Thursday, 1 December 2016

The Commonwealth Grants Commission 2013 Review of Local Government Financial Assistance Grants



Diseases desperate grown / By desperate appliance are relieved / Or not at all.    Hamlet IV,iii,9

In November 2012, the then Treasurer, Wayne Swan commissioned a review from the Commonwealth Grants Commission (CGC) on various issues related to the allocation of local government Financial Assistance Grants (FAGs) within the current fiscal envelope available to each state.

Here is the link to the Terms of Reference, which included a specific request for the CGC to examine funding adequacy for local governments which service remote communities (para 3(d) of the Terms of Reference). This post is focussed primarily on this latter term of reference. The system of fiscal equalisation built into the Commonwealth financial assistance program is fundamentally flawed, and has been criticised for over a decade including my me, but the Terms of Reference effectively ruled out any reconsideration of that fundamental issue.

On the CGC web site there are a number of documents relating to the review, including an Issues Paper (link here), copies of submissions (link here), and notes taken by CGC staff of discussions with the WA and SA Local Government Grants Commissions (link here).

The Issues Paper sets out the Commission’s proposed approach to the Inquiry. I reproduce some select extracts below:
14. Further, consistent with the funding envelope direction, we will not consider options which improve effectiveness by increasing the funds available from the Commonwealth or the States, or which change the interstate distribution. However, a different intrastate distribution of funding, or a different grant design, might improve effectiveness or encourage greater effectiveness over time…
26. We also note the Act requires the Minister to prepare a report on the operation of the Act as soon as practicable after 30 June in each year. We think our review should examine the impact of that report and if there are options to change this reporting which would increase the effectiveness of local governments and their ability to improve services.

The Commission also canvassed issues such as the merits of tied grants, and the impact of the minimum grant principle.

At Attachment A, the Commission included an appendix titled The Current Arrangements for Financial Assistance Grants. This reproduced extracts and associated discussion  including the ‘Objectives of The Local Government (Financial Assistance) Act 1995, amended 2012’; the National Principles governing the allocation of FAGS within each jurisdiction (a requirement of the legislation), and the Reporting requirements of the legislation.

In relation to the Objects, of the legislation, section 3(2) provides that ‘The Parliament wishes to provide financial assistance to the States for the purposes of improving: (e) the provision by local governing bodies of services to Aboriginal and Torres Strait Islander communities’.
The National Principles provide, inter alia, ‘5. Aboriginal peoples and Torres Strait Islanders Financial assistance shall be allocated to local government bodies in a way which recognises the needs of Aboriginal peoples and Torres Strait Islanders within their boundaries.’

In relation to accountability, the Issues Paper notes:

Accountability requirements
8 The Act requires the Minister to prepare an annual report relating to the operation of the grant processes and addressing a range of other matters such as the efficiency of local government, as soon as practicable, after 30 June each year. The reporting requirements are listed in Box A3.
9 However, it appears the 2008-09 report is the last, publicly available one.

In relation to the Commission’s 2001 Review of the legislation, the Issues Paper noted, inter alia,
The Aboriginal Peoples and Torres Strait Islanders purpose is not being achieved. This is not a relevant purpose for an Act that provides for the distribution of untied assistance.
Transparency of and accountability in the grant distribution process can and should be improved.

And added:

The Aboriginal Peoples and Torres Strait Islanders Principle has not been consistently addressed by LGGCs. The Principle should be retained and strengthened to make explicit that the needs of Indigenous people must be recognised in equalisation assessments.

It is beyond the scope of this post to assess each of the submissions provided to the Commission, but I reproduce an extract from the WA and NT Local Government Grants Commission submissions respectively:

Remote Indigenous Communities - the provision of local government services to remote Indigenous communities is a significant and ongoing issue which is still subject to funding negotiations between the State and Commonwealth in Western     Australia. While the WALGGC recognises Indigenous populations within its General Purpose methodology, it also acknowledges that many of these communities receive little or few services from their respective local governments. This remains a significant and ongoing concern for the WALGGC.

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In concluding, the methodology can only go so far in delivering equity and improvement in the delivery of local government services when the real issue is insufficient funding from both the Commonwealth pool and an inability for shire councils to generate own source funding.

Graphic examples of this are Geelong receiving a grant in excess of the total NT general purpose allocation to deliver local government services in one small urbanised environment and the South Australian supplementary road funding which is the equivalent of the total NT road funding allocation.  We know the arguments about the invalidly of such comparisons, but you can’t escape the fact that the per capita approach to interstate distribution, the contradictory principles, unequal population spread across jurisdictions, and the head start the states had on the Northern Territory, all combine to produce perverse outcomes.

The submission by the Department of Regional Australia, Local Government, Arts and Sport is almost entirely process oriented, and does not express a view on the issues related to the provision of local government services to remote Indigenous citizens.

The CGC Staff Notes of the discussions with the Local Government Grant Commissions for WA and SA include the following comment in relation to WA (emphasis added):

Local government services in indigenous communities. While some councils provide specialist Indigenous services, such as language centres, interpreters and child care, indigenous communities reported that some councils were not providing services in Indigenous communities. The old methodology recognised indigenous needs through an indigenous assessment (based on indigenous populations) and a dispersion assessment (recognising the number of Indigenous communities in a council area). To better assess council Indigenous needs, the new methodology no longer recognises indigenous communities in the dispersion assessment although it still includes an indigenous population assessment. This reduced the level of funding to councils with indigenous communities. The amount allocated to indigenous needs in the new methodology is $7 million. It is not based on what councils are actually spending on Indigenous services.

It is clear from the information available on the CGC website that the Review considered a range of substantive issues related to remote communities and in particular that options for more effective provision of local government services to Indigenous citizens was under active consideration. A number of the most salient issues were probably outside the Terms of Reference provided by the then Treasurer. This does not mean however that they are not issues which demand attention by policymakers, and which have an ongoing deleterious impact on the quality of life of remote Indigenous citizens.

There are also suggestions that the Review would likely have made recommendations relating to improving the accountability and transparency in Australian Government funding for local government.

The CGC website notes that

The commission reported to the Treasurer in mid-December 2013 on tangible measures for improving the impact of the Local Government Financial Assistance Grants (FAGs) on the effectiveness of local governments and their ability to provide services to their residents within the current funding envelope. 
The report has not yet been publicly released.

Earlier this month, when the Productivity Commission released its Overcoming Indigenous Disadvantage Report, a chorus of voices, including Minister Scullion, claimed that part of the reason for lack of progress relates to a lack of effective evaluation of Commonwealth funding to Indigenous citizens. This is a view which had previously been articulated by the Secretary of the Prime Ministers Department. See my earlier post on this issue here.

The CGC review is an example of a policy relevant review by a reputable and independent body of a significant Australian Government mainstream program with an explicit mandate to address Indigenous disadvantage. Yet the Review appears to have been shelved, its recommendations hidden, and no action taken.

It is not clear why the Government has not released the Commission’s Report. It is however clear that shortfalls and deficiencies in the arrangements for funding local government services by the Commonwealth are having an adverse impact on remote citizens, most of whom are Indigenous. It is time that the Commonwealth put its shoulder to this wheel.

A first step would be to provide the Australian public and relevant stakeholders with the benefit of the Commonwealth Grants Commission’s report on these issues. A second step would be to provide an Australian Government Response. A third would be to initiate public discussion and dialogue around options for reform.

The importance of effective local government services for remote communities has been increased by the policy shifts under the present Government (achieved through one off financial incentives to key states and territories) to confirm that states and territories should take on responsibility for the provision of essential services in remote communities. These are largely services that are delivered by local government. See my previous post on this issue in relation to Western Australia here.

The fact that important issues relating to the effectiveness of local government and essential services funding for remote communities can be effectively ignored and receive no public attention raises questions regarding the effectiveness of parliamentary oversight (the Senate Estimates Cross Portfolio arrangement does not include the agencies which deal with local government), and the effectiveness of key stakeholder groups. There is no peak body for remote local governments, the Australian Local Government Association appears to be a creature of the hundreds of local governments throughout settled Australia (and thus does not appear to advocate enthusiastically for remote services), and peak Indigenous bodies appear not to have a focus on monitoring key developments in local government.


Of course, one would hope that the Minister for Indigenous Affairs and his Department would play an active role in encouraging other agencies and portfolio ministers to drive positive reform for Indigenous Australians. Based on the outcomes to date on this issue, the performance of the Indigenous affairs portfolio has been less than optimal.