Assessing Local Government's Revenue Raising Capacity

Local governments in Australia perform an important role through their provision of infrastructure, service delivery, and planning and regulatory activities. Amidst calls by local governments for increased funding from the Australian and State governments, most councils appear to have some capacity to raise more revenue themselves, contingent on the preferences and expectations of their communities, according to a final report released by the Productivity Commission.

The report — Assessing Local Government Revenue-Raising Capacity — responds to a request by the Australian Government to examine the capacity of local government to raise own-source revenue.

‘Most local governments are funded mainly from their own sources of revenue, although government grants also are a substantial source of revenue, particularly in rural and remote locations’, said Commissioner Judith Sloan.

‘On average, councils raise about 88 per cent of their hypothetical revenue-raising capacity, although there are large differences across councils. The impact of raising additional own-source revenue would vary across classes of councils. A modest increase by urban councils would be less difficult than for rural and remote councils where a higher proportion of community income is already drawn upon. For this reason, many rural and remote (especially Indigenous local governing bodies) will continue to depend more on grants than their urban counterparts’, said Commissioner Sloan.

The report also indicates that State government legislative and regulatory factors limit the ways in which councils raise revenue. The overall impact on revenue is unclear, except for New South Wales. The combined impact of rate-pegging and partial reimbursement of concessions in New South Wales clearly constrains revenue raising by councils in that state. There is a case for all State governments to undertake periodic reviews of their policies and programs that impact on the revenue-raising of local governments.

The Commission also sets out some principles to guide the revenue raising (and expenditure) decisions of local government. Councils could improve their effectiveness in determining the services local communities want and how to fund them, through the wider and more rigorous application of these principles. In this way, local governments could more effectively promote the well-being of their communities.

Background Information: John Salerian, Assistant Commissioner, (03) 9653 2190 / 0409 814 424

Requests for interview and  other information: Anthony Housego, (02) 6240 3217