A Critical Evaluation of Virtual Local Government in Australia

Brian DollerySchool of EconomicsUniversity of New EnglandFaculty of EconomicsYokohama National UniversityThe vigorous debate surrounding local government amalgamation in Australia remainsunresolved. In an attempt to break the current stalemate Percy Allan (2001) has proposeda model of ‘virtual local government’ that seeks to combine the service appropriatenessand effectiveness purportedly associated with demographically small councils with theservice efficiency of large municipalities. This paper attempts to place his model in thecontext of the literature on the theory of public sector policy reform. It then goes on toexamine virtual local government in the light of new institutional economics, publicchoice theory and the characteristics of Australian local government.In parallel with their counterparts in severalother advanced countries, all Australian govern-ments have been subjected to vigorous reformover the past decade, including local govern-ment. Although the forces underlying thevarious Australian local government reformprograms are undoubtedly complex and multi-faceted, some common elements can neverthe-less be identified. For instance, severe con-straints on accrued revenue, coupled withinexorably rising costs and added legislativeresponsibilities, have obliged councils to ‘domore with less’ in their efforts aimed at providingeffective services. Similarly, the managerialdoctrines espoused under new public manage-ment (NPM) have transformed the traditionalrole of municipal management into a moreactive, independent and cost-conscious mould(Dollery and Wallis 2001). These and manyother lesser influences may be said to haveengendered a ‘crisis’ in Australian local govern-ance that still seeks adequate resolution.The drive for enhanced economicefficiency in Australian local government hasengrossed policy-makers in all states andterritories. A variety of policy instruments havebeen proposed as a means of narrowing the gapbetween reduced resources and increased costs.But by far the most controversial policyproposal has centred on the structural reform ofexisting small councils into larger administra-tive units. In some states this policy has alreadybeen pursued zealously, most notably inVictoria. In other jurisdictions, especially NewSouth Wales, local governments have largelyresisted attempts at voluntary amalgamation.The debate in Australia on the purportedmerits of amalgamation as a means of enhancingthe efficiency and effectiveness of local govern-ment has yet to be resolved. On the one hand,proponents of structural reform stress theefficiency-inducing effects of municipalconsolidation that derive from economies ofscale and scope in service delivery (Soul 2001).On the other hand, opponents of amalgamationdispute the existence of significant scaleeconomies on the basis of extant and inconclus-ive empirical evidence gathered from withinAustralia and elsewhere (Byrnes and Dollery2002a). Moreover, some commentators havecontended that in theoretical terms there are nosound a priori reasons for believing that thecosts of delivering the great diversity of councilservices, from garbage collection to municipal

Field of study: Political science