Financial assistance grants to local government

Overview of current arrangements
Determining the quantum of the grant
Determining entitlements for 2002-03 and 2003-04
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
Allocation of grants to councils in 2002-03
Councils on the minimum grant
Reviews of Grants Commission methods
Impact of Grants Commission 'capping' policies
Increasing accountability and transparency of Grants Commission processes

In 2002-03, the Australian Government provided $1.455 billion nationally in financial assistance to 722 councils - on average, about $74.50 per capita or $2.02 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 2002-03, the general purpose grants were $1007.9 million and identified local road grants were $447.2 million.

The objective of general purpose assistance from the Australian Government to local government is to strengthen local government to enable it to provide a wider range of services than it would otherwise and to promote equity between councils and certainty of funding (see 'Objects of the Act'). These grants are untied in the hands of the receiving council. This means that councils are able to spend the grant according to the priorities of their communities.

The general purpose grants commenced 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 road grants to local government were provided under the 1986 Act (as amended) in addition to the general purpose grants. 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 undertook a review of the operation of the 1995 Act and its report was handed to the government in June 2001 (CGC, 2001). 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 Economics, 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 Committee is expected to report before the end of 2003.

Overview of current arrangements

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

  • At the beginning of each financial year, the Australian Government determines the quantum of general purpose and local road 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.
  • The estimated quantum of general purpose and local road grants for each State is then calculated, according to Australian Government legislative requirements, and the States are advised of these amounts.
  • Local Government Grants Commissions in each State determine the allocation of general purpose and local road grants among local governing bodies in their State.
  • The State Minister then sends the Local Government Grants Commission recommendations to the Federal Minister.
  • When satisfied that all legislative requirements are met, the Federal Minister approves the grants.
  • Once the Federal Minister has approved these grants, the Australian Government makes quarterly payments to the States and, without undue delay, the States pass these on to local governing bodies as untied grants.
  • 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.
  • An adjustment to the allocations to local governing bodies is made and their payments in the following year adjusted.

More details on each step are given in the following sections.

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Determining the quantum of the grant

Section 8 of the Act specifies the formula the Federal Treasurer applies 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.

Between 1994-95 and 1999-2000, these State grants 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.

As a result of 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 previous provisions, the amended Act provides the Treasurer with discretion to increase or decrease the escalation factor in special circumstances. In applying his discretion, the Treasurer is required to have regard to the objects of the Act (see 'Objects of the Act') and any other matter he thinks relevant. The same escalation factor is applied to both the general purpose and local road 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.

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Determining entitlements for 2002-03 and 2003-04

Actual entitlements for 2002-03 and estimated entitlements for 2003-04 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 2002-03 actual entitlement and the 2003-04 estimated entitlement and actual grant paid are set out in Tables 2.1 and 2.2 respectively. The basis for calculating the final factor for 2002-03 is explained in 'Determining the final factor for 2002-03'.

The estimated entitlement for 2002-03 was $1.449 billion comprising $1004 million in general purpose grants and $445 million in local road grants (see Table 2.1). In 2002-03 the Australian Government paid this amount in grants to local government through the States in respect of that year. However, at the end of 2002-03 and once the final factor for 2002-03 had been determined, the final entitlement for 2002-03
was calculated as $1.455 billion comprising $1008 million in general purpose grant and
$447 million in local road grants (see Table 2.1). As a result, local government had been underpaid $6 million in 2002-03 comprising $4.2 million in general purpose grants and $1.8 million in local road grants.

The estimated entitlement for 2003-04 is $1.508 billion comprising $1045 million in general purpose grants and $464 million in local road grants (see Table 2.2). The actual cash paid to local government from the Australian Government in 2003-04 will be $1.514 billion. That is, $1.508 billion in estimated entitlement for 2003-04 plus the $6 million underpaid in 2002-03 (see Table 2.2).

Table 2.1 Calculation of financial assistance grants actual entitlements for 2002-03

2001-02 final entitlement
2002-03 final factor
2002-03 final entitlement
2002-03 estimated entitlement
2002-03 adjustment

General purpose
$965 841 233
x
1.0435
=
$1 007 855 326
less
$1 003 702 209
=
$4 153 117
Local road
$428 572 178
x
1.0435
=
$447 215 068
less
$455 372 208
=
$1 842 860
Total
$1 394 413 411
x
1.0435
=
$1 455 070 394
less
$1 449 074 417
=
$5 995 978
General purpose
31 Dec 2001 population

NSW
$327 747 092
6 608 792
$341 069 580
less
$340 161 401
=
$908 179
Vic
$239 054 282
4 836 196
$249 588 630
less
$248 565 220
=
$1 023 409
Qld
$179 769 293
3 664 284
$189 108 056
less
$187 952 916
=
$1 155 140
WA
$94 473 299
1 913 850
$98 770 852
less
$98 256 102
=
$514 750
SA
$75 398 572
1 515 748
$78 225 421
less
$77 776 866
=
$448 555
Tas
$23 564 215
472 116
$24 365 180
less
$24 233 779
=
$131 401
NT
$9 903 259
197 617
$10 198 709
less
$10 234 625
=
($35 916)
ACT
$15 931 221
320 275
$16 528 900
less
$16 521 300
=
$7 600
Total
$965 841 233
19 528 878
$1 007 855 326
less
$1 003 702 209
=
$4 153 117
Local road
2002-03 final factor

NSW
$124 342 237
x
1.0435
=
$129 751 124
less
$129 216 452
=
$534 672
Vic
$88 356 082
x
1.0435
=
$92 199 572
less
$91 819 641
=
$379 931
Qld
$80 298 724
x
1.0435
=
$83 791 719
less
$83 446 434
=
$345 285
WA
$65 529 316
x
1.0435
=
$68 379 841
less
$68 098 065
=
$281 776
SA
$23 552 943
x
1.0435
=
$24 577 496
less
$24 476 218
=
$101 278
Tas
$22 711 297
x
1.0435
=
$23 699 239
less
$23 601 580
=
$97 659
NT
$10 039 228
x
1.0435
=
$10 475 935
less
$10 432 766
=
$43 169
ACT
$13 742 351
x
1.0435
=
$14 340 144
less
$14 281 052
=
$59 092
Total
$428 572 178
x
1.0435
=
$447 215 068
less
$445 372 208
=
$1 842 860

Table 2.2 Calculation of financial assistance grants estimated entitlements and actual grant paid for 2003-04

2002-03 final entitlement
2003-04 estimamted factor
2003-04 estimated entitlement
2003-03 adjustment
2003-04 actual grant paid

General purpose
$1 007 855 326
x
1.0367
=
$1 044 843 617
plus
$4 153 117
=
$1 048 996 734
Local road
$447 215 068
x
1.0367
=
$463 627 861
plus
$1 842 860
=
$465 470 721
Total
$1 455 070 394
x
1.0367
=
$1 508 471 478
plus
$5 995 978
=
$1 514 467 455
General purpose
31 Dec 2002 population

NSW
$341 069 580
6 671 426
$352 335 917
plus
$908 179
=
$353 244 096
Vic
$249 588 630
4 902 920
$258 936 368
plus
$1 023 409
=
$259 959 777
Qld
$189 108 056
3 750 543
$198 076 244
plus
$1 155 140
=
$199 231 385
WA
$98 770 852
1 940 485
$102 482 222
plus
$514 750
=
$102 996 972
SA
$78 225 421
1 524 136
$80 493 714
plus
$448 555
=
$80 942 269
Tas
$24 365 180
474 388
$25 053 704
plus
$131 401
=
$25 185 104
NT
$10 198 709
197 374
$10 423 851
plus
($35 916)
=
$10 387 934
ACT
$16 528 900
322 680
$17 041 597
plus
$7 600
=
$17 049 197
Total
$1 007 855 326
19 783 952
$1 044 843 617
plus
$4 153 117
=
$1 048 996 734
Local road
2003-04 estimated factor

NSW
$129 751 124
x
1.0367
=
$134 512 990
plus
$534 672
=
$135 047 662
Vic
$92 199 572
x
1.0367
=
$95 583 296
plus
$379 931
=
$95 963 227
Qld
$83 791 719
x
1.0367
=
$86 866 875
plus
$345 285
=
$87 212 159
WA
$68 379 841
x
1.0367
=
$70 889 381
plus
$281 776
=
$71 171 157
SA
$24 577 496
x
1.0367
=
$25 479 490
plus
$101 278
=
$25 580 767
Tas
$23 699 239
x
1.0367
=
$24 569 001
plus
$97 659
=
$24 666 659
NT
$10 475 935
x
1.0367
=
$10 860 402
plus
$43 169
=
$10 903 570
ACT
$14 340 144
x
1.0367
=
$14 866 427
plus
$59 092
=
$14 925 519
Total
$447 215 068
x
1.0367
=
$463 627 861
plus
$1 842 860
=
$465 470 721

Determining the final factor for 2002-03

Consistent with section 8 of the Act, the final factor for 2002-03 is calculated as:

final factor =
population of Australia at 31 Dec 2001
x
CPI at March 2003
population of Australia at 31 Dec 2000
CPI at March 2002

That is,

final factor =
19 528 878
x
141.3
= 1.0435
19 357 964
136.6

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 usually advised 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 final 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.

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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 ABS's estimate of each State's population and the estimated population of all States as at 31 December of the previous year.

In contrast, the States' share of the local road component of the grant are fixed. The distribution is determined on the basis of shares inherited from the former, tied grant arrangements (see 'History of the interstate distribution of local road grants' in 2001-02 Local Government National Report, pp. 25-6). Therefore, each State's share of the local road component is obtained by multiplying the previous year's funding by the escalation factor determined by the Treasurer.

Table 2.3 shows the allocation of the final entitlement for 2002-03 amongst the States while Table 2.4 shows the allocation of the estimated entitlements for 2003-04 amongst the States. Table 2.4 also shows the percentage change in the grants from 2002-03 to 2003-04.

Table 2.3 General purpose and local road grants, allocation amongst States, 2002-03

State
General purpose grant
Local road grant
Total grant
  
$m
% of total
$ per capita
$m
% of total
$ per capita
$m
% of total
$ per capita

NSW
341.1
33.8
51.61
129.8
29.0
19.63
470.8
32.4
71.24
Vic
249.6
24.8
51.61
92.2
20.6
19.06
341.8
23.5
70.67
Qld
189.1
18.8
51.61
83.8
18.7
22.87
272.9
18.8
74.48
WA
98.8
9.8
51.61
68.4
15.3
35.73
167.2
11.5
87.34
SA
78.2
7.8
51.61
24.6
5.5
16.21
102.8
7.1
67.82
Tas
24.4
2.4
51.61
23.7
5.3
50.20
48.1
3.3
101.81
NT
10.2
1.0
51.61
10.5
2.3
53.01
20.7
1.4
104.62
ACT
16.5
1.6
51.61
14.3
3.2
44.77
30.9
2.1
96.38

Total
1007.9
100.0
51.61
447.2
100.0
22.90
1455.1
100.0
74.51


Note: All variations due to rounding adjustments.
Source: Department of Transport and Regional Services.

Table 2.4 Estimated grant entitlements and percentage change from previous year by State, 2003-04

  
General purpose grant
Local road grant
Total grant
  
($m)
% change
($m)
% change
($m)
% change

NSW
352.3
3.30
134.5
3.67
486.8
3.40
Vic
258.9
3.75
95.6
3.67
354.5
3.72
Qld
198.1
4.74
86.9
3.67
284.9
4.41
WA
102.5
3.76
70.9
3.67
173.4
3.72
SA
8035
2.90
25.5
3.67
106.0
3.08
Tas
25.1
2.83
24.6
3.67
49.6
3.24
NT
10.4
2.21
10.9
3.67
21.3
2.95
ACT
17.0
3.10
14.9
3.67
31.9
3.37

Total
1044.8
3.67
463.6
3.67
1508.5
3.67


Note: All variations are due to rounding adjustments.
Source: Department of Transport and Regional Services.

Table 2.5 provides the per capita relativities of the State allocations for the general purpose, local road and total grants in 2002-03. 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 2.5 shows that New South Wales, Victoria, Queensland 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 Queensland, Western Australia and South Australia, have the same direction of movement away from 1.0 as the financial assistance grant relativities.

Table 2.5 Per capita relativities for general purpose grants, local road grants, total grants and GST revenue, by State, 2002-03

State
Population as at 31 Dec 2001
General purpose grants per capita relativities
Local road grants per capita relativities
Total grants per capita relativities
State GST revenue per capita relativities

NSW
6 608 792
1.0000
0.8573
0.9595
0.9063
Vic
4 836 196
1.0000
0.8325
0.9478
0.8682
Qld
3 664 284
1.0000
0.9986
0.9893
1.0117
WA
1 913 850
1.0000
1.5602
1.1712
0.9759
SA
1 515 748
1.0000
0.7081
0.9171
1.1945
Tas
472 116
1.0000
2.1920
1.3776
1.5542
NT
197 617
1.0000
2.3149
1.4242
4.2448
ACT
320 275
1.0000
1.9552
1.3007
1.1522

Total
19 528 878


Sources: Department of Transport and Regional Services and table 7 in Federal Financial Relations 2003-04; Commonwealth Budget Paper No. 3.

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Quantum of financial assistance grants allocations

Table 2.6 shows the level of general purpose grants since the Australian Government started providing general purpose assistance to local government in 1974-75 together with untied local road grants since 1991-92.

Table 2.6 National financial assistance grant allocation, 1974-75 to 2003-04 ($)

Year
General purpose grants
Local road grants
Total grants

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
390 787 104
1 271 312 246
2000-01
919 848 793
408 163 979
1 328 012 772
2001-02
965 841 233
428 572 178
1 394 413 411
2002-03
1 007 855 326
447 215 068
1 455 070 394
2003-045
1 044 843 617
463 627 861
1 508 471 478


Notes:
1 Grants to the Northern Territory under the Act commenced in 1979-80, the initial allocation being $1 061 733.
2 Prior to 1991-92 local road grants were provided as tied grants under a different Act.
3 In 1992-93 part of the local road 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 commenced in 1995-96, the initial allocation being general purpose ($13 572 165) and local road ($11 478 714).
5 For 2003-04 the national grant allocation is the estimated entitlement.

Source: Department of Transport and Regional Services.

Table 2.7 provides the level of general purpose grants, local road grants and total financial assistance grants for States over the five years from 1999-2000 to 2003-04.

Table 2.7 Grant entitlements for all States by type of grant, 1999-2000 to 2003-04 ($m)

State
Type of grant
1999-2000
2000-01
2001-02
2002-03
2003-04

NSW
General purpose
297.894
310.670
327.747
341.070
352.336
Local road
113.365
118.421
124.342
129.751
134.513
Total
411.259
429.091
452.089
470.821
486.849
Vic
General purpose
218.827
228.731
239.054
249.589
258.936
Local road
80.556
84.149
88.356
92.200
95.583
Total
299.383
312.880
327.410
341.788
354.520
Qld
General purpose
162.692
170.765
179.769
189.108
198.076
Local road
73.210
76.475
80.299
83.792
86.867
Total
235.902
247.240
260.068
272.900
284.943
WA
General purpose
86.224
90.350
94.473
98.771
102.482
Local road
59.744
62.409
65.529
68.380
70.889
Total
145.968
152.758
160.003
157.151
173.372
SA
General purpose
69.591
72.250
75.399
78.225
80.494
Local road
21.474
22.431
23.553
24.577
25.479
Total
91.065
94.682
98.952
102.803
105.973
Tas
General purpose
22.002
22.732
23.564
24.365
25.054
Local road
20.706
21.630
22.711
23.699
24.569
Total
42.708
44.362
46.276
48.064
49.623
NT
General purpose
8.938
9.382
9.903
10.199
10.424
Local road
9.153
9.561
10.039
10.476
10.860
Total
18.091
19.944
19.942
20.675
21.284
ACT
General purpose
14.406
14.969
15.931
16.529
17.042
Local road
12.529
13.088
13.742
14.340
14.866
Total
26.935
28.057
29.674
30.869
31.908
National total
General purpose
880.575
919.849
965.841
1 007.855
1 044.844
Local road
390.737
408.164
428.572
447.215
463.628
Total
1 271.312
1 328.013
1 394.413
1 455.070
1 508.471


Notes: All years are actual entitlement except 2003-04 which is an estimated entitlement. All variations are due to rounding adjustments.
Source: Department of Transport and Regional Services.

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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 States in allocating the financial assistance grants to councils within the State.

The National Principles first came into effect from 199697 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 which are established in the Act (see 'What is horizontal equalisation?').

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 Australian Government pursues a policy of horizontal equalisation when it distributes general purpose funding to State governments.
More formally, section 6(3) of the Act defines horizontal equalisation as being an allocation of funds that:

  1. 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
  2. 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's report on the per capita relativities for 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 (CGC 1995, 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 level 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 road 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 councils receive 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 200203, Queensland sought and the Federal Minister agreed to transitional arrangements. Queensland has been granted transitional modifications each year since the 199697 grant year.

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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 the Australian Government requires as a condition of the State receiving local government financial assistance grants (see 'Local Government Grants Commissions'). The State determines the membership of the Commission and provides the resources for the Grants Commission.

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 Australian 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.

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.

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.

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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 200203. Included in this figure were 38 declared local governing bodies, made eligible under this provision. Table 2.8 shows the distribution of declared bodies by State.

Table 2.8 Distribution of local governing bodies by type by State at June 2003

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
172
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.

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

Funding of councils in Australia's Indian Ocean Territories

Under an arrangement between the Australian and Western Australian Governments, the Western Australian Local Government Grants Commission provides an annual assessment of the general purpose and local road 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 Australian 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 Australian Government funds to these councils from a separate budget allocation to that provided under the Act.

The amounts provided in 200203 were:

  • Christmas Island Shire Council $1 643 436 in general purpose grants and $179 567 in local road grants.
  • Cocos (Keeling) Islands Shire Council $1 025 830 in general purpose grants and $66 801 in local road grants.

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Local Government Grants Commissions methods

Local Government Grants Commissions in each State are required to determine the distribution of 200203 grants to councils 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 road 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 2002 conference was held at Hobart, Tasmania, in October 2002. The conference included a presentation on the demographic drivers for population change, the issues facing councils with declining or growing populations and the impact of National Competition Policy on equalisation needs assessments. A number of papers were presented on developments in Tasmania affecting local government including a key performance indicators project, partnership agreements between State and local government and Statelocal government financial reforms. The South Australian Local Government Grants Commission gave an account of their progress in mapping all local roads in their State using a Geographic Information System and use of the system for road grant assessments.

A detailed description of the methods each Grants Commission uses 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 'Internet addresses for Local Government Grants Commissions').

A comparison of the Local Government Grants Commission methods used in 200203 is in Appendix C.

Internet addresses for Local Government Grants Commissions
Local Government Grants CommissionInternet address
New South Wales
Victoria www.doi.vic.gov.au/vgc Queensland www.qlggc.qld.gov.au Westen Australia www.dlgrd.wa.gov.au/lggc South Australia www.sa.gov.au Tasmania www.treasury.tas.gov.au Northern Territory www.grantscommission.nt.gov.au

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Allocation of grants to councils in 2002-03

Payment to councils of financial assistance grants for 200203 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 200203. The estimated entitlements for 200304 are also provided.

Table 2.9 sets out the average general purpose grant per capita to councils by State and the ACLG a description of the ACLG is in Appendix F; and Table 2.10 provides the average local road 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 Table 2.9 and Table 2.10 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.

The Local Government Grants Commission's implicit ranking of councils, from those assessed as needing the most assistance to those needing the least assistance, can be obtained from the allocations of the general purpose grants and local road grants to councils within a State. For the general purpose grants, these are obtained by ranking councils on their general purpose grant per capita, while for local road grants, these are obtained on the basis of local road grant per kilometre. Appendix E provides these ranking of councils by State for 200203.

Table 2.9 Average general purpose grant per capita to councils by State and ACLG category, 200203 ($)

Classification
State
NSW
Vic
Qld
WA
SA
Tas
NT1
Average

Urban Capital City (UCC)
15.66
15.51
15.59
15.52
16.71
15.54
17.96
15.76
Urban Development Samll (UDS)
15.66
16.06
n/a
15.67
15.62
n/a
n/a
20.86
Urban Development Medium (UDM)
19.00
29.35
15.92
15.52
15.62
n/a
n/a
18.35
Urban Development Large (UDL)
20.85
28.34
n/a
15.52
30.07
n/a
n/a
33.55
Urban Development Very Large (UDV)
25.86
30.31
15.69
15.52
n/a
n/a
n/a
26.77
Urban Regional Small (URS)
88.30
107.75
111.63
70.44
81.82
46.68
28.50
86.57
Urban Regional Medium (URM)
66.48
98.38
33.60
19.70
n/a
23.04
n/a
62.90
Urban Regional Large (URL)
71.95
78.22
20.55
n/a
n/a
n/a
n/a
50.55
Urban Regional Very Large (URV)
56.33
58.95
15.78
n/a
n/a
n/a
n/a
39.19
Urban Fringe Small (UFS)
n/a
98.60
47.74
16.91
37.85
59.29
17.55
46.91
Urban Fringe Medium (UFM)
41.13
55.56
17.82
31.07
67.53
n/a
n/a
40.50
Urban Fringe Large (UFL)
66.93
43.05
15.44
15.52
n/a
n/a
n/a
27.64
Urban Fringe Very Large (UFV)
34.61
48.22
20.69
15.52
42.11
n/a
n/a
35.02
Rural Significant Growth (RSG)
n/a
66.27
37.27
64.34
n/a
n/a
n/a
55.73
Rural Agricultural Small (RAS)
412.62
n/a
1306.02
334.52
344.22
313.69
n/a
437.54
Rural Agricultural Medium (RAM)
259.92
n/a
401.92
125.80
173.53
146.70
n/a
260.32
Rural Agricultural Large (RAL)
194.14
212.82
165.06
212.90
133.85
103.91
n/a
170.63
Rural Agricultural Very Large (RAV)
126.28
124.41
75.98
107.30
78.94
76.71
93.03
102.05
Rural Remote Extra Small (RTX)
340.83
n/a
n/a
n/a
353.57
n/a
148.68
172.34
Rural Remote Small (RTC)
n/a
n/a
2455.70
659.29
n/a
n/a
132.69
555.12
Rural Remote Medium (RTM)
743.24
n/a
947.57
474.05
309.34
n/a
125.42
534.25
Rural Remote Large (RTL)
326.60
n/a
331.76
303.89
165.34
n/a
n/a
302.72
Average
52.22
51.68
52.11
`51.72
52.07
51.81
48.86
51.95


Note: 1 Excludes Northern Territory Trust Fund.
Source: Department of Transport and Regional Services.

Table 2.10 Average local road grant per kilometre to councils by State and ACLG category, 200203 ($)

Classification
State
NSW
Vic
Qld
WA1
SA1
Tas
NT
Average

Urban Capital City (UCC)
2405.98
1474.78
1831.19
3708.19
2731.54
4048.44
2828.01
2041.69
Urban Development Samll (UDS)
1846.20
1322.00
n/a
1664.95
3215.09
n/a
n/a
1830.85
Urban Development Medium (UDM)
1965.59
1175.61
1920.41
1606.30
1333.72
n/a
n/a
1644.88
Urban Development Large (UDL)
1832.13
1076.75
n/a
1549.98
1400.68
n/a
n/a
1362.12
Urban Development Very Large (UDV)
1846.54
1081.10
1831.02
1557.50
n/a
n/a
n/a
1456.92
Urban Regional Small (URS)
1037.90
693.36
552.40
881.02
637.62
1881.91
1169.84
795.99
Urban Regional Medium (URM)
1225.67
755.20
894.27
1501.50
n/a
1326.05
n/a
1002.43
Urban Regional Large (URL)
1378.63
992.29
1081.81
n/a
n/a
n/a
n/a
1101.14
Urban Regional Very Large (URV)
1522.00
1125.54
1576.20
n/a
n/a
n/a
n/a
1453.40
Urban Fringe Small (UFS)
n/a
841.14
547.44
1273.21
1719.59
1424.98
2654.72
813.03
Urban Fringe Medium (UFM)
1286.13
1117.36
826.33
1226.98
636.54
n/a
n/a
1021.11
Urban Fringe Large (UFL)
1274.80
1251.40
1241.99
1343.57
n/a
n/a
n/a
1277.53
Urban Fringe Very Large (UFV)
1532.79
1260.82
1195.16
1449.07
1211.55
n/a
n/a
1362.54
Rural Significant Growth (RSG)
n/a
917.31
537.05
762.63
n/a
n/a
n/a
710.98
Rural Agricultural Small (RAS)
621.815
n/a
370.98
403.26
178.95
1052.39
n/a
373.85
Rural Agricultural Medium (RAM)
661.08
n/a
388.83
547.43
178.94
1258.52
n/a
488.42
Rural Agricultural Large (RAL)
680.83
366.58
414.41
684.60
207.00
1605.29
n/a
515.61
Rural Agricultural Very Large (RAV)
750.47
623.35
451.06
570.41
240.54
1552.23
2155.70
598.57
Rural Remote Extra Small (RTX)
n/a
n/a
n/a
n/a
377.96
n/a
469.98
462.39
Rural Remote Small (RTC)
n/a
n/a
365.28
340.82
n/a
n/a
585.44
411.83
Rural Remote Medium (RTM)
599.00
n/a
369.52
365.15
115.56
n/a
569.26
394.90
Rural Remote Large (RTL)1
618.83
n/a
378.19
509.75
n/a
n/a
n/a
462.32
Northern Territory Trust Fund
n/a
n/a
n/a
n/a
n/a
n/a
456.88
456.88
Average
907.86
718.07
575.60
562.50
326.99
1686.30
777.55
675.16


Note: 1 Averages for all classifications in these States include special roads grants received by councils.
Source: Department of Transport and Regional Services.

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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 $15.50 but differs slightly between States. This difference arises from slight variations in data sources for population used by the Australian Government to calculate the State share of general purpose grants and those used by the Local Government Grants Commissions for allocations for individual councils.

Table 2.11 provides the number of councils on the minimum grant, by State from 1996-97 to 2003-04 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 2.11 Numbers of councils on minimum grant and proportion of State population covered by minimum grant councils, by State, 1996-97 to 2003-04

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
70
% 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
2003-04
no. of councils
22
7
8
28
17
2
0
84
% of population
26
14
57
70
44
19
0
34


Source: Department of Transport and Regional Services.

Table 2.11 also shows a wide variation between States for the proportion of the population covered by councils receiving the minimum grant. In 2002-03, the proportion ranges from 0 per cent in the Northern Territory to 67 per cent for Western Australia. 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.

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 2002-03, the proportion of general purpose grant that went to councils on the minimum grant was just over 10 per cent nationally.

The proportion varied from 0 per cent in the Northern Territory to almost 21 per cent in Western Australia.

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.

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Reviews of Grants Commission methods

Local Government Grants Commissions have programs 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 methodology, are in the process of undertaking such examinations or have such activities planned.

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

Changes in Local Government Grants Commissions' assessment methods are required to achieve consistency with the Relative Need, Other Grant Support and Aboriginal Peoples and Torres Strait Islander Principles. (CGC 2001, 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 (CGC 2001). These working papers were intended to help Grants Commissions understand the CGC's findings in relation to their methods. The CGC also worked with Grants Commissions to show them how the CGC implements horizontal equalisation across States.

The status of reviews of methods by the Local Government Grants Commissions as
at 30 June 2003 is given in Table 2.12.

Table 2.12 The status of major methodology reviews undertaken since July 1995, by State, as at 30 June 2002

StateGeneral Purpose grantsLocal road grants

NSW None planned None planned
Vic Completed in May 2001 and implemented from 2002-03. Review of revenue component planned for 2003-04 Completed in July 1999 and implemented from 2001-02
Qld Completed in Dec 2002 and implemented from 2003-04 Completed in Dec 2002 and implemented from 2003-04
WA Completed in 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 implemented in 2004-05 Completed in 1999-2000, implemented from 2000-01
NT Review of methodology to be completed in 2003-04 None planned


Source: Department of Transport and Regional Services

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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 would otherwise be possible.

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 2.13 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.

Table 2.13 The influence of capping on grant distribution, by State, 2002-03 (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.
6
86
33
49
1
175
%
3
49
19
28
1
100
Vic
No.
5
4
7
621
1
79
%
6
5
9
79
1
100
Qld
No.
36
32
16
29
44
157
%
23
20
10
18
28
100
WA
No.
5
3
119
152
0
142
%
3
2
84
11
0
100
SA3
No.
7
23
23
6
15
74
%
9
31
31
8
20
100
Tas
No.
0
1
25
3
0
29
%
0
3
86
10
0
100
NT4
No.
0
34
0
6
25
65
%
0
52
0
9
39
100


Notes:
1 Includes 33 councils at 2.1 per cent and 22 councils at 2.0 per cent.
2 All 15 council were less than 1 per cent.
3 Excludes Aboriginal communities.
4 Excludes Northern Territory Road Trust Fund.

Source: Information supplied by State Grants Commissions.

The Australian Government has accepted 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 a maximum of five years, capping could be seen as impeding achievement of the objectives set out in the National Principles.

Table 2.13 shows that, in two States, a large proportion of councils receive grants that are 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 2002-03 and to 70 per cent in 2003-04. 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, the Local Government Grants Commission had developed a methodology to comply with the National Principles. However, since 1996-97 the grant councils actually receive has been subject to phase-in arrangements (download Appendix B). As a result, the grants for many Queensland councils diverged from those consistent with the Queensland Local Government Grants Commission's methodology. However, the allocations did comply with the transitional modifications to the National Principles determined by the Australian Government for each grant year from 1996-97.

In 2002-03, the phase-in arrangements were:

  • the general purpose grants for minimum grant councils were unaffected
  • a 'no fall floor' applied to those councils whose general purpose grants should have reduced according to the Queensland methodology
  • a constant percentage increase applied to the general purpose component of councils whose general purpose grant should have increased.

For individual councils, the differences between the general purpose grant allocated in 2002-03 compared to the Queensland methodology varied from, at one extreme, around $1.288 million more for a council than an allocation consistent with the Queensland methodology, to, at the other extreme, around $501 000 less.

Queensland agreed to review its methods in 2002 with the intention of introducing a new methodology from 2003-04.

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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 Australian 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 needing 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 'Internet addresses for
Local Government Grants Commissions').

In the 2001-02 National Report, an assessment was made of the material available to councils in respect of the allocation of 2001-02 grants. At the time of preparing the 2002-03 National Report, very few Local Government Grants Commissions had released their annual reports for 2002-03. An assessment of these reports and additional material on the Internet will be included in next year's National Report.

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