Improving the efficiency and effectiveness of local government

Application of National Competition Policy to local government
Trade Practices Act
Performance indicators
Australian Government activities to support local government performance improvement

Local government service delivery has come under increased scrutiny with the ongoing process of reforms both at the State and national levels. Over the past decade, State governments across Australia have embarked on an ambitious program of local government reform aimed at enhancing efficiency in this sector.

At the national level, the Australian Government's interest in improving local government performance is related to the significant funding provided to local government through the financial assistance grants. Further, the government's microeconomic reforms, such as the National Competition Policy and its related legislation, for example, the Trade Practices Act 1974, are designed to enhance national economic performance. Microeconomic reforms by local government improve economic efficiency and contribute to overall national economic performance.

In February 2003, the Australian Parliament's House of Representative Inquiry into Local Government and Cost Shifting released a discussion paper ‘At the Cross Roads: Inquiry into Local Government and Cost Shifting’.

This discussion paper stated that:

The Committee raises the question whether [there] is a case for closer Commonwealth scrutiny of local government systems and performance to ensure value for the very large sums of taxpayer funds spent in supporting councils (pp. 6-7).

Under the Local Government (Financial Assistance) Act 1995 the Australian Government Minister for Local Government is required to provide to Parliament an assessment, using comparable national data, of the performance of local government including its efficiency. This chapter outlines some of the key initiatives undertaken
to improve the performance of local government in 2002-03.

In relation to this requirement, in 1997 the Australian Government engaged the Industry Commission (now the Productivity Commission) to examine the feasibility of producing a nationally consistent approach to performance measurement in local government. The Industry Commission found that:

  • a nationally consistent approach to performance measurement of local government was not currently warranted
  • current State and Territory approaches to performance measurement have significant shortcomings
  • there would be considerable net benefit to the community from improving the current State and Territory approaches to performance measurement in local government.

The Industry Commission also concluded that although national performance indicators would facilitate reporting by the Federal Minister on local government's performance in the National Report, this requirement could be met by providing information on and analysis of:

  • application of the National Competition Policy to local government
  • progress, by the States, on improving the use of performance indicators
  • developments in areas such as competitive tendering and contracting, increased use of service charters and measures of customer satisfaction, and changes in the structure of local government.

For the 2002-03 National Report, State local government ministers and presidents of local government associations were asked to provide a report on measures taken in 2002-03 to improve efficiency and effectiveness of local government to deliver services. They were also asked to report on measures taken in 2002-03 to develop comparable performance indicators for local government and changes to the governance or structure of local government. These reports are at Appendix G.

Application of National Competition Policy to local government

At the 11 April 1995 meeting of COAG, Federal and State governments agreed to implement a package of legislative and administrative reforms called the National Competition Policy. The National Competition Policy is a national coordinated approach to increasing competition in Australia across business and industry in public and private sectors.

National Competition Policy has involved:

  • separating the regulatory and commercial functions of public monopolies
  • providing third party access to significant infrastructure facilities essential to competition
  • requiring government business enterprises to face a similar tax and regulatory regime to private businesses
  • reforming regulation that unjustifiably restricts competition
  • applying trade practices legislation and prices scrutiny to government business enterprises.

Although local government is not formally a party to the National Competition Policy agreement, local government activities were specifically referred to in the agreement.

The Australian Government makes National Competition Policy payments to the States for implementing the policy and related reforms. National Competition Policy payments commenced in July 1997 with the first of three tranches of payments. The third tranche commenced in July 2001 at an annual level of $600 million in 1994-95 prices. The payments are subject to States' making satisfactory progress in implementing reform commitments. Before the payments are made, the National Competition Council assesses whether each State has met the specified conditions and provides a report for government consideration. Implicit in this assessment of each State, is an assessment of compliance by local government.

National Competition Policy Payments for 2002-03 and for forward years are in Table 3.1.

Table 3.1 National Competition Policy payments (estimated maximum)



Note: 1 Provision has been made for National Competition Policy Payments in 2006-07. Forward years figures are estimates only and may change.
Source: Treasury, Budget Paper No. 3, May 2003.

In the State reports at Appendix G, only New South Wales, Victoria, Queensland and Tasmania reported on National Competition Policy progress during 2002-03.

New South Wales reported that the government passed the Local Government Amendment (National Competition Policy Review) Act 2003 in May 2003 and the Governor assented on 2 June 2003. The Act amends the Local Government Act 1993 and removes anti-competitive provisions from the Act. This process will commence in two stages on 1 September 2003 and 1 November 2003.

In November 2002, the Victorian Government announced introduction of the Local Government Improvement Incentive Program to replace the previous system of National Competition Policy payments to councils. New agreements will be sought between the Victorian Government and individual councils, to take effect from 1 July 2003. Compliance for the 2002-03 year is based on National Competition Policy (trade practices, local laws and competitive neutrality), best value, and asset management.

The Queensland Government's position on applying the National Competition Policy reforms to local government has always been that they are a set of management tools available to a council to choose from if they are going to benefit a council and there is a positive public outcome. Under the Local Government Act 1993, the largest 18 councils in Queensland were required to consider some form of National Competition Policy reform of their significant business activities. The remaining councils were encouraged to consider the reforms on the basis of good management.

The National Competition Policy Local Government Financial Incentive Package is a pool of funds, totalling $150 million in 1994-95 dollars, that has been set aside from Queensland's National Competition Policy payments by the Queensland Government. In order to receive funds, councils needed to nominate new business activities for National Competition Policy under Financial Incentive Package. Nominations closed on 30 March 2002, by which time 736 nominations had been received. Councils must nominate businesses for reforms and resolve to apply the specific reforms. Once a council's business nominations have been accepted, they must undertake a series of reforms to be eligible for payments from the Financial Incentive Package.

The payments to local governments in 2002-03 totalled $20.2 million paid to 117 local councils recognising their progress in implementing National Competition Policy and COAG water reforms. In August 2001, the Queensland Government provided funding to establish the Business Management Assistance Program to improve the financial management capability of councils and hence their general capacity to provide services to their communities while maximising their potential for payments through the Financial Incentive Package. $600 000 from the indexation component of competition payments allocated to the Financial Incentive Package was used to fund the initiative. As part of the Business Management Assistance Program, consultants worked with the 107 participating councils to develop action plans outlining a program for implementing the remaining reforms that also result in improved financial management practices for the councils. This support has enabled them to maximise their potential payments from the State government under a Financial Incentive Package.

The Tasmanian Government reported that during 2002, it began reviewing the key National Competition Policy statement, Application of National Competition Policy to Local Government that was prepared in 1996. The purpose of the review is to help local government continue to apply competition principles to its activities by ensuring its obligations are expressed clearly in the policy statement. Following consultation with the Local Government Association of Tasmania, a revised policy statement would be finalised by the end of 2003.

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Trade Practices Act

At the Federal level, there were other National Competition Policy developments related to local government in 2002-03. The Productivity Commission undertook a review of local government exemptions under section 2D of the Trade Practices Act 1974. Section 2D of the Act exempts local government licensing decisions and internal transactions from the competition provisions in Part IV of the Act. The exemption was reviewed in line with the Commonwealth's commitment under the National Competition Policy Agreement to review all legislation that restricts competition to ensure the legislation is of net benefit to the community as a whole.

On 12 December 2002, the Treasurer released the Productivity Commission's final report. The Commission found that section 2D was of net benefit to the community, due to the increased legal certainty for local government it provided. However, it considered that there may be additional benefits from replacing section 2D with a provision directly limiting application of Part IV of the Trade Practices Act 1974 to the business activities of local government, consistent with the policy intent of the National Competition Policy.

The recommended amendment would make the exemption for local government consistent with that provided to other levels of government. Importantly, the amendment would not infringe on local government's ability to exercise its regulatory functions to ensure minimum standards are maintained in the provision of services.

Local government was consulted during the review. The Australian Government will undertake final consultations with the States and Territories before amending the Act.

Benchmarking planning and development assessment system

Following a meeting of key stakeholders in 1998, the Development Assessment Forum was formed to bring together the relevant parties to reach agreement on ways to streamline the processes used for development approval and cut red tape, without sacrificing the quality of the decision making. The Forum includes the three levels of government, the development industry and related professional associations. Harmonising and improving Australia's development assessment system is a long-term focus for the Australian Government, State and local governments and the development industry. Reduced compliance burdens and more flexible regulatory systems will improve business efficiency, stimulate growth and help business generate employment.

In 2002-03, the Development Assessment Forum funded a study of ‘Comparative Performance Measurement and Benchmarking of Planning and Development Assessment Systems’. The study was undertaken by P&A Walsh Consulting and the University of Technology Sydney UTS Centre for Local Government to provide the Forum with an overview of existing performance-based initiatives, an analysis
of the issues for cooperative benchmarking, and options for a national framework.

The Forum is currently reviewing the report. The completed study and its recommendations may be viewed at

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Performance indicators

All States continue to produce local government performance indicators. The potential uses for local government performance measurement information are:

  • users of local government services and local communities can use it to compare their council's performance with other councils and to ensure the transparency and accountability of public funds
  • major public funding bodies, such as Federal and State governments, can use it as an analytical tool to examine relationships between program funding and outcomes achieved
  • local councils can use it to benchmark service delivery and operational efficiency against similar councils so improved practices may be identified and adopted.

A comparison of the various approaches indicate however, that there were significant differences in the objectives underlying the collections, the type of indicators being collected (efficiency vs effectiveness), the availability of the indicators to the public and the sector as whole, and the extent of commitment from local governments. These systems are also at different stages of development.

Notwithstanding the complexities of performance measurement in the local government context, numerous pressures will continue to exist which oblige the local government sector to provide transparent assessment of the efficiency and effectiveness of its operations.

Officials from State, Territory and local government associations with an interest in performance measurement intend to meet regularly to discuss their experience with local government performance indicators and the directions for future work.

New South Wales released the 2001-02 Comparative Information on New South Wales Local Government Councils in May 2003. The New South Wales Department of Local Government produces three data collections relating to rates, finances and general information. The information collected has also been used to calculate financial assistance grants, analyse financial health and check compliance of rates collected. To promote use, transparency and accountability the department continues to make the publication and the ‘raw’ data freely available and accessible via the Internet.

Victoria reported that Best Value principles will be applied to all local government services by 2005. Best Value principles include: establishing quality and cost standards, responsiveness, accessibility, consultation, continuous improvement and community reporting. In 2002-03, Best Value efforts focused on good governance and community consultation.

The annual community satisfaction survey was undertaken in early 2003 with 78 of 79 local governments participating on a voluntary basis. The Local Government in Victoria 2002 report was released in February 2003. It provided commentary on State-wide indicator results, including analyses by local government type (inner metropolitan, outer metropolitan, regional cities, small shires and large shires).

Queensland released its fifth comparative performance report titled Queensland Department of Local Government Comparative Information 2001-02. The report contains information on key local government functions such as road maintenance, water, sewerage, waste management, library services, local government rating and financial management.

The Western Australian government has reported that it is continuing to address the issue of comparable performance indicators relating to data quality, timeliness and cost effectiveness. Environmental reporting has been given a high priority by the Western Australian Local Government Association in areas such as heritage loan scheme, biodiversity, sustainability, natural resource management and waste management.

In South Australia, the Local Government Association project on Comparative Performance Measurement has moved into its second year of reporting. The sector has adopted four measures and a series of indicators as the basis of its individual, sector-wide and regional reports. Each council receives its own and that of the various groupings adopted by the sector for reporting purposes.

The aim of the Tasmanian Government's Measuring Council Performance Project is to provide a comprehensive framework of key performance indicators for councils. The key performance indicators provide an industry-wide framework for measuring and comparing councils' performance. Council performance was measured by 50 key performance indicators for the 2000-01 report. All 29 Tasmanian councils provided their data on a voluntary basis for 1999-2000, 2000-01 and 2001-02. The 2001-02 report was released on 3 July 2003.

The Tasmanian Government also adopted a partnership approach to local government financial reforms which is reported in detail in Chapter 6.

The Northern Territory Government has been collecting comparable performance indicators since 1997-98. While reporting of performance information is well within the capacity of the municipal and larger councils, it is recognised that the capacity to provide this information is more difficult for the smaller and remote councils. Consequently, the performance indicators program consists of two streams. The municipal and larger councils, which comprise the first stream, collected a full set of quantitative performance information on the three identified core services—roads, waste management and community management. The second stream, consisting of the smaller and remote councils, is less advanced.

The Australian Capital Territory's report has focused on environmental management reporting on waste, roads and urban parks and places. Roads ACT and Canberra Urban Parks and Places have also initiated improved asset management systems.

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Improving local government governance arrangements and community consultations continue to be a priority for most States. The Victorian Government proposes to amend the Local Government Act 1989 to reflect contemporary thinking about the role of local government.

The Queensland Government reports that it is embarking on a new era of governance by consciously widening the traditional scope of works from servicing land to servicing people. This provided local councils an opportunity to consult with communities on a range of issues.

The Western Australian Local Government Association also reports that it continues to provide professional development and training to elected members. It provides elected members with underpinning knowledge and skills in local government management. Using funding secured from the Commonwealth Networking the Nation program, the Linking Councils and Communities project seeks to extend and enhance the services delivered by councils to their communities and for councils to realise potential productivity gains through resource sharing and online services delivery.

The South Australian Government reports that the Local Government Association of South Australia continues to provide an extensive education and training program for council members and staff designed to keep them up-to-date with key changes to legislation and best practice in local government. The project includes a ‘governance checklist’ for councils to use to assess their governance performance and address areas and/or issues of concern.

The Tasmanian Government reports that it is conducting a review of the Local Government Act 1993. The objective of the review is to update the Act to ensure it promotes the best local government practices, meets the needs of local communities and reflects Tasmanian Government goals.

Collection of local government financial and performance data—Queensland

In April 2003, the Queensland Government, through the Department of Local Government and Planning, initiated a new way of collecting local government financial and performance information, and of distributing the collection form to local governments. Until now, local governments have received separate data collection requests from the ABS, the Queensland Local Government Grants Commission, and the Department of Local Government and Planning. Some of the data required in these collections has overlapped, and local government definitions and formats have varied significantly. Feedback from local governments has indicated that these surveys have been arduous to complete and that the resulting data may not have a high level of accuracy or comparability. Under the new initiative, the department will amalgamate these collections, eliminate data overlaps, standardise data definitions and reduce the amount of data being collected to only what is necessary and useful. The objective is to make the collection process easier for local governments and to improve data quality.

The collection will predominantly be used to assess councils' financial assistance grants, the ABS' Government Finance Statistics and National Accounts and for the department's annual publication of local government comparative information.

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Australian Government activities to support local government performance improvement

National Awards for Local Government

The Australian Government's National Awards for Local Government are the peak national awards that reward and highlight outstanding achievements in local government. The Awards were established in 1986 to foster and acknowledge innovation and continuous improvement in local government. They recognise councils' resourcefulness, and congratulate councils for finding better ways of delivering services and developing local solutions to often complex and challenging problems.

Awards are managed by the Australian Government Department of Transport and Regional Services. Awards are funded by sponsorship from a number of Australian Government agencies. In 2003, sponsors were the Departments of Environment and Heritage; Family and Community Services; Health and Ageing; Immigration and Multicultural and Indigenous Affairs; Industry, Tourism and Resources, and Transport and Regional Services.

The 2003 Awards were launched at the Local Government Managers, Australia National Congress in Adelaide on 26 May 2003 and were presented in conjunction with the Australian Local Government Association National General Assembly in Canberra on 23 November 2003.

Full details of the awards, winning projects and category award winners are at Appendix I.

Leading Practice Seminars

The Leading Practice Seminar Series is a Department of Transport and Regional Services initiative started in 2000. Since that time award entrants in the National Awards for Local Government have shared their experiences with around 150 other local government bodies across Australia. It provides an opportunity for councils to come together to hear from their colleagues and to discuss how particular project case studies might apply in their specific situations.

The seminar series is run as a partnership between the Department of Transport and Regional Services and host councils, regional organisations of councils or local government associations.

Financial impact of tourism on local government

Council provision of infrastructure and other local services to areas of high tourist visitations has caused added financial pressures for some councils and raised questions of tourism infrastructure costs, revenues and investment options.

The Australian Government's Department of Industry, Tourism and Resources, in its submission to the Parliamentary Inquiry into Local Government and Cost Shifting, found that little research had been done into local councils' costs and revenues from tourism infrastructure support. These data constraints may be affecting local governments' ability to determine the financial flows from tourism, and in turn make informed decisions about tourism investment. The Department of Industry, Tourism and Resources has started a project to develop a financial tool to help councils assess their financial costs and revenues from tourism. The tool is designed to help identify the marginal costs of tourism, and similarly identify the equivalent marginal revenues and costs gained from added business and employment. Pilot projects are currently in progress in four councils. Information on this financial model can be viewed at

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