Academic journal article Australasian Journal of Regional Studies

Too Tough a Nut to Crack: Determining Fiscal Sustainability in Australian Local Government

Academic journal article Australasian Journal of Regional Studies

Too Tough a Nut to Crack: Determining Fiscal Sustainability in Australian Local Government

Article excerpt

ABSTRACT: The problem of determining the financial sustainability of local councils in Australia has attracted the attention of five recent official inquiries into local government. This paper considers the work of these public inquiries in South Australia, New South Wales, Queensland, Western Australia and the nation-wide assessment by PriceWaterHouseCoopers on the financial sustainability of local authorities. It is argued that despite reliance on a common method, not only has no generally agreed approach has been achieved, but that the inherent difficulties in designing a satisfactory method of measuring sustainability make any consensus in future most unlikely.

1. INTRODUCTION

Over the past few years, Australian local government policy makers have become increasingly concerned with the question of the 'financial sustainability' of individual local councils. Quite apart from forming the central theme of numerous local government conferences across Australia, this concern has also manifested itself in several recent public inquiries into local government systems. For instance, the South Australian Financial Sustainability Review Board's (FSRB) (2005b) Rising to the Challenge attempted to define the concept of financial sustainability and then assess South Australian councils against this measure. Similarly, the Independent Inquiry into the Financial Sustainability of NSW Local Government's (LGI) (2006) produced a comprehensive Final Report entitled Are Councils Sustainable that also sought to determine financial sustainability in NSW local government. Moreover, both the now defunct Queensland Local Government Association (LGAQ) (2006) Size, Shape and Sustainability (SSS) project and the recently completed Western Australian Local Government Association (WALGA) (2006) Systemic Sustainability Study: In Your Hands--Shaping the Future of Local Government in Western Australia Inquiry have grappled with financial sustainability in their respective local government systems.

In addition, the Local Government National Report, 2004-05, prepared by the Local Government Section of the Department of Transport and Regional Services (DOTARS) (2006, p. 61), highlighted the significance now placed long-run financial sustainability by state government policy makers by considering the notion of a 'structural gap' induced by 'the unbalanced growth of revenues and expenditures' that results in fiscal distress in local government. A commissioned report by the commercial company PriceWaterhouseCoopers (PWC) (2006), entitled National Financial Sustainability Study of Local Government, considered the problem of financial sustainability across all Australian local government. Finally, the academic literature has also explored the problem of financial sustainability of Australian local government from an empirical perspective (see Murray and Dollery, 2005; 2006; Walker and Jones, 2006; and Dollery, 2006).

A fundamental problem faced by all these attempts at tackling financial sustainability in local government resides in providing a precise definition for the concept and determining how to measure financial sustainability from available data. Although unanimity exists that large numbers of local authorities in Australia suffer from acute financial distress, no consensus has yet been reached on how best to define and measure the concept. This lack of agreement has far-reaching policy ramifications. If no widely accepted meaning can be attached to the term financial sustainability, then firm policy conclusions on the optimal method of alleviating the problem obviously remain allusive.

The modest and limited aim of this paper is to review these five inquiries into the problem of financial sustainability in order to demonstrate an ongoing lack of consensus on how to define and measure financial sustainability in Australian local government, despite the fact that four out the five inquiries relied heavily on the methodology developed by the private consulting firm Access Economics. …

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