AUSTRALIAN LOCAL GOVERNMENT ASSOCIATION

Local Government and Federal Government – the importance of the direct relationship, now and into the future Mayor Troy Pickard, President Australian Local Government Association 29 May 2015

Importance of the Relationship For Local Government – significant source of revenue to support and meet community needs For the Federal Government – partnership Delivering national interest outcomes locally

Key Factors Influencing the Relationship into the Future The Commission of Audit Report The Reform of Federation White Paper The Taxation White Paper

White Paper Processes Commonwealth processes to develop Commonwealth policy Issues Papers – out now Green Papers – probably September 2015 White Papers – probably 1st half 2016 Federation and Tax Reform proceeding in parallel

Federation White Paper Terms of Reference released in June 2014 Roles and responsibilities and sovereignty focus Eliminate duplication, waste, improve productivity, simpler for citizens Guiding principles

Federation White Paper (cont.) Broad scope but narrowing to key areas of health, housing and education Being developed through COAG but with Steering Committee of officials Prime Minister’s Expert Advisory Panel

Taxation White Paper Treasurers leading No released Terms of Reference Two objectives: 1.Fairer and more competitive tax system 2.Revenue aligned with roles and responsibilities (complementing the Federation White Paper) Issues Paper released with submissions by 1 June

Federation Reform Issues for Local Government Term of Reference focus on limiting Commonwealth to Section 51 responsibilities: Picks up Commission of Audit recommendations Future of $3 billion in annual federal funding for local government Main grants program (FAGs) already vulnerable through indexation freeze

Federation Reform Issues for Local Government (cont.) No constitutional link between Federal and local governments and none to be considered. Opportunity to gain recognition of local government role in the Federation on the ground Delivering national interest outcomes at the local level: Equitable service access for all citizens wherever they live Improved productivity Road safety

Taxation White Paper Issues Rates our only tax base Challenge to maintain the integrity of rates Illustrate importance Important revenue source $14 billion in % of revenue across local government Highlight threats Rate Capping, exemptions, concessions

Taxation White Paper Issues (cont.) Flag issues around land tax reform Opportunity to argue for fair allocation of tax revenue

What is our Fiscal Position Expenditure Expenditure of $32 billion in Main Items of Expenditure: Housing and Community Amenities24% Transport and Communications22% General Public services19% Recreation and Culture15% Move to community based services away from infrastructure

What is our Fiscal Position Expenditure (cont.) Assets are a major issue for local government: Local Government $354 billion State Government $588 billion Federal Government $106 billion Total Non Financial Assets $1048 billion Depreciation is a much greater burden for local government Infrastructure renewals backlog estimated to be $14.5 billion in 2006

What is our Fiscal Position Revenue Revenue of $38.6 billion in Main Sources of Revenue Rates, local government’s only tax base 38% Sale of goods and services 28% Current grants (mostly FAGs and R2R) 7% Other (capital grants, fines developer charges, etc)24% For other levels of government, tax is most important source

Implications for Local Government Relatively limited tax base Move to cost recovery in recent decades Increasing focus on human services Asset Management task Infrastructure backlog Intergovernmental transfers important Importance of the relationship with the Federal Government which provides most of those transfers

Responding to the Challenges Financial Assistance Grants 1.Restore the indexation of FAGs 2.Increase FAGs funding Freeze of the indexation of FAGs indexation of FAGs frozen for 3 years Total cost to local government is $925 million over the full period Permanent reduction in FAGs base by 13% In 1996 Local Government’s share of Commonwealth taxation = 1% Today it is less than 0.7% In it will be less th an 0.6%

FAGs Campaign Part 1 - Restore Indexation What can councils do? o Make representations to your local Federal Member explaining the impact of the freeze o Pass a resolution acknowledging the importance of FAGs to your council

FAGs Campaign Part 2 - Increase FAGs Funding 2014 National Commission of Audit ‘to assess the current split of roles and responsibilities between and within the Commonwealth government and State and Territory governments, including areas of duplication’ '... States have access to the personal income tax system so that they are in a better position to fund their own priorities. This will include support for local government.' '... tied grants to local government cease, and to the extent that programmes are identified as priorities, local or State governments provide them to the communities they service.'

The Longer Term Strategy The White Papers ALGA input to drafting Submissions on Issues Papers, especially Taxation Engagement in roundtable processes COAG Leaders Retreat in July Submissions to Green Papers Engagement with the Federal Opposition so they know our position and to understand their position

The White Papers What Can Councils Do? Importance of councils making submissions to Issues Papers and the Green Papers 2015 National General Assembly opportunity to hear updates and consider issues Engage with Federal Government MPs as debate develops The White Paper will be the Government’s policy and MPs will be central to its adoption

Questions?