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Tuesday, 30 May 2000
Page: 16582


Mr SOMLYAY (8:45 PM) —I am very pleased to be able to speak on the Local Government (Financial Assistance) Amendment Bill 2000. It has significance for me, as I was the Minister for Regional Development, Territories and Local Government at the time of the last federal election. The words `local government' do not describe the variety and the differences among local authorities right across this country. Local government is a creature of the states. Local government operates under state legislation in each state. I used to draw a comparison, when I was in Western Australia, between an electorate like Curtin in Western Australia—which at the time was 97 square kilometres in size and had within it, wholly or partially, 12 local authorities—and a local authority in Queensland which had 140 ratepayers and is slightly bigger than Belgium. That is a stark contrast, and it is very difficult for federal government to devise a scheme or a program to meet the needs of local councils right across the country because of the diverse nature of their problems. Some of the big councils in Sydney have a large rate base and a large population and Commonwealth financial assistance grants are only a minute part of their budget, but in the west and the north of Queensland the financial assistance grants provided by the Commonwealth are very much of significance.

Local government in Australia has long called for recognition in the Constitution. When I was the minister, the ALGA and all the state organisations were pushing for that recognition. We have had two referenda on that question which, for reasons peculiar to the conduct of referenda in Australia, were not passed. My answer to local authorities was that it was not my gift to give. It is not the gift of the Commonwealth to give recognition in the Constitution to local authorities. We tell the local authorities that they should convince their states to support recognition for local government in the Constitution. If each state supports it, there will be some chance that constitutional change could come about. But, knowing the history of this country, if there is any significant opposition to constitutional referenda, it will not be passed—and it was not, as I said, on two occasions.

When the government brought out the A New Tax System, the total revenue from the GST was to do away with general purpose grants to the states, including the financial assistance grants to local government. That made sense at the time. Local government was a creature of the states. It was only logical that the local government grants—the financial assistance grants—that the Commonwealth had paid in the past should be paid by the states, and part of the agreement with the states was that, from their GST revenue, they would maintain the real value of the financial assistance grants that local government had received. They would have been no worse off. Unfortunately, as we all know, the A New Tax System did not have the support of the Labor Party in this House or in the Senate, and the government was forced to compromise with the Australian Democrats and maintain direct Commonwealth responsibility for the provision of these financial assistance grants.

Here is a bit of history of the assistance to local government. The Commonwealth has provided general purpose assistance through the states to local governments since 1974-75. Currently, local government assistance takes the form of financial assistance grants which are untied, and untied road funding. However, the bases for the level and distribution of this assistance have changed throughout time. For 1974-75 and 1975-76, the Commonwealth Grants Commission assessed the size and distribution of grants and the then Labor government accepted the commission's recommendations. The main principle the Commonwealth Grants Commission used for intergovernment council distribution was horizontal fiscal equalisation. In 1976 the Fraser government passed the Local Government (Personal Income Tax Sharing) Act. Under this act, local government was entitled to specify the percentage of net personal income tax revenue received in the previous year. This again changed over time. The linkage was retained in the Local Government (Financial Assistance) Act 1995, the legislation under which the Commonwealth now provides assistance to local government. This act provides for local government financial assistance grants and road funding—the road funding to be increased each year in accordance with the escalation factor. The Treasurer determines this factor in line with the underlying movement in general revenue assistance to the states, and the escalation factor reflects, and has reflected, the percentage increase in state financial assistance grants in the current year. The state financial assistance grants in turn reflect indexation for population growth and change in the consumer price index.

The honourable member for Melbourne pointed out that in the financial year of 1996 this escalation factor was frozen for 12 months by the government. At the time, this meant that $15 million was not passed on in terms of the financial assistance grants that the states would normally have got. That was local government's contribution to bringing the budget back into surplus. In 1996, when the government came to power, we found that rather than being in surplus we had a $10 billion to $12 billion deficit and it was necessary for every government department and every program right across the board to make savings to pay for the deficit that was left behind by the current Leader of the Opposition. Local government had to make this contribution and did. From 1 July 2000, the Commonwealth will cease to pay financial assistance grants to the states, as I have said before, and will replace them with revenue from the goods and services tax. Consequently, the link between local government assistance and general revenue assistance to the states will be severed.

With regard to local road funding and identified road grants, until 1991-92, the states passed on to local governments a substantial amount of specific purpose assistance. The main component was for local roads. The October 1990 special Premiers Conference agreed to untie local road funding and, in 1991-92, this funding was absorbed into local government general revenue assistance. While conditions no longer apply to road grants, they continue to be separately identified as `identified road grants', because road grants are distributed differently to local government financial assistance grants. The states' grants commissions determine the intrastate distribution of both financial assistance grants and road funding on the basis of fiscal equalisation. Local government road funding is now distributed among the states on the basis of criteria established under the Australian Land Transport Development Act 1988.

In reforming Commonwealth-state financial relations, the Howard government, as part of its reforms of the taxation system, proposed that the states and the Northern Territory assume responsibility for providing general purpose assistance to local government. On 9 April 1999 at the Premiers Conference, the heads of government signed the Intergovernmental Agreement on the Reform of Commonwealth-State Financial Relations, which provided, among other things, that states would assume responsibility for funding to local government. To ensure that funding was adequate, the states undertook to maintain growth in local government general purpose assistance on a real per capita basis and to meet existing Commonwealth conditions on the payment of assistance.

Local governments generally opposed transferring responsibility from the Commonwealth. Local governments like to deal with the Commonwealth. Even though they criticise the level of assistance, they prefer to deal with the Commonwealth than with their own state. Their main concern was that they would incur a reduction in funding. In particular, local governments were concerned that state governments would renege on the undertaking with the Commonwealth and, should that happen, the Commonwealth would not support local government. Another concern was that local government funding would fall behind the funding of other sections of the community. While indexation for population growth and inflation places a `floor' under assistance, indexation does not provide any real growth. Local governments were concerned that they would be further disadvantaged by the GST.

Then came the agreement on the GST following negotiations with the Australian Democrats following the rejection by the Senate of the initial proposed GST legislation. The government negotiated a revised package with the Australian Democrats and, under the terms of the agreement that was reached on 31 May 1999, the government agreed that the Commonwealth would retain responsibility for the payment of these grants to local government. The Local Government (Financial Assistance) Amendment Bill 2000, which is before us at the moment, is the outcome of that process.

The Intergovernmental Agreement on the Reform of Commonwealth-State Financial Relations was revised to take account of the changes to the GST agreed between the government and the Australian Democrats. Clause 17 of the revised agreement states:

The parties intend that the Commonwealth, States, Territories and local government and their statutory corporations will operate as if they were subject to the GST legislation.

This clause was inserted so that the government would be subject to the same requirements as other organisations and bodies. Clause 18 of the revised agreement states:

The Commonwealth will legislate to require the States and the Northern Territory to withhold from any local government authority being in breach of Clause 17 a sum representing the amount of unpaid voluntary or notional GST payments. Amounts withheld will form part of the GST revenue pool.

This clause has been inserted to ensure that local governments cannot benefit from Commonwealth assistance if they have not complied with clause 17. I am pleased that the opposition will support this bill.

I turn to the Queensland situation because it is very dear to my electorate. When the Local Government Association of Queensland negotiated with the Peter Beattie government—this was back when the initial package was proposed and the states would take over responsibility for the payment of the financial assistance grants—the Beattie government offered local government in Queensland a fixed proportion of GST revenue. The ALGA and the various state organisations have for a long time tried to negotiate with the Commonwealth to get a fixed share of revenue. The Peter Beattie government offered local government in Queensland a fixed share of GST revenue. Because of the need to negotiate with the Democrats and because the responsibility for the payment of the financial assistance grants reverted to the Commonwealth, the Beattie government did not go ahead with this arrangement with local government in Queensland and then blamed the Commonwealth because the legislation needed to be amended.

It is well within the power of the Beattie government, or any other state government, to top up financial assistance grants from the Commonwealth to the state by however much they wish to. If the Beattie government wish to provide local government in Queensland with a fixed share of revenue from the GST, it is still within their power to do so. When the negotiations with the Democrats were complete, the Peter Beattie government reneged on that arrangement and disappointed local government in Queensland. They still have the option to provide Queensland with a fixed share of revenue. That is a growth revenue and would provide certainty to the funding that these councils get. I commend the bill to the House.