Chapter 7 : Issues and Challenges

Local government at the end of the 20th century was very different to local government at the time of Federation. The purpose of this chapter is to focus on current issues and challenges which are likely to shape local government's role and direction in the future. It draws on the material presented in other chapters of the report, including the discussion about the changing role of local government in chapter 2, as well as on research and discussion papers commissioned by a number of local government associations.

This year has seen renewed debate about the roles and responsibilities of the three spheres of government in Australia's federal system. This debate highlights the need for local government to develop a clear strategy for dealing with the issues and challenges it faces in order to maintain and strengthen its role as an important third part of Australia's democratic system of government in future.

To some extent, this involves local government 'getting its own house in order' - including making a clear assessment of the areas where it is performing well and the areas where improvement is needed. However, local government cannot do it alone. Given the complexity of the issues, the fact that responsibility for many of them is shared between more than one sphere of government, and the need to make best use of limited resources, a cooperative approach between all governments will greatly enhance the prospect of successful outcomes.

Local government funding

As noted in chapter 2, the last few decades have seen a significant expansion in local government's role, with councils moving well beyond the traditional focus on 'roads, rates and rubbish' to the delivery of a range of economic, social and environmental services.

Local government has long expressed concern about the extent to which its functions and responsibilities have increased without a corresponding increase in funding or in access to additional revenue. The Commonwealth Grants Commission review of the operation of the Local Government (Financial Assistance) Act 1995 found evidence to support this view. Reasons for this situation include:

  • devolution - where another sphere of government gives local government responsibility for new functions;
  • 'raising the bar' - where another sphere of government increases the complexity of or standard (and hence the cost) at which a service must be provided;
  • cost shifting - in two ways, firstly where local government agrees to provide a service on behalf of another sphere of government but funding is reduced or stopped, and local government is unable to withdraw because of community demand for the service; and secondly, where another sphere of government ceases to provide a service and local government steps in;
  • increased community expectations - where the community demands improvements in existing local government services; and
  • policy choice - where individual local government bodies choose to expand their service provision.

The review found that, at the national level, the composition of services provided by local government has changed markedly over the last 30-35 years; and local government is increasingly providing human services (social welfare-type services) at the expense of its traditional property-based services (particularly roads). Evidence suggests that broadly similar findings apply at State level.

The review also found that, since the inception of Commonwealth funding in 1974-75, local government has maintained the share of revenue it derives from its own sources; the Commonwealth's share has increased; the share of revenue coming from State grants has declined; and local government responsibilities have broadened.

The review concluded that, as the financial pressures being faced by local government are not due to a single influence, something more than a single response will be required to address it. It suggested that, where the source of the financial pressure is due to policy choice by local government, it would be appropriate for local government to use its own revenue sources. Where the source of the pressure is the result of changing policies or actions of another sphere of government, it would be appropriate for that sphere to acknowledge the effect of its actions and to provide extra financial assistance where it resulted in extra functions being imposed on local government. Financial assistance could also be appropriate where actions by other spheres of government (for example, rate pegging, fee capping, rate concessions or exemptions to industry) reduce the revenue capacity of local government.

The review's findings highlight the need for all governments to work together to address local government funding issues in future. In terms of local government meeting pressures from its own revenue sources, local government may need to find ways to make better use of existing mechanisms for raising revenue and/or find new ways of raising revenue in future. Part of this could also include improved asset management.

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Intergovernmental relations

Local government's expanding role has created pressure to redefine and clarify the relationship between local government and the other spheres of government. In the past, there have been few specific mechanisms for determining whether a particular function is best carried out by local government or another sphere of government. This has led to concerns over duplication of functions and the lack of a clear link between responsibility for functions and provision of funding to enable those functions to be carried out.

The Council of Australian Governments meeting of 8 June agreed to a streamlining of Ministerial Councils to strengthen their strategic direction and improve opportunities for cooperative policy development. The Council further agreed to development of a proposal for a more fundamental structural reform to the Ministerial Council system. In this context, the Council of Australian Governments agreed that local government would be represented appropriately on Ministerial Councils where there was a clear local government interest.

This is a significant step towards greater recognition of local government and greater cooperation between governments. However, it raises issues in relation to the representativeness of the Australian Local Government Association and its capacity to adequately cover all issues. It also increases the onus on local government to overcome interstate differences and develop a coordinated policy approach as it has successfully done on the local roads issue. An example of an issue where such a coordinated approach is important is National Competition Policy and its implications for local government (see 'National Competition Policy' below.)

The instigation of State-local government partnership agreements is one of the most interesting local government reforms of recent years. Partnership agreements are in place or under negotiation in Tasmania, South Australia and Western Australia. Although the nature of the agreements varies, they represent an attempt to clarify priorities and rationalise the distribution of powers and resources between State and local governments. Partnership agreements enable States and local government to respond to the articulated needs of their communities through an agreed plan and dedicated resources. They are another important step towards improving the relationship between local government and other spheres of government in future.

Tasmanian partnership agreements

The Tasmanian Government is taking the lead in formulating partnership agreements. A partnership agreement is a document that sets out the ways that State and local government will work together to further the social, economic and environmental issues within a community. A partnership agreement can be formed around a particular issue (for example, the Derwent Estuary Monitoring Agreement), or may cover a range of different issues. The agreement may be made between the State Government and one council or a number of councils, for example a regional body or a group of councils. A State-wide partnership involves the State Government and all local councils and is signed by the president of the Local Government Association of Tasmania on behalf of councils. State-wide Agreements are developed under the Premier's Local Government Council.

Negotiations are under way in relation to a number of other agreements. For further information, refer to the Tasmanian Department of Premier and Cabinet website at

South Australian partnership agreements

A joint management framework was established initially, involving a partnerships forum chaired by the Minister for Local Government with members including the President of the Local Government Association of South Australia and a number of nominees of the State and local government sectors. A scoping study entitled Partnering for Effective Government - Competitive Advantage for South Australia was then carried out. Based on this study, priority themes were identified as being:

  • State and local government strategic alignment;
  • community infrastructure and asset management;
  • community safety;
  • human services;
  • information management;
  • natural resource management; and
  • sustainable economic development.

Priorities for advancing the partnerships programme to June 2001 included development of 'on the ground' projects; promoting good State-local government partnership models; and more effective strategic alignment and coordination of forward planning between State and local government.

Western Australian partnership agreements

The Western Australian Government recently announced plans to develop State and local government partnership agreements, which could improve opportunities for economic and social development and improve service delivery.

A working group on State and local government relations will be established to identify issues and processes affecting both spheres of government that could be dealt with more effectively. The review would focus on issues that had caused concern to local governments in the past and identify pro-active measures that could be taken to build a more positive relationship in the future. The State Government and the Western Australian Municipal Association are to agree on terms of reference for the working group, which could include:

the shared vision of the State and local governments;

  • consultation mechanisms;
  • partnership models;
  • financial relationships; and
  • decision-making processes.

Further information about this process may be obtained from

In addition, the Western Australian Government has established an issue-specific State-Local Government Road Funding Agreement (see chapter 5 'Infrastructure').

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Size of the sector

Amalgamations have been an important part of local government reform in some States (see chapter 4). Despite the progress that has been made, debate about the size and viability of the sector continues. There is a view that there are too many small and uneconomic councils, resulting in fragmentation of authority, duplication, under-utilisation of equipment and resources, and difficulty in providing or obtaining specialist expertise. Arguments in favour of small councils include their representativeness and capacity to respond to local issues and needs.

Local government needs to continue to focus on this issue in future. It may be useful to develop a model of sustainable local government using viability criteria such as those developed by the Western Australian Structural Reform Advisory Committee Report of 1996, as outlined in chapter 4 'Structural reform of local government in Australia'. It may also be useful to analyse the extent to which current funding arrangements provide effective incentives (or impediments) for individual councils and the local government sector as whole to address these issues.

Other options include continuing to build on cooperative regional approaches as well as building on resource and skill sharing opportunities, such as the current crop of Local Government Incentive Programme projects. The merger of Albury and Wodonga Councils provides an example of one approach to amalgamation (see box).

Albury-Wodonga - Single City Proposal

Albury and Wodonga are located on the Victoria-New South Wales border and are divided geographically by the Murray River. Albury and Wodonga have one of the largest inland populations in Australia with more than 42,000 people living in Albury and close to 32,000 in Wodonga.

In March 2001, the Victorian and New South Wales Governments announced that Albury and Wodonga would be merged into a single city entity (that is, one local government authority). Both Governments believe that a merged Albury-Wodonga municipality would help remove many cross-border anomalies, make the area more attractive to new investment and stimulate the creation of more jobs.

An intergovernment working group was appointed to consider:

  • constitutional and legal issues involved with the merger;
  • State government service delivery issues; and
  • issues arising from community consultation.

The Right Hon. Ian Sinclair is leading the community consultation.

The working group released an issues paper in July 2001. The paper incorporates, for further discussion, the issues identified in the community forums held in June. These include:

  • Advantages and disadvantages of a single city.
  • What will a single city mean? For example how a single city council administration would be achieved?
  • Council employment, location and service issues.
  • Financial issues such as the impact the merger would have upon State and Federal funding.
  • Cross-border anomalies relating to different laws, policies and practices.

A comprehensive consultation paper has since been released. The paper provides detail about the opportunities for change and outlines a possible model for a single city. It also includes discussions about cross-border anomalies and seeks to test the perceived risks and benefits of creating a single city in line with the proposed model.

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National Competition Policy

One of the key forces which has had an impact on local government in recent years and which is likely to continue to do so is the National Competition Policy.

The National Competition Policy was introduced in 1995 to reform monopoly arrangements to increase consumer and business choice, reduce production and transportation costs and to create an overall business environment in which to improve Australia's international competitiveness.

Local government, although not formally a party to the National Competition Policy Agreements, plays a significant role, particularly in the application of competitive neutrality principles, the review and reform of restrictive legislation and the water reform programme.

At its meeting on November 2000, the Council of Australian Governments re-affirmed its commitment to the National Competition Policy in sustaining the competitiveness and flexibility of the Australian economy. Several measures were agreed to establish a practical framework for the ongoing, effective implementation of the Policy. Some of the key changes, which were intended to clarify and fine tune the policy implementation arrangements, included:

  • governments to document the public interest reasons for supporting a decision or assessment and make them available to interested parties and the public;
  • following the third tranche assessment in July 2001, the National Competition Council will make annual assessments of reform progress and make recommendations as to the level of competition payments; and
  • assessment of compliance with the competitive neutrality requirements, including adoption of best endeavour approaches, remove the need for parties to undertake a competitive process for delivery of Community Services Obligations, and allow governments to freely determine who should receive a Community Services Obligations payment or subsidy.

Some elements of the reform programme have been amended to extend timetables beyond 2001, notably in relation to the water, electricity and gas sectors, and the legislation review and reform programme. The changes will also serve to address a number of community concerns regarding the application of the National Competition Policy which were identified in the Productivity Commission and Senate Select Committee inquiries into competition policy.

The Productivity Commission is undertaking a review of Section 2D of the Trade Practices Act 1974 which exempts the licensing decisions and internal transactions of local government bodies from Part IV of the Act. Part IV regulates restrictive trade practices. In undertaking the review, the Commission is to report on the appropriate arrangements for regulation, if any, taking into account:

  • the objectives of the exemption and the nature and magnitude of the problems it seeks to address;
  • the extent to which the exemption restricts competition;
  • the benefits, costs and overall effects of the exemption, including impacts on specific industry sectors and communities; and
  • any alternatives to the exemption, including non-legislative approaches.

The inquiry is expected to be completed by October 2002.

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Good governance and community participation

Good governance requires that local government continue to have a responsive and responsible structure that keeps it in contact with events in the wider community. Part of this involves establishing effective relationships with the other governments and strengthening the role of bodies like the Australian Local Government Association and Local Government Managers Australia. Local government will need to continue to focus on the capacity of peak bodies to pursue resolution of areas of interest for the sector as a whole.

Electronic access and service delivery are opening up new ways for the community to interact with government, allowing for faster and more direct access. Local government will need to find ways to provide for and manage this trend, including ensuring that an effective balance is maintained between representation and direct participation.

A further issue is increasing the representativeness of council staff. Women, younger people and people from culturally diverse backgrounds are significantly under-represented among both elected members and staff.

Women make up less than 30 per cent of all local government elected members, 15 per cent of mayors and less than 10 per cent of senior executives. In March 2001, the Federal Government sponsored a round table of women in local government to consider the issues that contribute to this situation.

Following the round table, a project was commenced to develop a national approach to improving women's participation in decision making in local government. The result is the National Framework for Women in Local Government which calls on every council in Australia to contribute to increasing women's participation in elected member and senior management positions in Australian local government. The framework does not mandate specific actions but encourages councils to devise strategies suitable to their environment.

The framework was developed following a national consultation process. It was developed in partnership with the Australian Local Government Association, Local Government Managers Australia, the Department of Transport and Regional Services, and the Commonwealth Office of the Status of Women.

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Building local government capacity

Local government reform programmes, implemented by some State governments (see chapter 4), have brought about extensive changes to the structure and operations of many councils across Australia. Building on these reforms will require a continued commitment to building local government capacity.

The Federal Government promotes innovative practice in local government through the annual National Awards for Innovation in Local Government. The awards identify and promote innovation and leading practice in local government, encouraging regional cooperation and partnerships between councils and local enterprises (see Appendix K). Sponsoring departments also use the information provided by all entries to develop government policies on a range of issues, both existing and emerging. This highlights local government's role as a key barometer of social, economic, environmental and cultural issues of concern to communities.

In 2001 the Federal Government launched a series of leading practice seminars where councils spoke about their award-winning projects to representatives from other councils. Over 100 councils attended the seminars which were an important way to explain, face-to-face, the best practice identified through the Awards. All entries are listed in the Guide to Leading Practice in Local Government.

Local government can also build its capacity by reforming electoral procedures - for example, by resolving electoral anomalies such as those in Queensland. It can resolve issues of probity by ensuring councillors are adequately remunerated and report on their financial interests, as do State and Federal politicians.

Finally, continued investment in education and training will be required to develop and build on the strategic and analytical management culture needed in modern local government. An essential element of this is the capacity to bring together the environmental, social and economic dimensions of issues at the local level.

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Sustainable development

Balancing economic growth with sound environmental management and the need to develop and promote stronger local communities will be a key challenge for local government in the future.

Local government has a critical role in natural resource management. While State and Federal governments have taken the role of formulating plans and policies, councils play a significant role in managing issues, such as land use planning, biodiversity, water infrastructure and management and salinity, at the local level. Successful management of these issues will require adequate future funding, access to expertise and knowledge and sharing of best practice approaches. Local government commitment and participation in major environmental initiatives, such as the National Action Plan for Salinity and Water Quality and the second stage of the Natural Heritage Trust, is vital for sustainable outcomes to be achieved.

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E-business for local government

Furthering e-business is another current issue for local government which will continue to be important in the future. Evidence of the Federal Government's support for this initiative is in chapter 4 - 'Local Government Online' and 'GrantsLINK'.

Representatives of the Department of Transport and Regional Services, Networking the Nation, Business Entry Point (in the then Department of Employment, Small Business and Workplace Relations), the National Office of the Information Economy and the Australian Local Government Association met in late 2000 to develop a process to help further e-business in local government.

A national e-business meeting, sponsored by the Department of Transport and Regional Services, was held in April 2001 in Melbourne and brought together a wide range of stakeholders involved in provision or use of electronic service in local government. Participants addressed priority issues for e-business and development assessment needs in electronic delivery. These included interoperability (that is, the ability of systems and data to interact), information sharing and transfer and a range of other issues.

E-business and electronic service delivery will be important not only in terms of improving service delivery but in ensuring that communication between councils can transcend local or State boundaries. This will facilitate information sharing and dissemination of leading practice which are integral to improving local government performance and reducing its fragmentation.

A rural mentor facility

A project currently being undertaken by the Local Government Managers Australia provides an excellent example of how modern communication technology can contribute to information sharing and help overcome distance and isolation.

The project was funded under the Local Government Incentive Programme and involves development of a major extension to the Local Government Managers Council's current website to provide a 'rural mentor' facility - a practical Internet-based aid to local government officers in rural and remote locations throughout Australia.

Based around commonsense functional categories, the online network will allow participants to search a library, find out the latest news, post a question, respond to questions logged by others, conduct research and more. It will be a highly inclusive site - part portal, part resource, part information hub.

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Indigenous issues/reconciliation

Issues arising from local government's role in delivery of services to Indigenous communities include:

  • the adequacy of services provided by councils; and
  • the financial capacity of local government to provide services to discrete Indigenous communities, particularly given land tenure arrangements and the non-rateability of land.

The Commonwealth Grants Commission, in its review of the Local Government (Financial Assistance) Act 1995 recommended that the requirements of the National Report in relation to Indigenous people be strengthened considerably. This would include monitoring and reporting on local governing bodies' performance in providing services to Indigenous people and the extent to which local government grants commissions' assessment methods recognise the needs of Indigenous people. The Commonwealth Grants Commission also canvassed the possibility of extending this Principle to cover other disadvantaged groups.

The Council of Australian Governments initiative in relation to reconciliation also provides an opportunity to advance the interests of Indigenous people at the local, State and national level.

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There has been renewed debate recently over the effectiveness of Australia's current system of government, including calls to develop forms of regional governance.

Local government has already made considerable progress on developing a regional focus through the formation of Voluntary Regional Organisations of Councils. There is scope to build on these developments in future to bring about a greater focus on regional strategic planning. Regional mayor's forums have been suggested as one means of achieving this.

Local government's role in regional development is another issue that is likely to become increasingly important in future. Local government is currently involved in a number of Federal regional development programmes (see 'Federal Government support for local initiatives' in chapter 4.) Establishment of the new Regional Development Council, which includes the Australian Local Government Association, is a key opportunity for local government to strengthen its role in this area.

The Australian Local Government Association paper, Developing Competitive Regions, funded by the Commonwealth under the Local Government Development Programme, and available on the Australian Local Government Association's website, identified some of the key ways in which local government can contribute to regional development. Local government needs to continue to articulate its role and contribution in this area in future and establish effective linkages with the numerous bodies operating at the regional level.

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The changing role of the National Report

In its review of the Local Government (Financial Assistance) Act 1995 this year, the Commonwealth Grants Commission recommended that the National Report play a stronger monitoring role in:

  • the extent to which local government grants commissions' assessment methods and approaches are consistent with the National Principles;
  • the extent to which local government grants commissions are modifying their equalisation assessments to deliver greater stability in annual grants;
  • the extent to which local government grants commissions' assessment methods recognise the needs of Indigenous people;
  • the performance of local governing bodies in providing services to Indigenous people (performance measures should be developed for this purpose);
  • the extent to which local government grants commissions' processes explain how individual grants have been calculated and provide sufficient information to enable local governing bodies to calculate them if they wished; and
  • the effectiveness of the proposed transitional arrangements.

If implemented, all of these aspects of the National Report will need a closer relationship between the Federal Government and local government performance, particularly in relation to delivery of services to Indigenous people.

The Commonwealth Grants Commission suggests that the National Report initiate discussion on:

  • the methods local government grants commissions employ to constrain grant changes;
  • the extent to which these methods are constraining equalisation outcomes; and
  • whether there should be any limit on the extent to which these arrangements can be used.

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Future funding framework

The Commonwealth Grants Commission in its review of the Local Government (Financial Assistance) Act 1995 recommends moving from a two-grant-pool to a three-grant-pool framework associated with three grant distributional objectives, roads, per capita and relative needs. This would be matched with appropriate National Principles to guide local government grants commissions in allocating each pool to local governing bodies. At present, the per capita component (the minimum grant) is funded from the same pool as the component of grants intended to improve equity (the equalisation component). The Commission found that attempting to achieve these two competing objectives by distributing the one pool is conceptually confusing and, in practice, gives rise to some difficulties and uncertainty.

The proposed per capita grant pool would be funded with what would have been 30 per cent of the State's general purpose pool. It would be distributed among all local governing bodies on a population basis. This would replace the current minimum grant principle.

The relative needs grant pool would be funded from what is left of the present general purpose pool after the proposed per capita grant pool is established - that is, 70 per cent of the present general purpose pool. Not every local governing body would receive grants from the relative need pool, because its purpose would be to provide additional assistance to disadvantaged local governing bodies. This would replace the equalisation principle currently guiding general purpose funds distribution.

The Commission considered that how the limited assistance is to be distributed be left to the judgement of individual local government grants commissions. The recommendations have yet to be formally considered by the Federal Government. It will be a priority area for attention in 2001-02.

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The future

Much has been written about the possible shape and direction of local government in future. Some suggest that, if the current trends continue, councils will get bigger and bigger, and more involved in commercial enterprises. They will also capitalise on their expertise and regulatory powers in relation to environmental matters to market their areas as clean and green places for development, employment and as a source of locally-grown products. Other predictions include councils taking on the role of revenue collectors for offences such as traffic and domestic animal control infringements, possibly even minor criminal offences, such as those which result in home confinement. This progressive assumption of State-like powers could allow councils to have greater involvement in revenue generation, community policing and economic development.

Some commentators suggest that one of the consequences of the change in local government's responsibilities and operations over the last two or three decades is that local government experiences uncertainty and ambivalence about its role. One key question is whether local government is primarily a service provider or government. Local government needs to continue to debate these issues and develop a clear vision for its future.

However, this cannot be done by local government in isolation. Partnerships with other spheres of government and key organisations will be essential and the approaches developing in some States over the past year are an excellent start. This will be on the basis of understanding current roles, responsibilities and resources as well as developing benchmarks and performance indicators. One of the roles the National Report can play is to contribute to that understanding.

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