Fact sheet: Financing local government 2009-10
BUDGET HIGHLIGHTS
ALGA's analysis of key points in the 2009-10 Federal Budget from a local government perspective.
The Budget 2009-10 maintains a system of payments to support local government, through Financial Assistance Grants (FAGs).
FAGs continue to comprise two components: general purpose assistance grants; and untied local roads grants. Supplementary funding of South Australian councils for their local roads is also continued in the Budget 2009-10 ($14.8 million).
It is important to note that the way in which Australian Government payments to local government are documented in the Budget 2009-10 varies significantly from that of previous years. The changes in the presentation of the Federal Budget are consistent with the reforms made in 2008 to Specific Purpose Payments to the states and territories, which took effect from 1 January 2009.
For the year 2009-10, the Australian Government will allocate a total of $1.9 billion in FAGs to local government. However, the actual estimated payment that will be received by local government in the 2009-10 year will be $1.44 billion, as the Australian Government has decided to make the first quarter payment for 2009-10 in the 2008-09 financial year. The payment, being $497.7 million, will accordingly increase the FAGs local government receives in 2008-09, with a corresponding reduction in 2009-10.
| TOTAL LOCAL GOVERNMENT FUNDING | 1,918.8 |
| General Purpose Assistance | 996.8 |
| Untied Local Road Funding | 442.3 |
| Subtotal | 1439.1 |
| First quarter payment for 2009-10 (to be paid in the 2008-09 financial year) | 479.7 |
Table 2 outlines total Financial Assistance Grants (FAGs) for the period 2008-09 to 2012-13.
| 2008-09 $m | 2009-10 $m | 2010-11 $m | 2011-12 $m | 2012-13 $m | |
|---|---|---|---|---|---|
| Total Financial Assistance | 2,351.3 | 1,439.1 | 2,015.9 | 2,091.4 | 2,180.9 |
| General Purpose Assistance | 1,628.6 | 996.8 | 1396.3 | 1448.6 | 1510.6 |
| Untied Local Road Funding | 722.7 | 442.3 | 619.6 | 642.8 | 670.3 |
FAGs are increased annually, based on an escalation factor determined by the Treasurer with reference to population growth and the consumer price index. FAGs to local government in 2009-10 have been escalated in real terms. The 2009-10 escalation factor is 3.92 per cent. In 2008-09, FAGs were escalated by 4.5 per cent on the previous year (2007-08).
In 1996-97, FAGs represented 1.01 per cent of total Commonwealth taxation revenue. In 2009-10, FAGS represent 0.71 per cent of total Commonwealth taxation and by 2012-13, they are estimated to be 0.63 per cent. This continues the overall downward trend since 1996-97 of FAGs as a percentage of Commonwealth taxation revenue.
A breakdown of FAGs to Local Government by jurisdiction for 2009-10 (cash basis) is provided in Table 3. The figures are sourced from Table 2.135 of the Budget, page 106.
| Financial assistance grants | NSW $m | VIC $m | QLD $m | WA $m | SA $m | TAS $m | ACT $m | NT $m | Total $m |
|---|---|---|---|---|---|---|---|---|---|
| Total Financial Assistance | 453 | 338 | 283 | 169 | 98 | 46 | 21 | 30 | 1439 |
| General Purpose Assistance | 324 | 247 | 201 | 102 | 74 | 23 | 10 | 16 | 997 |
| Untied Local Road Funding | 128 | 91 | 83 | 68 | 24 | 23 | 10 | 14 | 442 |
Note:The figures in this table have been adjusted to reflect the payment of the first quarter 2009-10 FAGs ($497.7 million) in 2008-09.
Local government notes the importance of FAGs funding from the Australian Government, which have been in place since 1974-75, to assist local councils across Australia to deliver the day-to-day needs of their local and regional communities. The Productivity Commission in its April 2008 study, Assessing Local Government Revenue Raising Capacity, found that there is a case to review the provision of Australian Government general purpose grants to local government (finding 5.6). This report followed a series of earlier reports that similarly concluded that the FAGs methodology is flawed and requires revision.
Local government believes the FAGs methodology (base and escalation) requires urgent review.
Local government believes that financial transfers from the Commonwealth to local government for general purposes should amount to a minimum one per cent of total Commonwealth taxation revenue (excluding the GST). There would need to be a further $770 million provided to local government in FAGs in 2009-10 to make up the shortfall.
Whilst the Australian Government through COAG has reformed federal fiscal relations with the states and territories (reducing over 90 Specific Purpose Payments to five), the current system of FAGs payments to local government has not been properly reviewed for decades.
For information about ALGA's analysis of the Budget regarding Financing local government please contact:
- Larissa Karpish
- Assistant Director, Ageing, Finance and Economic Policy
Australian Local Government Association - Phone: 02 6122 9427
- larissa.karpish@alga.asn.au