Reforming councils without amalgamation

By Chris Johnson*

With council elections in NSW complete and submissions to a government review of the viability of local government submitted in September, now is the time to rethink the third tier of government.

Many councils seem to want to remain as they are, but research shows that up to half of NSW councils could be financially unsustainable.

The Urban Taskforce has developed a report on the reform of local government with former head of NSW Treasury, Percy Allan, that demonstrates significant concerns about financial viability, large backlogs of infrastructure and a worrying trend to increase operating expenditure five times more than capital expenditure.

Percy’s understanding of councils is significant as he undertook a detailed study of local government in NSW in 2006 and since then has examined the viability of nine separate councils.

Many organisations have suggested the answer to these financial concerns is to make councils bigger by forced amalgamations into super councils. Our research shows that bigger is not better with many examples of bigger councils actually increasing rates.

But there is a third way that keeps the local in local government while improving efficiency and this is through the use of shared service centres where 10 or so councils take a regional approach to service delivery. Over time, the services should be opened up to a private sector service delivery approach to ensure competitive tension is maintained.

The shared service centre is not new. Three of Australia’s biggest banks have a shared service centre to process cheques as do NSW Government departments for functions like information technology.

The best example of NSW councils using a shared service centre is Hunter Councils in the Hunter Valley where 11 councils share legal services, procurement, training and other services. Hunter Councils is run as a business, with the 11 councils represented on its board.

But we need to go further than Hunter Councils. Most planners from individual councils should be pooled into the shared service centre. They would provide a service back to individual councils’ independent assessment panels for projects below $10 million and to Joint Regional Planning Panels for projects over $10 million.

The planners would have more colleagues to discuss projects with and a better career structure. The grouping of 10 councils around a shared service centre begins to create a regional system without adding another layer of government.

It would seem sensible to align this grouping of councils with the area covered by a Joint Regional Planning Panel and that of the Regional Planning Boards proposed in the NSW planning Green Paper.

Many planning, infrastructure and economic development issues are in reality shared between state government and local government. The structure we are proposing enables this joint role to be serviced by a shared service centre at a regional scale.

The NSW state government needs to take a leadership role in managing many of the functions that local governments become involved in. Australian councils, when compared to councils around the world, are already bigger than most – but receive far less funds. Australian councils receive two per cent of GDP compared to eight per cent in the United States and 12 per cent in the United Kingdom and Europe.

Most of our councils are living beyond their means. The Percy Allan report sets out a structure and role for local government that keeps a local focus, supports regional decision making and improves financial viability.

While the Urban Taskforce report has focused on NSW councils, the issue is clearly a national one. In Queensland, the new government has encouraged the de-amalgamation of councils and 19 have responded. Australian politicians seem to have been influenced by the discussion around the Localism Act in the UK which appears to give more control back to the local level.

My reading of the Act, however, is that it is about connecting the local agenda more with national issues. The biggest concern local communities have is the impact of growth and change, particularly if it leads to increased densities. In Sydney, 64 per cent of people surveyed by the Productivity Commission were against growth and change. Yet it is the federal government’s immigration policies that impact on this growth.

The Australian system of government has created confusion by having a local government level that is underfunded and represents communities who are often against what they see the state government is delivering through planning policies and lack of infrastructure expenditure.

The Urban Taskforce report supports keeping councils as local place managers, but says to operate economically they need to network through clusters of 10 or so councils with a shared service centre – and through this same 10 council regional structure relate to the big picture planning and infrastructure issues that sit between state and local government responsibilities.

*Chris Johnson is the chief executive of Urban Taskforce Australia. The detailed Urban Taskforce Percy Allan Report is available at

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3 thoughts on “Reforming councils without amalgamation

  1. Let’s be real here – shared service models can be very effective in a clearly structured environment where efficiency and cost reduction are key – taking cost out of processes, getting greater volume of transactions, reducing headcount, standardising policies and procedures in order to be competitive on a local, national and international scale. Local government does not face external competitive pressures only regulatory ones.

    Shared services as an operational model are even more viable when councils are larger – and not a substitute for (or avoidance of) amalgamation. What is proposed here is an additional level of governance complexity (and additional cost). The elephant in the room is not that management quality, career structures and operational efficiency could be achieved by introducing shared services but the lack of political will to reduce the overall cost of governance (overhead if you like) and the number of elected representatives. Amalgamation is not only an opportunity to improve management and operational processes to reduce service delivery costs, but also to improve governance cost and quality.

  2. I mostly agree with you Paula.
    If shared services or other voluntary cooperative arrangements were the answer everybody would be doing it. The problem is that voluntary arrangements have not proved the answer. It is only when a serious attempt starts to impose reform (by State governments) through mergers that the suggestion that we can achieve all that beeds to be done without structural changes. Well I doubt that is correct or why isn’t it happenning and proving the case?

  3. Forced amalgamation is not the answer, but shared services are.
    The problem is not with the State or Federal Govt’s, but rather with the GMs/CEOs of Councils; and a general fear of losing their identity or power. What they fail to realise is, that they have a great opportunity to lead here. Imagine reducing your IT Budget by 90%, and being able to tell rate payers of you brave decision! Imagine putting into place a shared IT environment where everyone is doing the same thing with the same applications. Service and Maintenance agreement costs will drop by 50-90%, licensing in bulk can be negotiated. Council A will be equally sharing the cost with Councils B->Z instead of allowing software vendors to come up with outrageous costs on a whim.
    This is not an issue of sustainability or service delivery. It is not an issue of protecting the core values of various geographical areas and their unique needs. It is an issue of culture and leadership. Every General Manager has the opportunity to lead the way, save money and be prosperous. They have the opportunity, to put in place a survival plan for their own council before the State or Federal Governments tell them what to do. The brave will lead the way, the intelligent will join the effort and those left behind will be subject to the whims of politics that have no idea what their community wants.

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