Local-Federal Government Relationship: Future Challenges and Solutions

2. 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

3. 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

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

5. 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

6. 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

7. 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

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

9. 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

10. 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

11. Taxation White Paper Issues • Rates our only tax base • Challenge to maintain the integrity of rates • Illustrate importance • Important revenue source $14 billion in 2013-14 • 38% of revenue across local government • Highlight threats • Rate Capping, exemptions, concessions

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

13. What is our Fiscal Position Expenditure • Expenditure of $32 billion in 2013-14 • Main Items of Expenditure: • Housing and Community Amenities 24% • Transport and Communications 22% • General Public services 19% • Recreation and Culture 15% • Move to community based services away from infrastructure

14. 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

15. What is our Fiscal Position Revenue • Revenue of $38.6 billion in 2013-14 • 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

16. 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

17. Responding to the Challenges Financial Assistance Grants • Restore the indexation of FAGs • Increase FAGs funding • Freeze of the indexation of FAGs • 2014-15 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 2016-17 it will be less than 0.6%

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

19. 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.'

20. 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

21. The White PapersWhat 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

22. Questions?