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Financial Assistance Grants

The current arrangements for Financial Assistance Grants (FAGs) are that they are indexed by a combination of the Consumer Price Index and the rate of population growth. However, this determination is that of the Treasurer alone.

ALGA has long highlighted that the quantum of FAGs funding is too low for the increasing responsibilities of local government and that the indexation methodology does not sufficiently recognise the true cost pressures on councils.

In the 2014-15 Federal Budget, the Commonwealth placed a freeze on the indexation of FAGs for three years. The direct result of this will be $925 million in forgone support for councils, with the vast majority of the impacts being felt in regional, rural and remote areas.

Taxation arrangements

Local government raises just over 3% of tax revenue through property rates. Rates are the only tax base for local government, whereas the Commonwealth and states have access to around 260 other taxes. Yet, councils are responsible for more than $350 billion of non-financial assets, or about a third of such assets, held by all levels of government. The Commonwealth, with 82% of the tax revenue, has just one tenth of the assets.

With around 20% of local government expenditure going on depreciation, compared with less than 6% for the states and less than 2% for the Commonwealth, it’s important that adequate funding is provided by the Commonwealth to ensure that councils are allocated a fair share of broad tax revenue for the provision of important local services and infrastructure.

ALGA’s is calling for the Government to:

  1. end the freeze to FAGs indexation as scheduled in 2017
  2. restore FAGs funding to a level equivalent to at least 1% of Commonwealth Taxation Revenue
  3. ensure the indexation methodology of FAGs reflects the real cost pressures on councils
  4. renegotiate the Intergovernmental Agreement (IGA) to prevent cost-shifting of Commonwealth and state government responsibilities onto already resource-strained councils
  5. thoroughly review of the adequacy of the base and indexation methodology of FAGs.

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