Australian Local Government Association Update Municipal Association of Victoria Mayor Troy Pickard, President Australian Local Government Association Thank you for the opportunity to speak. I spoke to your Future of Local Government Summit on 18 May and I concentrated particularly on productivity and innovation at that time. In this speech I want to focus more on ALGA’s priorities and the agenda we set out for the recent Federal Election. Association Annual Conferences are important opportunities to provide an update to councils on the priorities of ALGA and also on developments at the Federal level. I am sure you would agree we certainly have had some developments over the past four months. ALGA is a small focused organisation and our job is to maintain and strengthen the relationship local government has with the Australian Government. It’s a critical relationship for local government because from a financial perspective local government receives up to 10% of its annual funding from the Commonwealth through grants programs (in the year just gone the figure will be in excess of $3.8b out of operational expenditure of just over $33b).   8 September 2016

Australian Local Government Association Federation of state and territory local government associations Established 1947 The Municipal Association of Victoria is a member MAV President, Cr Bill McArthur is ALGA’s Vice President and a Board Member. Cr Coral Ross is also a Board Member Small secretariat based in Canberra For the record, ALGA has been in existence since 1947 but it remains a very lean and focused body. The ALGA Board includes 2 Directors from each State and the Northern Territory as well as an independent President. The Secretariat has just 12 staff in total. I want to take the opportunity to thank Cr Bill McArthur who is ALGA’s Vice President and Cr Coral Ross who is a Board member of ALGA for their ongoing contributions to the ALGA Board.

Election Outcomes Coalition Government returned with slim majority Continuation of existing governance arrangements Infrastructure and Regional Development Portfolio Local Government Minister in Cabinet, Senator Fiona Nash Shadow Minister for Regional Services, Territories and Local Government, Stephen Jones MP Difficult Senate and the importance of partnerships in delivering outcomes Let us turn to what actually happened on 2 July. The re-election of the Coalition Government should bring some stability in terms of the Governance arrangements for local government. The same portfolio structure continues but we now have a Local Government Minister in Cabinet, Senator Fiona Nash. Darren Chester continues as Infrastructure and Transport Minister. The newly appointed Shadow Minister for Local Government is Stephen Jones, an MP from Southern New South Wales. I met with Fiona Nash last week and I have a meeting with Stephen Jones next week. The National Party will be in a stronger position in the Coalition. The National Party has traditionally valued its relationship with local government and we will be seeking to build on that relationship, emphasising the opportunity for a partnership with local government to deliver on our share objectives and the Government’s own objectives of improved productivity. We can expect a busy time in Canberra over the next few months as the Government feels its way with the new Senate and looks to push its Budget and election promises through the Parliament. One other benefit was the strong indication from the Opposition that they value their engagement with local government and ALGA and they continue to see the Australian Council of Local Government, which they established in 2008, as a good model for engagement with the sector.

ALGA Priorities Focus on Productivity and Innovation Local Government’s Plan for an Innovative and Prosperous Future Establish and re-establish relationships with Ministers and Shadow Ministers Contemporary issues in funding, regional development and digital transformation Let me outline ALGA’s current priorities which are reflected in our Budget Submission provided to the Government in January and our election document released in April. Not surprisingly the ALGA Board decided to ensure alignment and consistency between the two documents given the likelihood that the Government was going to go to an early election just after presenting the 2016 Budget. A focus of our proposal in the Budget Submission and the Election plan was productivity and innovation. In essence, our future economic growth depends greatly on doing better in terms of productivity growth. Finally, a key priority going forward must be to establish and as appropriate re-establish ALGA’s strong relationships with the incoming ministers and shadow ministers in key portfolios.

Role of LG in Productivity & Innovation Major Economic Contributor Employs more than 187,000 (10% of public sector) Annual operational expenditure in excess of $33 billion Manages non-financial assets worth more than $354b. Replacement value est at $438 billion Enables Productivity and Innovation Local Government is a sizeable player in the Australian economy and so what we do as a sector has an impact. We account for about 1.5% of the labour force and 2% of GDP. We own and manage about 33% of the public sector’s non-financial assets. The states have around 52% of the non-financial assets and the remainder are with the Commonwealth (about 10%) or jointly owned by the Commonwealth and the states (3%). In addition, we have the capacity to also help the Australian Government implement part of its own agenda for productivity improvements through a partnership with councils.

ALGA’s 2016 Federal Election Plan   “Local Government’s Plan for an Innovative and Prosperous Australia” Developed during the year before the Election Focus on investment in productive infrastructure in partnership with the Federal Government Linked to our 2016 Budget Submission Released last month in advance of the election Includes an assessment of the GDP and employment benefits of initiatives This focus on productivity has been reflected in ALGA’s 2016 Federal Election Plan because it is only by adopting an emphasis on productivity, where appropriate, that we can compete for the scarce resources we need from the Commonwealth to continue to deliver the infrastructure and services our communities need. We developed the Plan over a year and we were not caught out by the early election. We deliberately aligned our 2016 Budget Submission with our Election Plan to underline the consistency of our advocacy and because we knew that the Election was quite likely to follow on closely from the Budget. Importantly, this year we decided to have some analysis on the economic impacts on what we were proposing in terms of GDP and employment outcomes.

Key Advocacy Priorities Financial Assistance Grants (indexation and quantum) A targeted freight strategy An increase in local roads funding A community infrastructure program Social and human services Outlay over three years would be an aggregate of $4.05 billion but would add an additional $7.5 billion to GDP and create 19,300 jobs over the same period. There are a number of initiatives we proposed in the 2016 Budget Submission and our Election Plan and we will continue to advocate for these with the new Government. They can be usefully grouped into the five major issues you see there on the screen. We have an obvious focus on the Financial Assistance Grants for local government because they are such an important part of our funding providing $2.3 billion each year, but we also have a strong focus on infrastructure and investment in productive infrastructure.   Outlay over three years would be an aggregate of $4.05 billion but would add an additional $7.5 to GDP and create 19,300 jobs over the same period.

Financial Assistance Grants Key local government revenue source from the C’wealth $2.3b per annum, distributed to all councils Indexed annually by CPI and population growth Indexation freeze for three years from 2014-15 Restoration of Indexation Increase quantum to 1% of C’wealth tax revenue An increase to an estimated $3.8 billion per annum Estimated benefits over first three years of restoring indexation and gradually increasing FAGs to 1% 7,900 jobs and increase in GDP of $2.81b FAGs vital to local government and to individual councils. The decision to freeze the annual indexation for 3 years estimated by the Government to save $925m across the Budget outyears. By the time the indexation is due to end in 2017 the base of FAGs will be more than $300m below what it would otherwise have been. That gap will continue to widen and within the next few years will be greater than the current R2R funding of $350m. ALGA has called for the immediate restoration of indexation. We did not get indexation back for this current financial year – the last year of the freeze but the budget delivered on 2 May showed clearly that the Government intends to end the FAGs indexation pause next year. There are never any guarantees of ending the pause until it actually finishes and so we will continue to emphasise the need to reintroduce indexation. We understand that as late as the end of last year bureaucrats were advising that the pause be extended! Indexation freezes can go on indefinitely – just ask the doctors about their ongoing freeze on the indexation of the Medicare rebate. Funds invested in local communities through the FAGs make a major contribution to local economies and to the maintenance of local communities, especially in regional areas. A reversal of the trend of the declining relative importance of FAGs by gradually restoring it to 1% of Commonwealth Taxation Revenue would make a real difference. A return to 1996 levels would see FAGs increased by $1.5b in today’s terms. If that was done gradually over 15 years to avoid a major fiscal imposition, there would be substantial benefits. The estimated benefits for both FAGs proposals – restoring indexation and incrementally restoring the base to 1% of Commonwealth tax revenue would create 7,900 jobs and increase GDP by $2.81b over the first three years.

Higher Productivity Investment Plan $200m per annum for 5 years Higher productivity vehicles require local roads and key bridges to perform at a higher level Additional investment required in the first mile/ last mile on identified freight routes Assets must be assessed and investments made Regional groups of councils must be supported Would facilitate increased freight and address current access barriers to NHVR permit access 2,400 jobs and increase in GDP of $1.07b ALGA has put forward a proposal that the Government establishes a specific program to target freight productivity at the local level through funding for regional groups of councils. The focus on improving freight productivity through heavy vehicles continues to be one the key reform agendas pursued by Transport Ministers and supported by COAG but there are going to be problems if the local road component of freight routes is unfit for the task. Estimated direct benefits over first three years of a targeted freight investment program.   2,400 jobs and increase in GDP of $1.07b, not including increased productivity benefits from more efficient freight movements.

Permanent Roads to Recovery R2R highly successful since 2001 Major outcomes are increased road safety, productivity and equitable access Complements councils own annual local roads expenditure of $7b Estimated direct benefits over first three years of a permanent and doubled R2R program 4,100 jobs and increase in GDP of $1.72b In addition to targeted investment in freight routes ALGA is going to continue to advocate for greater funding to enable councils to maintain their local roads to a standard required by the community. The R2R program has been extremely successful and we want it to continue permanently at a much increased level. There are real positive returns for the economy from increased R2R investment. Estimated direct benefits over first three years of a permanent and doubled R2R program   4,100 jobs and increase in GDP of $1.72b.

Community Infrastructure Program $300m per annum for 4 years Targeted at community facilities, parks and recreation, stormwater, airports, etc 2015 State of the Assets: 11% of community assets in poor or very poor condition, totalling $28.5b Follows very successful 2008-09 RLCIP 3,700 jobs and increase in GDP of $1.41b One of the most successful programs implemented during the response to the Global Financial Crisis was the Regional and Local Community Infrastructure Program – RLCIP. We need another program similar to this which supports councils and provides a positive stimulus to local economies.   Estimated direct benefits over first three years of a Community Infrastructure Program 3,700 jobs and increase in GDP of $1.41b.

Other Priorities Funding to support councils to work with local businesses and communities to implement local and regional climate change plans Review of municipal funding arrangements for indigenous communities Ensuring councils have access to adequate funding for human services Better natural disaster funding Legislative or administrative certainty for direct funding While there was not much said about climate change in the election, the problem is not going to go away. Councils have done a lot of work at the community level to tackle mitigation and adaptation and they will do more, but a positive program supporting councils will help communities to implement the plans which many councils have developed in recent years.   Estimated direct benefits over first three years of a climate change support program: 1,200 jobs and increase in GDP of $453 million. Additionally, we have a number of longer term objectives which cover key areas such as indigenous resourcing, human services, natural disaster funding and greater certainty for Federal funding of local government.

ALGA’s Future Priorities Regional Development Budget papers foreshadowed a review in 2017 Encourage a review to build links between councils and RDAs Innovation and Digital Transformation Use of council facilities/ libraries to provide innovation hubs One of the key activities facing the ALGA Board is to review and ensure its priorities remain relevant and achievable.   Key areas which the ALGA Board has identified as future priorities include regional development, which the Government itself flagged in the 2016 Budget papers would be reviewed over the coming months. There are problems with the ad hoc nature of programs and the lack of alignment between Commonwealth and state approaches, let alone the lack of engagement between councils and RDAs. Our Regional Forum, held in conjunction with the NGA in June included a workshop with councils to identify their issues and ideas for reform of regional development and we will be developing an ALGA position to put to the Government. One of the key issues was the need to change and strengthen the relationship between councils and RDAs which is greatly lacking in almost all states. The Board is interested in exploring with the Australian government the possibility of using council facilities, including libraries in some jurisdictions (not Tasmania) to provide innovation and digital hubs to stimulate local economies and help to overcome the digital divide where 4 m Australians do not have private access to the internet.

ALGA’s Future Priorities Infrastructure Agenda Infrastructure Funding including Cities Deals Funding of Roads, including road pricing Federal Funding of Local Government The adequacy of FAGs quantum and the mechanism A more streamlined share of taxation 1% of Federal tax would mean funding of $3.7b last year Infrastructure remains a key issue including how community infrastructure is better funded, the question of value capture mechanisms and Cities Deals which the Government covered off in its Smart Cities Policy announced just days before the Budget. There is also growing momentum in the area of road funding, particularly road pricing and road user charging. These are all issues flagged in the Australian Infrastructure Plan, released by Infrastructure Australia in February and which the Government has yet to respond to. ALGA has formulated its view on the recommendations in the IA Plan, based on feedback from our state and territory associations. We need to ensure that we are equipped to engage in the debate in the interests of local government because any new models for funding infrastructure affect us greatly. After all, the current replacement value of our non-financial assets is estimated at $438 billion.   Finally, ALGA is looking at the current mechanisms for Commonwealth funding of local government and what opportunities there are for reform to ensure that the funding is sustainable. In particular, we are looking at the option of advocating for a fixed share of Commonwealth taxation and perhaps greater flexibility in how those funds might be allocated between local government programs. It early days but we need to explore such options given that the Commonwealth and states will almost certainly need to look further at income tax sharing going forward if they are to address the problem of how to fund health in the future. Generally local government gets about $3 billion each year in support from the Federal Government but it varies – last year and this year the figure is inflated by extra R2R funding. One option would be to seek a guaranteed share of 1% of Commonwealth taxation – that would have equated to about $3.7b in the past year (which is about what we got) but would increase incrementally to about $4.8b in 2019-20, compared with about what we can expect of about $3.4b. In addition to a tax share we would need to look at setting a guaranteed floor so revenue could not fall below a certain level, and increased flexibility within the 1% envelope to move funds between programs. These are issues which should be explored.

THANK YOU Any Questions? Thank you for you attention and let me remind all of you that ALGA’s 2016 National Local Roads and Transport Congress will be held in Toowoomba in Queensland between 9 and 11 November. We will be pursuing our focus on the need for investment in productive local infrastructure and I encourage all of you to attend and have you say. Now are there any questions?

Thank you