NSW government supports financial reform of councils

The NSW Government has responded to a parliamentary report that recommends stronger financial support for councils.

Established in March 2024 at the request of Minister for Local Government Ron Hoenig, the upper house inquiry sought to examine long-held concerns about the financial challenges impacting councils across the state.

Releasing its report in November the standing committee made 17 recommendations, including:

• a review of rate exemptions and concessions
• a redesign of the rating system
• an increase to financial assistance grants to 1 per cent of Commonwealth taxation revenue
• changes to the developer contributions framework
• more timely disaster recovery assistance to councils
• ongoing funding streams for disaster mitigation and preparedness
• reduce cost-shifting onto councils.

In response, the government has announced it will support 15 of the 17 recommendations and has proposed five key actions:

• the Independent Pricing and Regulatory Tribunal will continue to oversee council rates to ensure councils’ revenue keeps pace with cost changes, while protecting ratepayers from excessive rate hikes
• councils that want to permanently increase their rates will be required to submit a Comprehensive Spending Review to IPART that forensically examines their expenditure as well as their revenue
• the Special Variation process will be simplified and used solely by councils to fund specific projects or programs supported by the community
• local government financial statements and reporting will be streamlined to increase transparency and councillor and public oversight over council spending
• establishing an Expert Advisory Panel of experienced general managers, finance directors and other local government experts to support the government in delivering its reforms.

The government will also audit local government fees and charges to ensure they reflect inflation and changes in market costs. As well, models for distributing state government grants to councils will be assessed so that councils continue to receive sustainable and equitable funding.  

“These reforms alongside those already in progress, including rewriting the councillor Code of Conduct system, aim to enhance the reputation of local government as a robust, independent tier of government,” reads a statement. “They will improve transparency in decision making and provide councillors with the financial information they need to be visibly in control of their councils to deliver local government services for their communities into the future.”

A first step in the reform of local government financial sustainability

Recognising that many of the state’s 128 councils are struggling under financial pressures resulting in higher rates or reduced services, Hoenig said: “It’s clear the status quo is not sustainable for councils and it’s not fair on communities who will lose out.”

“Fixing entrenched systemic issues won’t happen overnight, but the Minns Labor government is serious about delivering long-term structural changes to the sector,” he added.  

The peak body for local government in NSW “cautiously welcomed” the government’s response. “I do thank the government for its commitment to involve the sector in shaping and implementing the necessary reforms going forward through the establishment of an Expert Advisory Panel and we’re grateful for their preparedness to partner with councils in seeking that Financial Assistance Grants from the Commonwealth return to 1 per cent of Commonwealth taxation revenue,” said Local Government NSW president Phyllis Miller.

However, Miller voiced concern that some of the government’s suggested measures for addressing financial sustainability could add to councils’ administrative burdens.

“For instance, in regard to the process for Special Rate Variations, the government is suggesting councils undergo a Comprehensive Spending Review – something we would argue that councils already do via their annual budget process,” said Miller – Mayor of Forbes.

While acknowledging that there is a lot in the government’s response that councils can agree on, Miller said there were a number of key areas where more detail is required – “such as the absence of leadership on reducing cost shifting or addressing issues with the development contributions framework.”

But, overall, LGNSW views the government’s response “as a first step in the reform of local government financial sustainability.”

“Councils stand ready to work with the state to make meaningful change and bring about genuine and substantial reform to the financial viability of councils,” said Miller. “And we are keen to see the government commit to their implementation so that councils can continue to deliver for our communities.”