2019-03-12 Services & Organisation Committee Agenda

SERVICES & ORGANISATION COMMITTEE MEETING AGENDA                                   12 MARCH 2019


There is a significant difference between the amount of revenue collected by each of the 3 levels
of government in Australia. The table below illustrates the concept of “vertical fiscal imbalance”
which permeates the Australian system of government.




This means that for every $100 of taxation revenue collected in Australia, the Commonwealth
collects $83 and the combined states and territories collect $14. There are 537 councils across
Australia who collectively receive $3 of the total Australian taxation revenue.

The table above also shows the apportionment of the asset base to be maintained and the level
of expenditure on services to the community.

Through a range of COAG agreements, the Commonwealth distributes funds collected to State
governments for essential services.

In relation to local government, the Commonwealth provides funding to each state for distribution
to local governments via a funding program called the Financial Assistance Grants (FAGs). Each
state then has its own Local Government Grants Commission which determines how that pool of
funds will be allocated between the Councils in its state (the concept of “horizontal equalisation”).
A complex methodology is used to determine this allocation between Councils in each State.

Thus, there are two elements which determine the amount that each Council receives under the
Financial Assistance Grants:
(i) the total amount of the FAGs allocated to local governments by the Federal government - the
     size of the funding pool; and
(ii) the methodology used in each State to apportion a share of that pool of funds to each local
     government.

The focus of this report is on the first element of that equation i.e. how the total amount of funding
allocated to the local government sector across Australia by the Commonwealth needs to be
increased substantially.

In real terms, the total amount of the funding pool being allocated by the Commonwealth for the
Financial Assistance Grant has been reducing over the last 20 years – from 1% of total
Commonwealth taxation revenue in 1996 to 0.55% of total Commonwealth taxation revenue in
2018. This has occurred in a number of ways. For example, for some years the Commonwealth
did not apply indexation to the FAGs scheme thus reducing the total funding pool in real terms.
Also, as the total amount of taxation collected by the Commonwealth has increased, there has
been no equivalent increase in the FAGs grants to local government.


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