Australia’s System of Local Government

31 October 2018 | Posted In: 134 - Spring 2018, Local Government, | Author: Roberta Ryan | Author: Alex Lawrie

In this overview, Roberta Ryan and Alex Lawrie, explains local government in Australia, how it operates and the challenges it faces.

Australia is a federation with three levels of government – the commonwealth (national), states and territories (provincial), and local government. The federation formed in 1901 when the states and territories vested powers and tax raising capacity in the commonwealth through the constitution. Local government pre-dates the commonwealth, and councils are often referred to as ‘creatures of state governments’ as the legal basis for their incorporation, powers and supervision are set out in state legislation, rather than the commonwealth constitution. In effect, this means the states and territories are the genesis of national and local governments in  Australia.

The commonwealth constitution sets out the division of powers and responsibilities between the commonwealth and state and territory governments. However, it does not recognise local government and there is often overlap in responsibilities for key services delivered by local councils. Land use planning is with the states and territories as it is not explicitly mentioned in the commonwealth constitution and the states and territories then delegate council’s responsibility for local strategic planning and development assessment. A 1988 referendum to formally recognise local government in the commonwealth constitution was defeated, and subsequent campaigns for another referendum have also been defeated. However, local government is represented at Australia’s chief inter-governmental decision-making forum, the Council of Australian Governments, which includes each state and territory premier (chief minister), the Prime Minister of Australia, and the head of the Australian Local Government Association which is the industry association for council elected representatives.

The entire Australian land mass is not incorporated into local government areas. Some sparsely populated parts of rural and remote areas are ‘unincorporated’ and administered by the states and territories.

The Australian Capital Territory (Australia’s seat of government and home to the national capital and parliament) is the only state or territory that does not have a formal system of local government and the Territory Government performs local government functions in that jurisdiction.

Number, Size and Type

From a high of more than 1,000 at the time of federation, there are now 537 local governments across Australia. They employ over 200,000, about 10 per cent of the total public sector workforce and more than Australia’s mining sector. About 60 per cent of the workforce is employed in regional, rural and remote areas.

Australia’s local governments are often referred to as ‘council’, ‘city’ or ‘municipality’ in urban areas, and ‘shire’ or ‘town’ in regional, rural and remote areas. ‘County councils’ also exist in some jurisdictions as formal corporations of two or more councils established for the purpose of shared service delivery, such as delivering water infrastructure across large regional and rural areas.

Like the states and territories, local governments across Australia vary substantially in population size, land area, and economic dominance. The largest council by population is Brisbane, the capital of Queensland, with over 1.2million residents whilst the smallest has just a few hundred. The largest by land area is East Pilbara, a remote mining community in Western Australia covering 380,000km2 whilst the smallest is Peppermint Grove covering just 1.5km2 around the West Australian capital of Perth.

Similarly, local governments vary substantially in the revenue they collect and spend. Those councils that include the central business districts of capital cities are often referred to as ‘billion dollar councils’. Higher CBD land values means they collect substantially more revenue from property rates than other councils, and they often provide larger and more complex services and infrastructure. For example, Brisbane City Council runs the largest bus network in Australia.

Australia’s capital city councils also typically have their own legislative charter, such as the City of Sydney Act or City of Brisbane Act, which provides for an expanded range of powers and responsibilities. For example, the City of Brisbane Act allows the Lord Mayor to prepare the budget that is then approved by the Council, and allows Councillors to be assigned a portfolio of responsibility such as transport or community services. In contrast, the budget of non-capital councils in other states and territories is typically prepared by the general manager and senior executive for approval by council. As another example, the City of Sydney Act establishes voting rights for CBD businesses, whereas businesses in non-capital councils do not have these rights.

Functions and Governance

Australia’s first local governments were established in Perth (capital of Western Australia) in 1838, followed by Adelaide (capital of South Australia) in 1840, and then both Sydney (capital of New South Wales, Australia’s most populous state) and Melbourne (capital of Victoria, Australia’s second most populous state) in 1842. They were established to provide property and town improvement services around the early colonial capitals and have since expanded to provide ‘services to people’. Local governments now provide an increasingly diverse and complex range of economic, social and environmental functions such as child care and youth centres, libraries and aquatic centres, economic development, local environmental management and community health.

KEY FUNCTIONS OF LOCAL GOVERNMENT

Infrastructure and property services, including roads, bridges, footpaths, drainage, and waste Planning and development approval
Provision of recreation facilities, such as parks, sports fields and stadiums, swimming pools, sport centres and halls, camping grounds Administration of facilities such as ports and marinas, cemeteries, and parking
Health services such as water and food inspection, immunisation, toilet facilities, and noise control Cultural facilities and services, such as libraries, galleries and museums
Community services, such as child and aged care, community care and welfare services Water and sewerage services in some states
Building services, including inspections, licensing, enforcement Other services, such as abattoirs, sale-yards and airports

In Australia, local councils are governed by elected councillors (‘the council’), and an executive led by a general manager or CEO and senior executives responsible for particular portfolios such as corporate governance and finance, community services, assets and engineering, and planning and environment (‘the council organisation’). Councils have a high degree of flexibility in the organisational structure they adopt so the senior executive portfolios often differ from council to council.

The responsibilities of elected councillors and the executive also differ depending on the various states and territory local government legislation. However, elected councillors generally act as the formal decision-making body that approves strategic plans, policies and budgets prepared by the general manager, senior executives and staff. In contrast, executives are responsible for operational decision-making such as human resource allocation and finances. In most cases, contact between elected councillors and the council organisation is facilitated through the general manager. Elected councillors are responsible for appointing and overseeing the work of the general manager only.

Generally, the mayor also has a ceremonial role for a council and can have the deciding vote on a policy as there is typically an odd number of elected councillors, and the number of councillors ranges from as few as five to as many as fifteen. However, this is not the case in every state and territory. For example, mayors in Queensland are directly elected and have greater responsibility for preparing policies and budgets. In contrast, only a handful of mayors in New South Wales are directly elected and it is the prerogative of councils in that state to choose the method of election. Most opt for indirect election where the mayor is elected by fellow councillors, but only for a minimum two year term rather than the full electoral cycle.

You can see how the NSW Local Government Act sets out the roles and responsibilities of mayors, councillors and general managers on page ??

Finance and Funding

Australia’s federation has a high level of vertical fiscal imbalance. The commonwealth collects most tax revenue (over 70 per cent), but spends less than half (about 40 per cent). To remedy this, Australia has a complex system of intergovernmental transfers to redistribute excess commonwealth revenue to the states and territories and local governments. A formula of horizontal fiscal equalisation aims to ensure all states, territories and local governments, theoretically, have the financial capacity to provide similar levels of service and infrastructure to their communities. Generally, local government is the most evenly matched level of government in terms of the amount of revenue it collects and what it spends. However, local government is increasingly handed ‘unfunded mandates’ where other levels of government transfer service and infrastructure delivery to councils without transferring the revenue needed to provide these.

Australia’s local governments hold around $A400 billion in assets, and collect over $A15 billion annually in property rates. Whilst these rates account for about 40 per cent of total council revenue, they make up just 3 per cent of all tax revenue collected in Australia. Other major sources of council revenue include fees and charges (such as parking fines) and rental income from properties (about 20 per cent), and grants from other levels of government (about 10 per cent). The amount of revenue councils can raise from rates is often capped by state and territory governments at the rate of inflation, although councils can make special applications to increase rates above the cap. This now common practice of ‘rate capping’ is often the subject of conflict between councils and states and territories.

Australia’s local governments receive annual grants from both the commonwealth and state and territory governments. Some are recurrent ‘general purpose’ grants and can be used for whatever purpose a council desires, whereas others are ‘specific purpose’ and can only be spent on activities determined by the commonwealth or states and territories, such as maintaining local roads. A range of criteria is used to determine the grant amounts and the formula is often the subject of conflict.

Again, revenue sources vary substantially between the states and territories. For example, South Australian councils collect 60 per cent of revenue from property rates, compared to just 25 per cent for councils in the Northern Territory. This is largely due to different methods each state and territory uses to value the land on which property rates are based. Regardless, own-source revenue (such as property rates and fines) represent at least 85 per cent of all council revenue in all states and territories. Local councils expend roughly $A34 billion annually, about 6 per cent of total public sector expenditure. Housing and community amenities (24 per cent), transport and communication (22.5 per cent) and general public services (17.2 per cent) are the main items of expenditure. However, again, these vary substantially depending on the dominant functions councils perform in each state and territory. For example:

  • In Victoria, local governments have a longer history of providing ‘services to people’ and the proportion spent on social security and welfare (12 per cent) is higher than other jurisdictions (about 5 per cent).
  • In Queensland, local governments have a role providing public transport and the proportion spent on transport and communications (29.5 per cent) is higher than other jurisdictions (about 20 per cent).
  • In New South Wales, local governments have historically provided social and affordable housing and the proportion spent on housing (26 per cent) is higher than other jurisdictions (about 20 per cent).

Reform

Like most parts of the world, Australia’s local government system is the subject of never-ending reform. Generally, these reforms have focused on altering the boundaries of council administrative jurisdictions through amalgamation, changing governance structures and processes such as codes of conduct for elected councillors and land use planning decision-making. There is greater reluctance to reform the basis of local government finances. The continual focus of the states and territories on structural reform, whilst ignoring financial underpinnings of the sector, is a site of deep and ongoing conflict between levels of government. For example, the Victorian Government dismissed all local governments in the early 1990s in order to drastically reconfigure boundaries and reduce the number of councils, and the state government was voted out of office not long after on the back of voter discontent. Similarly, the Queensland Government halved the number of local council in 2008, and several of the amalgamated councils have since successfully reversed these mergers.

Professor Roberta Ryan is Director UTS Institute for Public Policy and Governance and UTS Centre for Local Government (CLG) at the University of Technology Sydney. Alex Lawrie is a researcher at UTS CLG.

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