Victorian councils stem the red tide

By Ju Yeon Jung

Victoria’s auditor-general has said while Victoria’s local government achieved “pleasing” results in the last fiscal year, it should be more cautious of its swelling expenditure to ensure long-term sustainability.

Auditor-General Des Pearson has released the local government annual financial report, which examined 79 local councils’ current and future financial sustainability.

The results showed an improved financial sustainability position with no councils rated as a high risk of being unsustainable in the medium- to long-term. The number of councils rated as a moderate financial risk also fell from 18 to 15 in the year.

The local government sector collected $6 billion in operating revenues, an increase of five per cent on the preceding year, with revenues from rates and charges jumping by nine per cent to $2.9 billion.

Total operating expenditure in the local government sector was $5.16 billion, up six per cent on the preceding year.

Mr Pearson said while the results for individual councils were uplifting, the sector needed to be cautious of their fast-growing spending. 

“I caution councils to monitor their expenditure, given it grew faster than revenue this year.

“If this were to become the ‘norm’ it would reduce the financial sustainability of councils,” he said.

He said the key to safeguarding councils’ financial position against potential risks and shocks would be infrastructure asset management.

“As the revenue base for local governments is not tied to the value of their asset base and they cannot sell most of their assets to obtain funds, a key objective should be to maintain their infrastructure assets, while managing debt to ensure that it can be paid back from future operations,” he said.

The Municipal Association of Victoria (MAV) welcomed the report, saying the “outstanding” results were made possible by a range of reform initiatives.

“It is pleasing to have the Auditor-General confirm that the conservative approach of Victorian councils has ensured municipal investment have weathered the global economic financial crisis,” MAV president Dick Gross said.

“With councils controlling $1.4 billion of investment, it is outstanding that the total value lost represented only $1.7 million or 0.1 per cent of the sector’s total investment.

“There are few other governments or businesses that could boast such strong results in an economic downturn,” he said.

Cr Gross, however, argued spending must increase to close the annual $280 million infrastructure gap in order to ward off faster deterioration.

“There is an urgent need for the Commonwealth to provide a local community infrastructure program to assist councils’ capacity to fund capital works programs.”

Meanwhile, the Victorian Government recorded an operating deficit of $1.9 billion in 2007-08, plummeting from a surplus of $5.3 billion in the previous year.

Mr Pearson said financial market volatility would continue to be a significant challenge for the state. 

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