Source document: https://docs-lawep.s3.us-east-2.amazonaws.com/1694878773700.pdf (Australia)
"RATES AND TAXES: A FAIR SHARE FOR RESPONSIBLE LOCAL GOVERNMENT" GOVERNMENT RESPONSE TO THE REPORT OF THE HOUSE OF REPRESENTATIVES STANDING COMMITTEE ON ECONOMICS, FINANCE AND PUBLIC ADMINISTRATION The Australian Government acknowledges the vital role local government plays in providing essential local services and responding to the needs and priorities of local communities.

The Government also supports the need for local government to have access to adequate resources to meet its obligations.
Although local government is an instrument of State and Territory legislation, the Australian Government has for more than thirty years provided financial support to local government through the financial assistance grants to improve the financial capacity of local government and its efficiency and effectiveness.
The Australian Government also provides direct funding to local government under its Roads to Recovery programme and provides funding to and through the States under a variety of Specific Purpose Payment programmes.

The total funding provided to local government in the 2005-06 Budget is in excess of $2 billion.

Under the financial assistance grants programmes alone local government will receive more than $1,617 million in 2005-06.
While this is a very significant amount of funding, it represents only around 10 per cent of local government's revenue with the vast majority of local government's revenue coming from its own sources.

It is important that local government has the capacity to make the best use of its own revenue sources.

The adequacy of resources available to local government is significantly and negatively impacted by cost shifting on to local government by State and Territory Governments.
Cost shifting may be difficult to comprehensively define and the Commonwealth Grants Commission has identified several different actions which have been described as cost shifting1.

Nevertheless, there can be no doubt that cost shifting occurs.

The need to address cost shifting by State Government onto local government was one of the Government's key motives in asking the House of Representatives Standing Committee on Economics, Finance and Public Administration to undertake this inquiry.
Over 400 submissions were made to the Inquiry and the Committee visited every State and Territory during the course of the Inquiry.

As part of the Inquiry, the Committee issued a discussion paper and received over 100 responses to it.
The recommendations in this report are wide ranging and complex and in developing its response the Government consulted with State and Territory Governments, the Australian Local Government Association, State and Territory Local Government 1 Commonwealth Grants Commission 2001, Review of the Operation of the Local Government (Financial Assistance) Act 1995, p52-3.

Associations local individually.

The the Local Council.
Treasurers and local government to The Committee recommends that the Prime Minister and the Treasurer meet with State develop a Federal-State inter-governmental responsibilities of local • which identifies; in delivering Federal Territory Premiers/Chief Ministers the roles State programs; policy priorities the allocation of funds governments to local government in order to fulfil its responsibilities; and the expected performance and funding responsibilities on the part of all levels of government resources from the Federal strategies a!
the local level; the is the of a In of an the has it will on local » • » The A Ministers' Council on 10 by the Local to 2004 OH and the at of an for The roundtable agreed that officld^ i the would Territory aa ' ' < al won ' p ^ a • to the of the Council, The text of an inter-governmental government an Governments.

to be will will need to be agreed by all spheres of the Council of Australian to for 2 The Committee each inter-governmental agreement negotiations.
that local the Northern Territory to represent local one representative from at Federal-Slate The be of the in It to in be up to all the but only involved in local government should be represented during negotiations this would not be in.
all 3 The Committee recommends that the Minister representing the Minister for Local Government, Territories and Roads propose, as a precursor to the Summit on inter- governmental relations, a resolution that the House of Representatives recognises local government as an integral level of governance of Australia.
The Australian Government supports a Parliamentary resolution that recognises local government as an integral level of governance in Australia and the Government will propose such a resolution in both Chambers of Parliament.
Cost Shifting Recommendation 4 The Committee recommends that, when developing Federal-State inter-governmental agreements, the Federal government consider: * • including representation from local government during negotiations; and requiring a commitment from State governments to identify and provide a share of payments to local government when it is seen as having a significant role in delivery of programs under the agreement.
The Government supports this recommendation in principle, noting that the participation of local government during the negotiation of Australian Government- State Government inter-governmental agreements would depend on the agreement of all parties and would not be appropriate in all circumstances.
Where local government has a direct role in delivering a programme and participates in negotiations, the Australian Government will require the identification of the share of payments that are to be provided to local government.

Recommendation 5 The Committee recommends that, in line with the Tasmanian Partnership Agreement, Federal and State governments pay rates to local government.

The Australian Government does not support this recommendation.
The Tasmanian Partnership Agreement includes reciprocal obligations so that local government pays land and payroll taxes to the State Government.

It also contains significant exemptions for the State government from paying rates.

In some states, local government associations have estimated that such an agreement would leave local government worse off financially and consequently some local government associations do not support this proposal.
Under the Intergovernmental Agreement on the Reform of Commonwealth-State Financial Relations signed by Heads of Governments in June 1999, reciprocal taxation was to be progressed on a revenue neutral basis through negotiating a Reciprocal Tax Agreement.

However, the inclusion of local government in reciprocal taxation would be administratively and legally complex.
It would involve local government rates being applied to both Australian Government and State Government landholdings, and State taxes being applied to local government activities.

This would involve a complex three-way revenue neutrality mechanism between the Australian Government, State and Territory Governments and local government.

In March 2002, the Ministerial Council for Commonwealth-State Financial Relations agreed that no further action be taken on reciprocal taxation.
One effect of local government financial assistance grants is to compensate local government for its lack of rate revenue from Australian Government land.
In some the Local on i Commission in the the council's of of the The Committee recommends that f i State develop a Federal-State inter-governmental agreement which: « Territory Premiers ne Minister *, ^t^rers the Treasurer meet with local government representatives to recognises cost shifting as a problem which has occurred over a number of years; allocates revenue to local government from the relevant level of government if responsibilities are devolved; State restrictions on local revenue such as capping, levies and charges local government local of legislation by State non-rateable land; to identify the financial impact on Commonwealth governments, the to cost the on by the is not 7 as a of the if to will to are devolved of impact » » » to The The Committee recommends powers to local government the the Federal government consider extending ANAO's of Federal SPPsT to and through the States to The Office's has reviewed the to to and the the to of the of Australian but has 8 The Committee recommends that the Minister for Finance issue a direction to all Federal agencies to ensure that all renegotiated and future Federal-State SPP agreements: » * outcomes; describe clear Federal government objectives specify' performance Indicators that are directly linked to the objectives to financial accountability; « * define the roles require local government to perform functions; responsibilities of each party to the agreement; governments to report on the volume of funds to be distributed to !
Special Purpose Payments.

4 * disclose the funding adjustments to be applied to State governments in the case of cost shifting to local government.

The Australian Government already requires that new and renegotiated Special Purpose Payment agreements provide clear Australian Government objectives and measurable outcomes, specify performance indicators that are directly linked to the objectives and define the roles and responsibilities of each party to the agreement.
The Government supports State Governments reporting on the volume of funds to be distributed to local government to perform particular functions.

Disclosure of cost shifting issues will be considered in the context of the negotiation of the proposed inter-governmental agreement.
Infrastructure Recommendation 9 The Committee recommends that local government bodies be required to audit the state of their infrastructure (using a nationally accepted methodology) and provide status reports to the Commonwealth Grants Commission as one of the inputs into the needs based formula for Federal FAGs to local government.

* The infrastructure data collected should be used to adjust FAGs where councils are found to be negligent in managing infrastructure.
The Australian Government supports efforts to improve the management of local government infrastructure.

The financial assistance grants provide recurrent funding for local governments and allocations to individual authorities do not take into account capital requirements.

The Government does not support the proposal that financial assistance grants for councils should be reduced where councils are found to be negligent in managing infrastructure.
In rejecting this proposal the Government acknowledges the difficulty of determining when a council may be considered negligent.

The Government recognises that local government authorities may wish to make prudent use of borrowing to finance infrastructure investment and the Minister for Local Government, Territories and Roads will facilitate consultation between key stakeholders, including the State and Territory Governments and local government, on impediments to such prudent borrowing.
Recommendation 10 The Committee recommends that SPPs directed to local government, such as roads, should be conditional on States not reducing their effort.

The Australian Government supports this recommendation.

3 Financial assistance grants.
of 'i The Recovery and National Blackspot j 1 L^.jnmes and the AusLink * e ad to government, the /tooffo to ii Ti * i Committee recommends that the Local Government Planning Ministers' Council This awards, a body the lines of the UKIBeA to address capacity building, oversee the Federal governments " practice This Ministers' Council, to be by the Local Government and for Local Territories and will local by seeking to the for Local the Local and Ministers' Council, 12 The Committee recommends that the Federal government establish a Local Government Liaison Unit to: » of Local Government and local government peak liaise with to strengthen Federal/StateMocal relations; provide the contact point and conduit far local government at the Federal level and provide information on new Federal initiatives, policies and programs; receive feedback on the performance of Federal programs occurrences; any cost shifting periodic strategic meetings local government officers 'forum policy briefings for a Federal other interested parties as required.
not the to Unit.
The by the Local for the a use the Local a new Local are largely of Transport and Association on initiatives, » * • The for Local Roundtabie4, The local and '1 ^ with and Temtory of Local of the Council and the Local Government The Committee recurnmends that the Commonwealth Grants Commission, in consultation with the LGGCs in each State, assess the efficiencies of amalgamations 4 This is an annual meeting between the Minister for Local Government, Territories and Roads the Associations, of the Local Government Associations to discuss issues raised by the 5 Local Government Grants Commissions.
6 or regional cooperation of local government, and use available mechanisms to adjust FAGs grants for the benefit of the sector at large.

* To facilitate amalgamations, where appropriate, councils should not be financially penalised through a net loss of FAGs payments for four years.

The Australian Government does not support the use of the Commonwealth Grants Commission to assess the efficiencies of amalgamations or regional cooperation.
The Government does, however, agree that the financial assistance grants should not be seen to financially penalise councils which amalgamate.

The Minister for Local Government, Territories and Roads will propose a new National Principle under the Local Government (Financial Assistance) Act 1995 specifying that financial assistance grants for amalgamated councils be maintained for four years after an amalgamation so that the grants do not act as a disincentive to voluntary amalgamation.
It is intended that funding for the amalgamated council for the four years would be determined as if the councils had not amalgamated.

The Minister will consult with State and Territory Ministers for Local Government and with local government on the variation to the National Principles as required under the Act.
Recommendation 14 The Committee recommends that the Federal government: * * continue to develop partnership arrangements with local government on the delivery of Federal programs and service delivery; and as appropriate, engage established regional organisations of councils, or similar regional bodies, which have demonstrated capacity, in regional planning and service delivery.

The Australian Government supports this recommendation.
Commonwealth funding of local government Recommendation 15 The Committee recommends that the Commonwealth, States and local governments consider what tax design improvements would be necessary to eliminate tax on tax effects arising out of the GST.

Division 81 of the GST Act has the effect of allowing a determination by the Australian Government Treasurer to list certain taxes, fees and charges that are not subject to GST.
However, the determination can only make the payment of a compulsory tax, fee or charge to Government not subject to GST.

Stamp duties are usually included in the Division 81 list.

This means that the GST does not apply to stamp duty when paid to the State revenue collection authority.

Stamp duties are State taxes and the calculation of those duties is determined by the States.
Individual States can decide whether their stamp duties are levied on a GST inclusive or exclusive price and whether to adjust the rate of stamp duty accordingly.

However, the States have recently indicated that they are not willing to remove these tax effects.
For example, the abolition of stamp duty on general insurance products was recommended by the Royal Commission into the failure of the Hffl Insurance The the GST for the on of The to carefully However, the that the or wrote to the the strongly the on 11 to the of that are 2003 of to 16 which is consistent across each Local Governing Body; He Committee recommends that a new methodology for the distribution ofFAGs to local government be designed which incorporates the following elements: * * » * * « a national distribution of funds on equalisation principles ie on the funds to be paid direct to local government; funds to remain untied and be allocated from one pool; on local conditions/factors to be provided by LGGCs; a weighted factor be applied to indigenous community councils to ensure their level of disadvantage is taken into account; appropriate acquittal arrangements; a new model, as presented by Professor Parish, to be designed by a Federal Local Government Finance Advisory Group of experts and phased in over three years, with the process to be facilitated by the Commonwealth Grants Commission.
of need; * » not supp's I >S ' The of distribution of to achieve a between national consistency In the different methodologies to allocate grants in will the by to for flexibility in in consistency of view the local The the Local The councils receive a proportion of financial assistance grants funding based on population.
whereby all of the The current interstate distribution of the identified roads component f the to Sor*U ' ' ^ " lia in the This in the i ' » i -n i lr/ "' i, mcial « rime Minister's on 15 2004 of local i<' i'i> > 'mg for Australia of $26,25 over the years to 2006-07.

The Government will ask the Commonwealth of the to will provide a long the Commonwealth Grants to Government by 30 to Australia's to review the of the 2006.
The The way forward Recommendation 17 The Committee recommends that COAG6 host a Summit in 2005 on Inter- governmental Relations: • • to report on the implementation of the Committee's recommendations; to review: o SPPs paid to States and Territories with a view to isolating funds for direct payment to local government; the relevant anomalies of A New Tax System; the revenue raising capacity of councils with consideration of financial penalties for States and Territories which fail to adequately support or deliberately suppress that capacity; and successful State/local government partnerships and the opportunities for Federal government participation in those partnerships; • to determine processes to develop: o o methods to resolve duplication and overlap of service provision; a fully responsible financial role for local government free from policies that arbitrarily limit revenue raising capacity from their normal sources; a direct financial relationship between the Commonwealth and local government; a national methodology for local government bodies to evaluate their infrastructure needs and requirements; and a set of principles to reduce cost shifting and unfunded mandates and to ensure that Commonwealth and State and Territory responsibilities administered by local government are adequately funded.
o o o o o o The Australian Government does not support the recommendation for a Summit on inter-governmental relations at this time and believes that many of the issues identified in this recommendation will be considered by the Local Government and Planning Ministers' Council in the development of an inter-governmental agreement.
The Government does agree with the Committee on the importance of local government authorities having the capacity to raise revenue from their own sources and will ask the Productivity Commission to examine this issue.

Recommendation 18 The Committee recommends that the Federal Treasurer assume responsibility for the financial relationship with local government.

The Australian Government does not support this recommendation.
Responsibility for the financial relationships with local government is to remain with portfolio Ministers.

6 Council of Australian Governments.