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Cost shifting & government agreements

We collected and analysed data on the financial viability of local government which is used when campaigning for improved funding for the sector.

Our analysis showed that around 12 Victorian councils face financial difficulty due to cost pressures.

Similarly, a PricewaterhouseCoopers report (PDF - 148.34KB) reviewing the financial performance of local government nationally found that:

  • up to 30 per cent of Australia’s councils face viability issues
  • financial risks are typically caused by a failure to renew and maintain ageing infrastructure
  • access to a new pool of funding to support community infrastructure is warranted
  • the escalation of Commonwealth financial assistance grants should be increased.

Cost shifting

Other levels of government seek to shift service responsibility onto local government without a commensurate level of funding support. This puts an enormous strain on local government finances.

To ensure long-term sustainability for local government there must be a more equitable distribution of taxation among all levels of government through accessing improved funding arrangements.

The federal government’s Inquiry into local government and cost shifting recognised cost shifting by the federal and state governments onto local government.

The inquiry proposed 18 recommendations aimed at clarifying roles and responsibilities of the different levels of government and addressing the issue of cost shifting.

National intergovernmental agreement

As a result of the inquiry, a national intergovernmental agreement on cost shifting was created by the federal government. This agreement commits all three levels of government to:

  • achieving productive and open relations
  • providing communities with services in an efficient and effective manner
  • considering the financial impact to local councils of service responsibility and delivery transfers

It also sets out a framework for future service agreements between different levels of government where program or service responsibilities are shared.

Although the adoption of the agreement is an important first step to redressing funding arrangements to local government, we will continue to campaign for increased funding for specific programs where councils are funding shortfalls as a result of previous cost shifting.

The agreement, which was signed in 2006, will be reviewed in 2011.

Victorian state-local government agreement

The Victorian state-local government agreement (PDF - 491KB) gives effect in Victoria to the national intergovernmental agreement on cost shifting.

The agreement strengthens state – local government relations by formally committing to principles and guidelines that give greater clarity to roles, responsibilities and financial arrangements.

Additional guidelines assist state and local governments to negotiate fair funding agreements and ensure effective communication and consultation between parties.

The agreement is reviewed annually by the minister for local government and our president to evaluate its ongoing implementation and performance.