils. The Commission determines the grant allocation as if these councils were a council in Western Australia. This is on the basis that funding from the Federal Government for non-self-governing territories should allow them to provide services that align with similar communities on the mainland.

On the basis of these assessments, the Territories Office of the Department of Transport and Regional Services provides Federal funds to these Councils in instalments on 15 August, 15 November, 15 February and 15 May. This funding comes from a separate budget allocation to that provided under the Act.

In 200102, Christmas Island had a population of around 2000 people and road length of 132 kms and the Cocos (Keeling) Islands have a population of 650 people and road length of 31 kms. These Territories are around 2500 kms from Perth.

The amounts provided in 200102 were:

  • Christmas Island Shire Council $1 495 868 in general purpose grants and $167 164 in local roads grants
  • Cocos (Keeling) Islands Shire Council $1 046 007 in general purpose grants and $62 187 in local roads grants.

Back to Top

Local Government Grants Commissions methods

Local Government Grants Commissions are required to determine the distribution of 200102 grants of councils in each State in accordance with the national principles and to take into account local circumstances.

To determine the allocation of general purpose grants within a State, the respective Grants Commission assesses the amount each council would need to be able to provide a standard range and quality of services, while raising revenue from a standard range of rates and other income sources. The Commission then develops recommendations for grant distribution by allocating the available grant to councils taking account of their assessed grant need, and the minimum grant requirement. Distribution of the local roads component is determined based on assessments of councils' road expenditure need.

These are difficult tasks, requiring considerable experience and judgement. Grants Commissions need to accurately and quantitatively assess the unique circumstances of a large number of councils in their jurisdictions in terms of providing a variety of services and raising a number of revenues.

Local Government Grants Commissions meet annually at a national conference to share insights and discuss common issues. The 2001 conference was held at Caloundra in Queensland in October. The conference included a presentation by the CGC on issues arising from its review of the operation of the Federal Act. Local Government Grants Commissions examined the implications of particular findings of the review for their allocation methods. The Victoria Grants Commission explained its new methodology for allocating local roads grants that was introduced in 200102. The South Australian Local Government Grants Commissions gave an account of its progress in mapping all local roads in South Australia using a GIS system. This development by the South Australian Commission arose out of its local roads audit program. The Australian Bureau of Statistics reported on the implications for Grants Commissions of its review of Local Government statistics.

Below is a brief description of the Local Government Grants Commissions methods used in 200102 comparing their approach to road grants, the assessments of revenue and expenditure and the treatment of Indigenous communities. The description of methods below should not necessarily imply that the Federal Government agrees with the approach taken by the Grants Commissions.

A detailed description of the methods used by each Grants Commission is contained in Appendix B. In addition to the summaries in the appendix, the Grants Commissions publish information about their methods in annual reports and occasional publications. Copies of these are usually available on the Internet (see box 'Internet addresses for Local Government Grants Commissions' below).

Internet addresses for Local Government Grants Commissions
Local Government
Grants Commission
Internet address
New South Wales
Victoria www.dvc.vic.gov.au/web20/dvclgv.nsf
Queensland www.qlggc.qld.gov.au/
Western Australia www.dlgrd.wa.gov.au/lggc
South Australia http://www.sa.gov.au/
Tasmania http://www.treasury.tas.gov.au/
Northern Territory www.dcdsca.nt.gov.au/dcdsca/intranet.nsf/pages/GrantsOverview

Back to Top

Local roads needs assessments

Grants Commissions assess each council's local roads needs when they determine grant allocations for the local roads grants. However, as part of the expenditure needs assessment for determining general purpose grants, they also assess the expenditure needs of councils for local roads. Some Grants Commissions use the same method for the two assessments while others use different methods.

New South Wales distributes a little more than one-quarter of the local roads component to councils in Sydney, Newcastle and Wollongong, and a little less than three-quarters to other councils. Of the former, 57 per cent is distributed in proportion to road length, 38 per cent to population and 5 per cent to bridge length. Of the latter, about 74 per cent is distributed in proportion to road length, 19 per cent to population and 7 per cent to bridge length.

New South Wales uses a different model for assessing roads needs in the general purpose component of the model. New South Wales uses the following categories of local roads: urban local roads, sealed rural local roads, and unsealed rural local roads. Disability factors for topography, climate, soils, materials, drainage, heavy traffic, travel, and development increase expenditure allowances for each council. It also assesses needs with reference to the length of each type of road per urban or rural property, as applicable, and with provision for bridge and culvert needs per kilometre of roads. The average spending on maintaining urban roads per kilometre is more than double rural sealed roads which, in turn, is more than double the average spending on rural unsealed roads.

Victoria implemented a new method for allocating the local roads grant in 200102 based on road lengths and traffic volumes. It uses annual average preservation costs for given traffic volumes with the costs subject to a number of modifiers such as freight loading, climate, sub-grade material and strategic routes.

A different method is used for the expenditure assessment for local roads for the general purpose component. Under this method, standard costs are derived for each of three expenditure categories: sealed roads, formed and surfaced roads, and natural surfaced roads. These standard costs are applied to the length of local roads in each municipality and then multiplied by a series of disability factors to reflect location (metropolitan, regional centres, rural agricultural, etc), soil, traffic loading, climate, drainage, materials, terrain and wet days. The data for all factors (apart from location) were based on councils' own estimates.

Queensland distributes about 63 per cent of its local roads component in proportion to the length of local roads and 37 per cent in proportion to population.

For the general purpose component, Queensland distinguishes urban and rural local roads by surface type (sealed, gravelled, formed, unformed) and width. It assesses a road disability factor with reference to traffic volumes, road type and topography. The assessments result in disability factors reflecting different road needs applied to a standard expenditure of about $3,166 per kilometre of road. In allocating the general purpose component, not all the local roads component provided to councils is taken into account in determining councils' net cost of road maintenance and construction. The local road component is discounted to 70 per cent. The Queensland Grants Commission does this, since, on average, about 30 per cent of council revenue is used on water and sewerage functions, which are not assessed in the methodology.

Western Australia distributes 93 per cent of its local roads component according to its (road) asset preservation model, described below. It distributes about 5 per cent for major bridge works following the advice of Main Roads Western Australia. Following advice from the Aboriginal Roads Committee and in consultation with communities it distributes about 2 per cent for access roads serving remote Aboriginal communities.

The asset preservation model takes into account annual and recurrent maintenance costs and the costs of reconstruction at the end of the road's useful life. Roads are divided into two categories, urban and rural, because the former requires greater spending due to more traffic, more intersections and more kerbing and longitudinal drainage. The model takes the road surface into account (sealed, gravel, formed and unformed) and the contribution that bridges make to the cost of local roads.

Western Australia uses the same asset preservation model for roads in distributing the general purpose component. However, other expenditure needs that are transport-related, such as street lighting and aerodromes, are also taken into account. Western Australia is phasing in application of the model in the general purpose component to moderate the impact on grants received by councils. This year, 80 per cent of the standard is due to the model and 20 per cent to the standards applying in 199596.

South Australia divides the local roads component into formula grants (85 per cent) and special local road needs (15 per cent). Formula grants are divided between metropolitan and non-metropolitan councils in proportion to road length and population, equally weighted. For metropolitan councils, the same formula divides grants. For non-metropolitan councils, shares are estimated with reference to equally weighted road length, population, area and road needs. Special local road needs are distributed among a minority of councils on recommendations of a Local Roads Advisory Committee, which assesses submissions from regional associations about roads of regional significance.

For the general purpose component, South Australia divides roads into five categories:

  • sealed roads built-up
  • sealed roads non built-up
  • unsealed roads built-up
  • unsealed roads non built-up
  • unformed roads.

Road lengths are the units of measure. Cost relativity indices have been developed for each road category to determine why it costs one council more than another to reconstruct or maintain a kilometre of road. Factors such as soil, terrain, drainage and materials haulage are components of the index. Further work is to be undertaken on the cost relativity indices to reflect traffic volumes.

Tasmania distributes the local roads component so that:

  • 66.5 per cent is distributed according to relative road expenditure needs estimated by a Mulholland asset preservation model
  • 28.5 per cent is distributed in proportion to bridge deck areas (including concrete and wooden bridges, but excluding culverts)
  • 5 per cent is distributed among councils with above average unsealed roads in proportion to relative unsealed road length.

Tasmania distributes the general purpose component according to the same Mulholland asset preservation model used to allocate part of the local roads components. Performance standards define for each type of road the annual length needing reconstruction, rehabilitation or maintenance. Average costs per kilometre derived from cost data supplied by city and rural councils are used to introduce values into the estimates. Disability factors such as climate, drainage, materials, soil, terrain and traffic may increase or decrease the average costs for each council. Roads expenditure assesses urban sealed, urban unsealed, rural sealed and rural unsealed roads as separate expenditure categories. In effect, the local roads component received is netted from road needs for the general purpose component.

In the Northern Territory, Local Government boundaries are not contiguous. Roads not allocated to a Local Government are maintained through a roads trust. Funds are allocated to the Local Government Association of the Northern Territory which, in consultation with the communities, manages the roads. The local roads component is distributed in accordance with weighted road lengths:

  • sealed, kerbed and guttered - 10.0
  • sealed - 8.0
  • gravel -4.0
  • cycle path - 2.0
  • formed - 1.0
  • flat bladed track - 0.4

For the general purpose component, the Northern Territory assesses road needs by weighted road lengths by surface type using the same weights as for the local roads component.

Back to Top

Revenue assessments

Sources of revenue for Local Government are rates, user charges as well as grants received from the Federal or State governments. The Other Grants Support national principle should guide Grants Commissions on the treatment in the equalisation process of grants that councils receive from the other spheres of government.

In the revenue assessment, New South Wales distinguishes urban and rural land and applies State-wide average rates in the dollar to unimproved capital values, averaged over three years, to estimate the relative revenue raising capacity of each council. It then discounts the differences by about 64 per cent in recognition of the impact of the Sydney property values and to achieve some parity with expenditure assessments.

The only grants treated by inclusion in the model are the library and local roads component of financial assistance grants. Other revenue sources such as user charges and Federal and State grants are assessed by exclusion by New South Wales.

For the assessment of rates revenue, Victoria applies a State-wide average rate in the dollar to the net annual values, generally averaged over three years.

Own-sources revenue for Family Services, Heritage, Culture and Recreation, and Traffic Management is taken into account indirectly in the assessment. These are included on the expenditure side of the method and treated as negative expenditure functions.

Grants received by councils from State and Federal Governments (including the local roads grant) are treated by excluding both the grant as a source of revenue and the expenditure it funded.

Queensland uses a combination of indicators of rating capacity. These are derived by statistical estimation as accounting for most of the variation observed in actual rates collected. The method estimates revenue-raising capacity as the sum of a number of proportional components for each council (the figures shown are approximate):

  • $25.76 per rateable property; plus
  • $0.013 per dollar of gross value of rural production; plus
  • $0.015 per dollar of personal income; plus
  • $0.005 per dollar of an indicator of retail sales; plus
  • $0.002 per dollar of unimproved capital value.

Rates assessment for Indigenous councils is set to zero.

For the assessment of rate revenue, Western Australia distinguishes urban properties, agricultural properties, pastoral properties and mining property and assesses capacity by different methods for each.

The capacity of urban properties is estimated as the sum of two components: the first is the product of gross rental values, averaged over three years, and a constant more or less like an average rate in the dollar; the second is the number of rateable assessments and a corresponding constant value per assessment.

Agricultural rate capacity is based on improved capital values averaged over three years, a per assessment component and one for agricultural area in hectares. Pastoral rate capacity is based on unimproved capital values averaged over three years. Mining rate capacity is estimated for three different categories of council with reference to mining unimproved capital value and a per assessment component.

Western Australia makes an assessment of revenue capacity for recreation and culture, and building control fees and charges. For revenues in other categories, revenues are netted out from expenditure.

Where revenue is received in the form of grants from State and Federal governments, there are two different approaches. In the case of the local roads component, the roads expenditure assessment is reduced by the size of the grant. In three expenditure categories (Education Health and Welfare; Community Amenities; Recreation and Culture), a state average discount factor is applied to the assessed expenditure requirement for all councils, regardless of the grant individual councils received.

South Australia estimates a State-wide average rate in the dollar per property and applies it to the difference between each council's improved capital values per capita and the State's improved capital value per capita for five land use categories: residential, commercial, industrial, rural and other.

All data are averaged over three years to reduce fluctuation.

Tasmania applies a State-wide average rate in the dollar to rateable assessed annual valuations averaged over three years. Its rate includes provision for water and sewerage. It makes a corresponding assessment of gross expenditure on water and sewerage.

Much of the Northern Territory is unincorporated, with Local Government largely confined to the areas settled by Aboriginal communities, or a relatively few more densely settled municipalities. Land trusts own the land in the majority of Aboriginal communities and no possibility exists of determining distinct properties and values for the assessment of revenue-raising capacity. For this reason, statistics of personal income are used to estimate the revenue-raising capacity of all councils. In addition, councils that receive an 'operational subsidy' from the Territory Government have half of this taken into account.

Back to Top

Expenditure assessments

In addition to expenditure on roads, already outlined, Local Governments' main expenditures are on general public services, which includes the organisation and general and financial administration of councils, recreation facilities, and sanitation and protection of the environment, which includes disposal of sewage, stormwater drainage and garbage.

New South Wales assesses 21 categories of expenditure including three classes of road maintenance. It assesses more than 40 distinct disabilities among the categories. It defines a standard expenditure based on average expenditures, excluding extreme values. Differential expenditure needs are equal to the standard per service unit (mostly population) multiplied by the average number of service units and the overall disability for the category. The disability estimates the extent to which the unavoidable cost per unit exceeds the State average (positive disabilities) or falls short of it (negative disabilities). In most cases, if the cost per unit is assessed to be negative, zero is substituted, so generally no negative assessments are made.

Victoria assesses 20 categories of expenditure including three for roads and three revenue assessments (see p.27). It defines a standard expenditure based on average, modal expenditures per service unit (mostly population). Expenditure needs are equal to the standard per service unit multiplied by the number of service units, the overall disability for the category and a discount factor to take account of the expenditure needs met by specific purpose grants. The disability is an estimate of the unavoidable cost per unit of the council, relative to those of other councils.

Queensland assesses relatively few expenditure categories. For the bulk of expenditure it assesses current and capital needs as equal to a minimum of about $983 000 a fixed cost or flagfall amount that is included irrespective of the number of people serviced by the council and additional per-person needs of about $348 per person. The amounts so assessed are increased or decreased by a disability factor. For Aboriginal and Torres Strait Islander councils, it assesses no minimum but allows needs of $918 per person and provision for a disability factor as for other councils. For categories representing a small proportion of expenditure, known as 'effort positive', it assesses current and capital needs equal to actual expenditure.

Western Australia assesses eight expenditure categories and 18 disabilities. It defines standard expenditure as a minimum amount specific to each category, and sometimes to a class within each category, and amounts per unit of service (usually population). Needs are defined as the product of the standard, the units of service, disabilities and discounts for needs met by special purpose grants.

South Australia assesses 13 expenditure categories apart from those assessing road needs. It estimates component expenditure grants as positive or negative contributions to the overall grant according to whether the costs of providing each service can be expected to be greater than or less than the average cost for the State as a whole due to factors outside the control of councils. For each service, the total State expenditure is divided by a unit of measure to calculate the standard cost. For example, for garbage the unit of measure is the number of residential properties. The value of units for each council per capita is compared with the standard and the difference whether positive, negative or zero is multiplied by the average cost per unit and rescaled by population. This gives the component expenditure grant. For some services a further cost relativity index, defined with reference to a State average of one, is used to inflate or deflate the unit of measure per capita, to take account of other influences on expenditure beyond the control of councils.

Tasmania assesses nine expenditure categories, including one for roads (made up of four classes). It assesses 14 disabilities. It defines standard expenditure as the State average. Needs are defined as the product of the standard, the population and the cumulative disability allowance (one plus the sum of the amount by which each disability exceeds one).

The Northern Territory assesses six categories, including one for roads. It assesses five disabilities. Needs are defined as the product of the population, average expenditure per person, and the compounded disabilities, minus grants received. A flagfall of about $70 000 is allowed for general administration.

Back to Top

Needs of Indigenous communities

The fifth national principle for distribution of general purpose grants requires Grants Commissions to allocate assistance to councils in a way that recognises the needs of Aboriginal and Torres Strait Islander peoples within their boundaries.

All Grants Commissions allocate funding to councils taking into account the population of the council. Therefore, councils that have Indigenous people as part of their community will receive financial assistance funding in respect of them. However, this national principle goes further than this and requires Grants Commissions to allocate grants in a way that recognises the additional costs of providing services to Indigenous people.

Councils in New South Wales with above the State average proportion of Indigenous people receive recognition for the additional costs of providing services to Indigenous people in the expenditure assessments for General Administration and General Community Services.

Victoria incorporates the proportion of each council's population that is Indigenous as a cost driver in its Health and Welfare expenditure assessment.

In Queensland, most of the larger geographically discrete Indigenous communities are located within the 32 Aboriginal and Torres Strait Islander councils or the Shires of Aurukun and Mornington. The assessment of non-road expenditure for the Indigenous councils is different to that for mainstream councils.

For mainstream councils, it is calculated as:

Assessed non-road expenditure = $983 804 + ($348.31 x population) x disability factor (Local Government)

Whereas for Indigenous councils, it is calculated as:

Assessed non-road expenditure = $918.06 x population x disability factor (Indigenous councils)

Western Australia includes two disability factors socioeconomic disadvantage and population dispersion in their expenditure assessments. In addition, 16 councils receive an allowance that recognises the additional costs of providing environmental health services (that is, the inspection of food premises, water supply, waste disposal and dog control) to remote Indigenous communities.

Western Australia also sets aside 2.3 per cent of the local road component as special project funds for improvements to access roads to remote Indigenous communities.

In South Australia, the needs of Indigenous communities within mainstream councils are recognised through the proportion of Indigenous people in the council area. The Commission allocates a dollar amount per capita. In addition, the Commission gives special consideration to councils that have a high non-residential use of their facilities.

Five Indigenous communities receive financial assistance grant funding. Due to the unavailability of data, grants for these communities cannot be calculated in the same manner as grants to other councils so the Commission allocates funding on a per capita basis. These per capita amounts were established after comparisons were made with communities in other States. For example, in 200102 the allocation to Anangu Pitjantjatjara was $310 per capita.

Tasmania makes no special allowance for Indigenous people as there are very few separately identifiable Indigenous communities in that State and there are no targeted services provided by councils for these communities that are not also provided to other residents.

Aboriginal councils make up 85 per cent of the local governing bodies in the Northern Territory. The additional cost of providing services to Aboriginal people is incorporated through the inclusion of the proportion of the population that is Aboriginal for each council in the expenditure assessments.

Back to Top

Allocation of grants to councils in 2001-02

Payment to councils of financial assistance grants for 2001-02 were made in accordance with the recommendations made by State Ministers and approved by the Federal Minister. Appendix D contains the final grant entitlements for all councils in 2001-02. The estimated entitlement for 2002-03 are also provided.

Table 2.7 sets out the average general purpose grant per capita to councils by State and the Australian Classification of Local Government (ACLG - a description of the ACLG is in Appendix F); and Table 2.8 provides the average local roads grant per kilometre. The ACLG has been developed to aid comparison of councils with like councils, and is used here to indicate trends and allow comparison of grants to individual councils with the average for their category.

The results in Tables 2.7 and 2.8 suggest there are some major differences in outcomes between States. Notwithstanding the capacity of the ACLG system to group like councils, it should be noted that there remains considerable scope for divergence within these categories, and for this reason the figures should only be taken as a starting point for inquiring into grant outcomes. This divergence can occur because of factors including isolation, population distribution, local economic performance, daily or seasonal population changes, age of population and geographic differences. Divergence can also occur because of variations between States of the relative ranking within the State on the basis of need of the different ACLG categories.

From the allocations of the general purpose grants and local roads grants to councils within a State, the implicit ranking of councils by the Local Government Grants Commission - from those assessed as requiring the most assistance to those least as requiring the least assistance - can be obtained. For the general purpose grants, these are obtained by ranking councils on their general purpose grant per capita while for local roads grants, these are on the basis of local roads grant per kilometre. Appendix E provides these ranking of councils by State for 2001-02.

Table 2.7 Average general purpose grant per capita to councils by State and ACLG category, 2001-02 ($)

Classification

State

NSW

Vic

Qld

WA

SA

Tas

NT1

Average


Urban Capital City (UCC)

$15.21

$15.06

$15.13

$15.04

$23.76

$15.03

$18.97

$15.49

Urban Development Small (UDS)

$15.21

$15.13

n/a

$15.42

$15.10

n/a

n/a

$15.35

Urban Development Medium (UDM)

$17.94

$30.65

$15.13

$15.04

$15.72

n/a

n/a

$18.38

Urban Development Large (UDL)

$21.58

$29.02

n/a

$15.04

$30.84

n/a

n/a

$26.21

Urban Development Very Large (UDV)

$25.27

$30.45

$15.13

$15.04

n/a

n/a

n/a

$26.51

Urban Regional Small (URS)

$79.34

$102.13

$108.88

$77.62

$76.36

$44.91

$44.81

$83.56

Urban Regional Medium (URM)

$62.52

$91.71

$33.03

$26.42

n/a

$22.96

n/a

$59.40

Urban Regional Large (URL)

$68.82

$80.45

$20.84

n/a

n/a

n/a

n/a

$50.93

Urban Regional Very Large (URV)

$53.56

$56.95

$15.55

n/a

n/a

n/a

n/a

$37.82

Urban Fringe Small (UFS)

n/a

$95.09

$48.22

$15.11

$33.57

$54.49

$38.44

$48.37

Urban Fringe Medium (UFM)

$40.42

$52.85

$18.08

$26.34

$62.38

n/a

n/a

$36.89

Urban Fringe Large (UFL)

$65.53

$43.06

$15.13

$15.42

n/a

n/a

n/a

$28.33

Urban Fringe Very Large (UFV)

$33.93

$45.42

$20.74

$15.04

$40.07

n/a

n/a

$33.85

Rural Significant Growth (RSG)

n/a

$51.35

$37.15

$51.39

n/a

n/a

n/a

$47.29

Rural Agricultural Small (RAS)

$363.64

n/a

$1 344.15

$328.52

$310.19

$291.99

n/a

$424.78

Rural Agricultural Medium (RAM)

$248.88

n/a

$401.62

$126.33

$179.39

$144.42

n/a

$253.88

Rural Agricultural Large (RAL)

$179.41

$188.69

$172.11

$195.87

$125.19

$99.72

n/a

$161.55

Rural Agricultural Very Large (RAV)

$125.22

$112.93

$73.75

$114.20

$77.60

$74.65

$49.62

$97.65

Rural Remote Extra Small (RTX)

$328.37

n/a

$4 302.76

$2 178.05

$276.42

n/a

$186.95

$903.06

Rural Remote Small (RTS)

n/a

n/a

$1 953.76

$715.62

n/a

n/a

$107.17

$593.11

Rural Remote Medium (RTM)

$707.27

n/a

$818.43

$430.91

$315.33

n/a

$103.91

$459.26

Rural Remote Large (RTL)

$320.76

n/a

$351.64

$287.04

$159.43

n/a

n/a

$295.09


Average

$50.71

$50.16

$50.72

$50.15

$50.35

$50.10

$49.99

$50.47

Note: 1 excludes Northern Territory Trust Fund

Source: Department of Transport and Regional Services

Table 2.8 Average local roads grant per kilometre to councils by State and ACLG category, 2001-02 ($)

Classification

State

NSW

Vic

Qld

WA1

SA1

Tas

NT

Average


Urban Capital City (UCC)

$2 226.98

$1 583.89

$1 743.90

$3 557.01

$1 255.94

$3 427.32

$2 937.86

$1 922.31

Urban Development Small (UDS)

$1 771.40

$1 582.75

n/a

$1 581.33

$1 401.91

n/a

n/a

$1 593.98

Urban Development Medium (UDM)

$1 861.48

$1 389.53

$1 834.00

$1 521.03

$1 278.44

n/a

n/a

$1 580.54

Urban Development Large (UDL)

$1 802.71

$1 272.72

n/a

$1 442.37

$1 228.29

n/a

n/a

$1 381.26

Urban Development Very Large (UDV)

$1 802.31

$1 277.33

$1 758.95

$1 484.30

n/a

n/a

n/a

$1 522.98

Urban Regional Small (URS)

$1 039.38

$616.12

$530.11

$850.79

$609.59

$1 829.78

$3 073.01

$767.36

Urban Regional Medium (URM)

$1 169.96

$678.74

$858.94

$812.16

n/a

$2 245.72

n/a

$912.29

Urban Regional Large (URL)

$1 307.72

$1 026.21

$1 034.04

n/a

n/a

n/a

n/a

$1 086.77

Urban Regional Very Large (URV)

$1 464.52

$1 366.36

$1 493.09

n/a

n/a

n/a

n/a

$1 455.38

Urban Fringe Small (UFS)

n/a

$843.03

$523.48

$1 205.38

$963.48

$1 364.00

$2 756.46

$768.07

Urban Fringe Medium (UFM)

$1 222.69

$1 067.37

$786.38

$1 126.14

$617.12

n/a

n/a

$972.85

Urban Fringe Large (UFL)

$1 213.93

$1 433.79

$1 181.65

$1 194.36

n/a

n/a

n/a

$1 263.62

Urban Fringe Very Large (UFV)

$1 466.36

$1 234.13

$1 140.07

$1 366.57

$949.88

n/a

n/a

$1 288.29

Rural Significant Growth (RSG)

n/a

$866.42

$513.54

$706.56

n/a

n/a

n/a

$670.51

Rural Agricultural Small (RAS)

$602.62

n/a

$355.59

$377.84

$140.61

$1 014.01

n/a

$351.27

Rural Agricultural Medium (RAM)

$633.80

n/a

$373.58

$450.03

$145.30

$1 200.56

n/a

$456.59

Rural Agricultural Large (RAL)

$657.56

$328.57

$403.33

$526.80

$151.04

$1 546.41

n/a

$473.86

Rural Agricultural Very Large (RAV)

$717.80

$575.61

$435.75

$453.57

$187.86

$1 496.56

$2 151.41

$553.00

Rural Remote Extra Small (RTX)

n/a

n/a

$349.62

$280.52

$362.83

n/a

$405.85

$322.89

Rural Remote Small (RTS)

n/a

n/a

$350.64

$408.89

n/a

n/a

$548.48

$398.80

Rural Remote Medium (RTM)

$574.50

n/a

$354.67

$287.81

$110.93

n/a

$508.59

$354.73

Rural Remote Large (RTL)1

$591.26

n/a

$362.48

$378.42

n/a

n/a

n/a

$389.22

Northern Territory Trust fund

n/a

n/a

n/a

n/a

n/a

n/a

$315.47

$315.47


Average

$870.80

$693.92

$551.60

$500.78

$267.19

$1 617.27

$770.39

$635.93

Note: 1 Averages for all classifications in these States include special roads grants received by councils.

Source: Department of Transport and Regional Services

Back to Top

Councils on the minimum grant

Councils receiving the minimum grant entitlement generally fall within the classification of Capital City, Urban Metropolitan Developed or Urban Fringe as described in the ACLG. Councils on the minimum grant are identified with a hash (#) in Appendix D. The per capita grant of these councils is about $15 but differs slightly between States. This difference arises from slight variations in data sources for population used by the Federal Government to calculate the State share of general purpose grants and those used by the Local Government Grants Commissions for the allocations for individual councils.

Table 2.9 provides the number of councils on minimum grant, by State from 1996-97 to 2002-03 and shows an upward trend nationally in the number of minimum grant councils and the proportion of the population covered by minimum grant councils.

Table 2.9 also shows a wide variation between States for the proportion of the population covered by councils receiving the minimum grant. In 2001-02, the proportion ranges from zero per cent in the Northern Territory to 59 per cent for Queensland. This variation can arise because of differences in circumstances in each State. For instance, the whole of Brisbane City Council with a population of over 880,000 is a minimum grant council whereas a number of metropolitan councils in Sydney or Melbourne would have to be combined to cover a population of 880 000. However, in Sydney or Melbourne not all these metropolitan councils would be on the minimum grant.

Table 2.9 Numbers of councils on minimum grant and proportion of State population covered by minimum grant councils, by State, 1996-97 to 2002-03

NSW

Vic

Qld

WA

SA

Tas

NT

Total


1996-97

no. of councils

21

5

0

14

4

1

0

45

% of population

22%

10%

0%

43%

10%

10%

0%

15%

1997-98

no. of councils

22

7

2

17

4

1

0

53

% of population

22%

18%

10%

52%

10%

10%

0%

19%

1998-99

no. of councils

22

6

4

22

4

2

0

60

% of population

24%

13%

19%

57%

10%

19%

0%

22%

1999-2000

no. of councils

22

7

7

24

5

2

0

67

% of population

24%

15%

52%

61%

10%

19%

0%

30%

2000-01

no. of councils

22

9

9

24

5

2

0

71

% of population

24%

17%

57%

61%

10%

19%

0%

31%

2001-02

no. of councils

21

9

10

23

9

2

0

74

% of population

24%

18%

59%

57%

16%

19%

0%

31%

2002-03

no. of councils

21

7

11

26

14

2

0

81

% of population

24%

12%

61%

67%

43%

19%

0%

34%

Source: Department of Transport and Regional Services

The variation can also arise because of differences in the methodology used by Local Government Grants Commissions. However, if Grants Commissions were achieving similar outcomes, such a wide variation would not be expected.

In 2001-02, the proportion of general purpose grant that went to councils on the minimum grant was just over 9 per cent nationally. The proportion varied from zero per cent in the Northern Territory to almost 18 per cent in Queensland.

Some councils appear concerned if they receive the minimum grant. However, according to the Grants Commission methods, councils on the minimum grant are able to afford above average standards of service and/or below standard revenue-raising efforts. It simply demonstrates that they are relatively affluent compared to the other councils in the State that are not on the minimum grant.

Back to Top

Reviews of Grants Commission methods

Local Government Grants Commissions have programmes for monitoring grant outcomes and refining aspects of their allocation methods. However, from time to time, it is appropriate for Grants Commissions to undertake a thorough review of their allocation methods. Consistent with the Act, such reviews should always be undertaken in consultation with local governing bodies.

Since the introduction of the Local Government (Financial Assistance) Act 1995 in July 1995, most Grants Commissions have undertaken major reviews of their methods, are in the process of undertaking such examinations or have such activities planned.

This need for method reviews was also reinforced by the CGC review of the operations of the 1995 Act. For instance, in its report, the CGC says:

Changes in LGGCs' assessment methods are required to achieve consistency with the Relative Need, Other Grant Support and Aboriginal Peoples and Torres Strait Islander principles.3

3 Commonwealth Grants Commission 2001, Review of the Operation of the Local Government (Financial Assistance) Act 1995, Commonwealth of Australia, Canberra, p. xii.

At the same time as the release of the CGC's report from the review, the CGC released working papers prepared by the Secretariat of the Commission.4 These working papers were intended to assist Grants Commissions in understanding the CGC's findings in relation to their methods.

4 Commonwealth Grants Commission 2001, Working Papers for Review of the Operation of the Local Government (Financial Assistance) Act 1995, Commonwealth of Australia, Canberra.

The status of reviews of methods by the Local Government Grants Commissions as at 30 June 2002 is given in Table 2.10.

Table 2.10 The status of major method reviews undertaken since July 1995, by State, as at 30 June 2002

State

General purpose grants

Local roads grants


NSW

None planned

None planned

Vic

Completed in May 2001 and to
be implemented from 2002-03

Completed in July 1999 and
implemented from 2001-02

Qld

To be completed in 2002-03
and implemented from 2003-04

To be completed in 2002-03
and implemented from 2003-04

WA

Planned for 2002-03

None planned

SA

Completed in 1997-98, and
implemented in 1998-99

None planned

Tas

Commenced in 2001-02 and expected
to be completed in 2002-03

Completed in 1999-2000,
implemented from 2000-01

NT

Planned for 2002-03

None planned

Source: Department of Transport and Regional Services

Back to Top

The impact of Grants Commission 'capping' policies

Year-to-year variations in the data Grants Commissions use to calculate the grants to councils are capable of leading to big changes in grants. Sometimes changes to Grants Commission methods, to improve their assessments of the grants most likely to achieve horizontal equalisation, also lead to changes. Unexpected changes in grants would impede efficient planning by councils so Grants Commissions have adopted policies to ensure changes are not unacceptably large.

Many Commissions average the data of several years to reduce fluctuations. Nevertheless, they have found that policies to limit changes, by capping the maximum increase and decrease possible, are needed to limit year-to-year variation. For example, capping may constrain the maximum year-to-year increase in grants to 15 per cent and the maximum decrease to 6 per cent. Under this regime, a council that for example would otherwise have received an unconstrained grant 7.5 per cent lower than in the previous year would have its reduction limited to 6 per cent.

No council receives less than the minimum grant, so councils on the minimum grant are exempt from capping. In some circumstances, a Grants Commission may decide a council's grant should not be capped. Usually, this is to allow a larger grant increase than otherwise.

Commissions estimate the unconstrained grants in conformity with the national principles for allocating grants. For this reason, capping changes the allocation from those consistent with the national principles, although usually the extent of the divergence is relatively small.

However, to monitor the influence of capping, information was sought from each State. Table 2.11 summarises this information by showing the number and percentage of councils in receipt of grants above or below those grant outcomes provided by the methodology and the extent of the differences.

The Federal Government has accepted the use of phase-in arrangements like capping to ensure reasonable stability of funding to councils as having a useful role to play in allocating grants. However, capping should allow the phase-in of even large changes to grants within a reasonably short period of time. Unless the new level of grants is achieved within three to five years, maximum, capping could be seen as impeding achievement of the objectives set out in the national principles.

Table 2.11 shows that in two States a large proportion of councils receive grants more than 10 per cent different from what would be received under a strict interpretation of the national principles. South Australia introduced considerable changes to its methods in 1998-99 so as to better conform to the requirements of the national principles. As a result of this comprehensive review, it chose to phase in the changes in general purpose grants to councils over five years. The percentage of South Australian councils that were within the plus 10 to minus 10 per cent range has increased from 13 per cent in 1998-99 to 53 per cent in 2001-02. South Australia advises that its capping arrangements for the phase-in of its new methods will need to extend beyond the intended five years because of the impact that recent changes in valuation data are having on grant outcomes.

In Queensland, methods have changed little in the past six years, but the grants have been subject to 'phase-in arrangements' over the past five years (see Appendix B). The Queensland Minister has asked the Commonwealth Minister to agree to this arrangement by signing a section 26 determination, which allows Queensland to not have to comply with the national principles for a specified grant year. As a result, the grants for many Queensland councils differ considerably from those consistent with the national principles. The differences vary from, at one extreme, around $492 000 more for a council than an allocation consistent with the national principles, to, at the other extreme, around $1.3 million less. The impediment in grants moving to an allocation consistent with the national principles has been a requirement that total grants cannot fall below a floor of 85 per cent of the grants received in 1994-95 and a limit of 5 per cent on total grants reductions in any year. In 2001-02, a 'no fall floor' and a 7 per cent maximum rise were also applied to the general purpose component. Queensland is reviewing its methods in 2002-03.

Table 2.11 The influence of capping on grant distribution, by State, 2001-02 (general purpose grants)

Unconstrained grant minus capped grant

Less than
-10%

Between
-10% and
-0.5%

Between
-0.5% and
+0.5%

Between
+0.5% and
+10%

More than
+10%

Total
councils


NSW

No.

5

75

36

59

0

175

%

3%

43%

21%

34%

0%

100%

Vic

No.

3

10

9

561

1

79

%

4%

13%

11%

71%

1%

100%

Qld

No.

39

23

10

26

59

157

%

25%

15%

6%

17%

38%

100%

WA

No.

2

7

114

192

0

142

%

1%

5%

80%

13%

0%

100%

SA3

No.

12

19

11

6

20

68

%

18%

28%

16%

9%

29%

100%

Tas

No.

0

0

29

0

0

29

%

0%

0%

100%

0%

0%

100%

NT4

No.

0

0

49

6

11

66

%

0%

0%

74%

9%

17%

100%

Notes:
1 Includes 55 councils around 0.7 per cent
2 All 19 councils are at 0.6 per cent
3 Excludes Aboriginal communities
4 Excludes Northern Territory Road Trust Fund

Source: Information supplied by State Grants Commissions

Back to Top

Increasing accountability and transparency of Grants Commission processes

One of the goals of the 1995 Act is to increase the transparency and accountability of the States in respect of the allocation of financial assistance grants to councils. The requirement in the Act for Local Government Grants Commissions to hold public hearings and to accept submissions from councils supports this goal, as does the tabling in the Federal Parliament of the National Report on the operation of the Act. In addition to this, Local Government Grants Commissions:

  • meet with councils on a regular basis to explain their methods
  • issue discussion papers and hold meetings with councils when reviewing their methods
  • distribute information papers on the grants.

However, in its report for the 2001 review of financial assistance grants arrangements (CGC 2001), the CGC identified transparency and accountability of Local Government Grants Commissions as requiring improvement. The Commission defined transparency as being about local governing bodies being able to understand how their grant has been calculated and accountability is about Local Government Grants Commissions providing information to further assist that understanding.

The Commission indicated that a council should be able to:

  • verify its grant allocation
  • understand why its allocation has changed from its previous level
  • understand why it differs from the grant allocation of a neighbouring or similar council
  • understand the key drivers of its grant allocation.

In relation to their annual reports, the CGC said that, as a minimum, the Local Government Grants Commissions should provide information on:

  • the grant outcomes of all local governing bodies in the State
  • the expenditure and revenue assessments of all local governing bodies in the State
  • the key drivers of Local Government Grants Commission's expenditure and revenue assessments.

In addition to their annual reports, Local Government Grants Commissions now make supporting information available to councils on the Internet (see box 'Internet addresses for Local Government Grants Commissions'). Table 2.12 provides a summary of DOTARS' assessment against the CGC's criterion of the adequacy of information Local Government Grants Commissions made available to all councils on 2001-02 grant allocations either in their annual reports or on the Internet.

Table 2.12 Information on 2001-02 grants provided by Grants Commissions in annual reports and/or on the Internet

State

Sufficient
information for
councils to
verify allocation

Expenditure and
revenue assessments
for all councils

Grant outcomes
available for
all councils

Key drivers of
revenue and
expenditure
assessments


NSW

no

no

yes

no

Vic

yes

no

yes

no

Qld

no

no

yes

no

WA

yes

yes

yes

no

SA

no

no

yes

no

Tas

yes

yes

yes

no

NT

no

no

yes

no

Source: Department of Transport and Regional Services

Back to Top

[ Prev. ] [ Index ] [ Next ]